Key changes to unit title developments from new act

Over the last 20 years, unit title owners have been burned by unscrupulous property developers and indifferent property managers and held to ransom in the body corporate by recalcitrant minorities. 

The Unit Titles Act 2010 is designed to deal to these problems.  It is complicated, having 204 provisions compared to just 64 for the 1972 legislation.  But will it work?

This Brief Counsel analyses the new Act.

Unit title developments comprise principal units, accessory units, future development units and common property.  Each principal unit owner becomes a member of the body corporate.  The body corporate provides the overarching governance and management for the unit title development.

Key changes relating to ownership rights and obligations

A principal title holder may now make changes to his or her own unit without the consent of the body corporate if the change will not materially affect another unit or the common property.  Body corporate consent is still required where there will be a material effect but the Act specifies that consents must not be unreasonably withheld.

Unit entitlements are replaced with ownership interests and utility interests:

  • the ownership interest is based on the value of the principal unit relative to the whole and affects the holder’s beneficial interest in the common property, voting rights, share in the underlying fee simple (known as the “base land”), levy for the capital improvement fund (if any), ground rental liability and share of body corporate liability, and

  • the utility interest (which is initially the same as the ownership interest) determines the holder’s contribution to repairs, the long term maintenance fund (if any), the contingency fund (if any) and the operating account. 

The body corporate can reassess ownership interests by special resolution (a 75% vote) but the interest must reflect the value of the unit and the utility interest can only be reassessed on a “fair and equitable basis”. 

Also in the spirit of ensuring that the load is shared fairly, owners of future development units (FDUs) are – in return for paying the same levies as would a principal unit owner - treated as a body corporate member for certain provisions (the sale of common property, additions to common property, body corporate rule changes etc).

The body corporate will now own the common property (including access lots) with powers on special resolution to lease it, sell it or add to it and to deal with easements and covenants on the underlying land. 

Absentee owners are dealt with by a new obligation requiring them to appoint an agent when absent from New Zealand for more than three weeks. 

The content of the default body corporate rules has not yet been promulgated.  The body corporate will be able to modify these rules but only in a limited fashion.  The Act leaves a significant amount of detail to be introduced through regulations.  There has been criticism that the Bill could not be commented on properly when so much was left out.

Key changes relating to development rules

Staged developments have been made easier by express direction to territorial authorities that a section 224 (c) Resource Management Act 1991 certificate may be issued for each stage of a staged development notwithstanding that full compliance with subdivision resource consents will not be satisfied until later.

A new concept of layered development is introduced for large or mixed use unit title developments where there is an overarching body corporate comprised of subsidiary bodies  corporate, each responsible for their own precinct.

Redevelopment is also made easier by allowing for simple boundary adjustments to be dealt with on the application of the affected parties and without the need to obtain unanimous consent.

Body corporate repair and leaky buildings

A key area requiring attention has been the ability of bodies corporate to maintain the integrity and weather tightness of unit title developments.  The new Act addresses this by making it clear that the body corporate is obliged to maintain, repair and renew all building elements and infrastructure that relates to more than one unit regardless of whether the repair is to part of a unit within the unit boundaries.  The cost of such repair can be recovered from the benefitting principal unit owner (or where caused by the fault of a unit owner, that owner).

The new Act also provides for a range of funds:

  • a capital improvements fund

  • a contingency fund, and

  • a long term maintenance fund.

All funds are optional.  However, the body corporate must have a long term maintenance plan which is reviewable at least every ten years.  Bodies corporate will also be subject to a higher level of scrutiny with financial records and auditing requirements.

Body corporate governance

The new Act does away with the unanimous vote requirement for significant decisions and allows material body corporate decisions to be passed by 75% of the ownership interest for special resolutions or 50% if the resolution is ordinary. 

There is now a statutory obligation to obtain the written consent of mortgagees, where required, under mortgage documents prior to voting.  A principal unit owner will not be entitled to vote unless all levies are paid.  Resolutions in lieu of meeting are permissible provided that the requisite number of voters (whether it’s an ordinary or special resolution) sign the resolution.  The quorum for body corporate meetings has been dropped from 33.3% to 25% of eligible voters.

Where a special resolution is required but not passed and 65% of the eligible voters voted in favour, a principal unit owner may apply to the relevant decision-maker (be it the Tenancy Tribunal, District Court or High Court) to confirm the resolution on the grounds that failure to pass the resolution would be unjust or inequitable.  Conversely, a minority who did not vote in favour of a resolution which was passed may, with respect to certain resolutions, apply for relief (which may include compensation awards, injunctions, work orders etc).  The applications for relief must be made strictly within a 28 day time period. 

Certain significant resolutions labelled “designated resolutions” are to be notified to unit owners and persons with registered interests.  Those persons will also have a 28 day window to object and apply for relief. 

The new Act removes the exclusive jurisdiction of the High Court to hear unit title disputes.  The Tenancy Tribunal may now hear disputes up to $50,000; the District Court to $200,000 and where insurance proceeds are at issue, and the High Court over $200,000 and disputes as to title.

Rights in relation to the developer

Bodies corporate can apply for harsh or unconscionable service contracts entered while the developer was in control to be quashed by tribunal or court order.  The courts can also order the developer to pay compensation.

At the expiry of the developer control period, (being the period until the developer has less than 75% of the body corporate costs) the developer must provide a turnover disclosure statement advising of any interest the developer has in any contracts entered into by the body corporate.

Disclosure to unit buyers

A material and perhaps over the top change has been made to the rules relating to disclosure (which) have been strengthened and extended to provide for:

  • a pre-contract disclosure

  • a pre-settlement disclosure, and

  • additional disclosure at the buyer’s request.

The pre-settlement disclosure can be withheld by the body corporate if the owner has outstanding levies.  Where the owner is unable to provide the disclosure statement within the timeframe, a buyer may defer settlement until five working days after the last disclosure statement has been provided or cancel on ten days’ notice.  The form of the disclosure statements is to be set out in regulations.  Vendors may not contract out of these obligations.

Retirement villages and time share resorts

The Select Committee has listened to complaints that the Act will conflict with the retirement villages legislation and with the practical reality of time-share resorts and has modified certain aspects of the new regime to accommodate these concerns. 

Where to from here?

The Act will commence on such date as is appointed by the Governor-General by Order-in-Council.  This flexibility has been inserted to allow the legislature to prepare the necessary regulations to be promulgated under the Act.  There will be a further 15 month delay before the long term maintenance plan and fund obligations and the new body corporate maintenance duties take effect (unless a body corporate decides otherwise by a special resolution).

For more information please contact the lawyers featured.

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