Bodies corporate on way home at last from another country

This article first appeared in the Dominion Post on 20 April 2009.

Go to a dinner party in the CBD of any of our major cities and the chances are that at some stage the conversation will turn to bodies corporate.

Generally the comments will be critical, not surprising given that the statute governing apartments and other multi-unit buildings dates back to 1972 and, as anyone who watches Life on Mars knows, the 1970s were another country. Bell-bottoms were all the rage and unit title residential properties were relatively rare and tended to comprise only three or four units.

But now developments can involve many owners. The larger the development, the more problematic the  requirement under the existing Unit Titles Act that body corporate decisions have unanimous support as one or two "hold-outs" can frustrate the majority's will.

The only way to break the impasse is through recourse to the court but the threshold is high and the result unpredictable. The applicants need to establish that the decision in question has more than 80 per cent support, in which case the court has the discretion to declare that the vote is sufficient for the resolution to be deemed to have been passed unanimously.

As a form of redress, this is cumbersome, time-consuming and expensive. Better processes are needed. The good news is that they are on their way, as the legislation is being updated. Although National inherited the Unit Titles Bill from the former Labour government, it is moving on it with a real sense of commitment. The bill has been referred to the social services select committee for consideration. The deadline for submissions is April 24.

So overdue and so generally sensible are the reforms that the bill has support across the House. The basic problem with the existing framework in relation to the body corporate is that the law does not give it the tools to do its job effectively. This can  lead to inadequate building maintenance, time consuming and uncertain decision making and poor dispute resolution between unit title owners.

The bill proposes remedies. The body corporate will own all common property, such as lobbies and lifts. At present these assets are jointly owned by all the title holders, an unwieldy arrangement that impedes effective management. The body corporate will be responsible for repairing problems, such as a leaky roof, that affect more than one unit. Body corporate decisions will require only 75 per cent rather than unanimous support among those who are entitled to vote at the meeting.

The rights and responsibilities of all parties will be clarified. Unit title holders will have access to the dispute mediation and adjudication services of the Tenancy Tribunal. In circumstances where the tribunal lacks jurisdiction, the dissenting minority can apply to the court for relief on the grounds that the effect of the majority decision would be unjust and inequitable. The court can confirm the resolution or overturn it and can award compensation either to the objector or, where the objection fails, to the body corporate. The bill provides for two compulsory funds - one to cover operational expenses and the other to cover budgeted maintenance over a 10-year period. There is also provision for two optional funds, one to cover unanticipated maintenance expenditure and the other for capital improvements.

Arguably the most fundamental flaw of the current act is the complete inflexibility around how much owners contribute to body corporate costs and voting rights. The bill divides unit entitlement into two elements - an "ownership interest" and a "utility interest" and allows for a distinction to be drawn between the two through special resolution of a general meeting. The ownership interest will reflect the relative value of the unit. It will be used to work out voting rights and the holder's beneficial interest in common property and in capital improvement fund levies or surpluses. The utility interest will determine contributions to long-term maintenance funds and toward the operating account to cover daily expenses.

The bill is to be welcomed. It should improve the apartment living experience by better equipping the body corporate to carry out the functions required of it.

The views expressed in this article are those of Jeff Walters and may or may not reflect those of the firm or its clients.

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