Submissions on the Unit Titles Bill (the Bill) close on 24 April. The Bill has important implications for all those with an interest in unit title developments – owners, bodies corporate and their managers, developers, landlords and tenants. In our view, the changes go a long way toward addressing the problems in the current badly outdated regime but there is scope for further improvement.
Key changes to the Unit Titles Act 1972
Ownership of common property
The Body Corporate (the BC) will own all common property. At present, the common parts are held by all of the unit owners and tenants in common. This is an unwieldy arrangement which makes effective management difficult. The definition of common property is to be broadened to include building elements that affect more than one unit and make the BC responsible to repair and maintain them. Other related proposals would allow the BC to deal with the grant and/or removal of easements and covenants relating to the underlying land.
This is a new concept that allows for large, staged, or mixed-use unit title developments to be layered. An apartment block, shopping centre and carpark building in a multi-use development could each have its own subsidiary BC to manage the particular interests relevant to each group of unit title owners, with each subsidiary BC being a member of the head BC. Hand in hand with this are other proposals regarding staged developments and a new approach to future development units to allow for greater flexibility and fairness.
Relaxation of requirement for unanimous decisions
Rather than unanimity, BC decisions will require a 75% majority among those who are entitled to vote at a BC meeting. This covers voting on issues such as redevelopments, amendments to the unit title plan, and the grant and cancellation of easements and covenants. Dissenting minorities can apply to the Tenancy Tribunal or the Court (depending on jurisdiction) for relief where the effect of the decision would be unjust or inequitable on any member of the minority.
Arguably the most fundamental flaw of the current Act is the complete inflexibility around the unit entitlement in relation to how much owners contribute towards BC costs and voting rights. The Bill proposes to address this by:
- dividing the unit entitlement into two separate elements:
- an "ownership interest", which is determined by reference to the relative value of a unit and is used to determine the beneficial interest in common property, voting rights, capital improvement fund levies or surpluses, and
- a "utility interest", which is determined by the extent to which a unit owner uses the shared facilities and services and is used to determine contributions to long-term maintenance funds and the operating account to fund day-to-day operating expenses. The "utility interest" is by default the same as the "ownership interest" unless reviewed by the BC, and
- enabling the BC to review and change a unit owner's unit entitlement on passing a special resolution at a general meeting.
Long-term management plans and funds
The Bill proposes a regime for establishing long-term maintenance plans and funds to protect the value of the development and to enable the unit owners to plan for and pay a regular amount towards future maintenance over time. The Bill proposes four new funds:
- a compulsory operating fund, much the same as the operating account operated by a BC under the current Act
- a compulsory long-term maintenance fund to cover budgeted maintenance over a 10-year period
- an optional contingency fund to cover unbudgeted expenditure that was not anticipated for inclusion in the long-term maintenance fund, and
- an optional capital improvement fund to cover improvements and upgrades of the development.
Definition of principal unit
In a bid to create certainty on whether a principal unit must include a building, the Bill proposes that a principal unit must either contain a building or be contained in a building.
Changes which Chapman Tripp considers would strengthen the Bill by allowing for greater flexibility include:
- widening the definition of principal unit to include "open space units" such as carparks and other situations in which a principal unit may not be allied to a building or part of a building, and where designation as an ancillary unit is not desirable because the unit needs to be marketable in its own right, and
- limited opt out for smaller developments. The Department of Building and Housing estimates that around 88% of all unit titled developments have nine or fewer units, and that around 77% of these are residential. It may be appropriate for the BC of a small residential development to have a limited opt out, or a set of alternative provisions, so that it is not encumbered by excessively oppressive decision-making processes and management burdens and to reflect what is likely to happen in practice anyway.
The Bill had its first reading in Parliament on 5 March 2009 and has been sent to the Social Services Select Committee (the Select Committee) for consideration. The trend toward unit title developments has been rapid and is likely to accelerate further with the drift toward apartment living so it is important that the Bill "gets it right" and the committee process provides the opportunity to do that.
Chapman Tripp considers that there may be scope to consolidate submissions where submitters have similar views on the Bill and where this approach would deliver extra effect.
If you are interested in exploring this idea, or for assistance in drafting your own submission, please contact your usual Chapman Tripp advisor.
Looking further ahead, existing bodies corporate will have 15 months upon enactment of the Bill to bring themselves in line with the provisions of the new Act. The BC and all who have an interest in unit title developments must consider what steps they will need to take to comply with the new regime, and whether they wish to opt into it well before the end of the transitional period.
Chapman Tripp will prepare a guideline summarising the changes that need to be made.