Unit titles are the most widely used form of multi-unit property ownership. Typical examples of unit title developments include apartment blocks, units, townhouses, office blocks and industrial or retail complexes. The owners in a unit title development own a defined part of the building, for example an apartment or unit, and may also have shared ownership in common areas such as lobbies, lifts and driveways.
It is important to realise that the combination of individual and shared ownership of land and buildings necessarily means that ownership of a unit title entails a different set of rights and responsibilities compared to the traditional concept of house and land ownership. Unit title developments have a body corporate management structure, and all the unit owners collectively make up the body corporate. The body corporate assumes responsibility for a range of matters, including the management, finance and administration of the common property and the building as a whole, and ensures that decisions affecting the development can be made jointly by the unit owners.
There have been numerous changes to the scale and nature of property developments in New Zealand since the original Unit Titles Act came into force in 1972. As a consequence the old Act became out-dated and the new legislation now provides the basis for the creation and sustainable management of intensive, multi-unit developments.
The Unit Titles Act 2010 (“the Act”) came into force on 20 June 2011. The majority of the provisions of the Act apply from that date, and the other provisions apply from the end of a 15 month transition period which started on 20 June 2011 and will end on 1 October 2012. The purpose of the transition period is to give bodies corporate the opportunity to prepare for the new default body corporate operational rules and the new maintenance requirements contained in the Act. In effect the Act provides the framework, whereas the Unit Title Regulations 2011 (“the Regulations”) provide the guide as to what people have to do. The Regulations deal with matters pertaining to administration, governance, democracy, finance, disclosure and forms and certificates.
Body corporate rules
Existing body corporate rules made under the old Act will continue to apply until 1 October 2012, although many of the provisions in the existing rules are overridden by the new Act. The old Act contained schedules which set out the default body corporate rules. The default body corporate operational rules are now set out in the Regulations. Provisions in the new Act and Regulations that override the corresponding provisions in existing body corporate rules include provisions relating to the duties of owners and the body corporate, the operation of the committee, and meetings and voting.
The new default operational rules will apply from 1 October 2012. Obviously bodies corporate will be able to revoke, amend or add to the default rules set out in the Regulations. Unit owners should make sure that they have the most up-to-date copy of the rules that apply to their development. It is recommended that the transition period be used to prepare any changes to the new rules that may be considered necessary. Bodies corporate are also able to opt into the new default rules at any time before 1 October 2012. They should be aware that matters that were in the existing rules and are now set out in the new Act or the Regulations cannot be changed.
With regard to maintenance requirements, the default body corporate rules in the old Act provide that the body corporate is responsible for maintaining the common property and utilities serving the Units. The new Act expands the maintenance requirements for bodies corporate, but in respect of existing developments the new requirements only apply from 1 October 2012. It is possible to opt into the new requirements earlier.
Once the transition period has expired, the body corporate’s responsibility for maintenance will entail the common property and all building elements and infrastructure which serve more than one unit. Importantly, it will also be a requirement for bodies corporate to set up a long-term maintenance plan which covers at least 10 years and establish a fund for that plan. The plan must be updated at least once every 3 years.
Bodies corporate have a number of financial powers and responsibilities under the new Act. They must keep accounting records, detailing all the financial transactions of the body corporate, and use these records to prepare financial statements (including financial position, income and expenditure, explanatory material and notes). An operating account must be established, and is used to meet the operational expenses that relate to the unit title development. The new Regulations contain some restrictions on unbudgeted spending from the operating account, only allowing unbudgeted spending if it is under 10% of the annual budget.
Buying and selling a unit – disclosure
Buying and selling a unit in a unit title development is more complicated than a traditional house purchase, as there are additional rights and responsibilities to consider, more people involved and ongoing financial commitments of the body corporate. Accordingly the requirement of disclosure is important to enable the buyer to make an informed decision. Under the new Act sellers of unit titles are obliged to provide prospective buyers with a series of disclosure statements to facilitate an informed purchase decision.
The new Act provides for three types of disclosure. Firstly, the pre-contract disclosure statement which the seller provides before entering into an agreement for sale and purchase and contains basic information about the unit title and some specific information about the unit/development. Secondly, the pre-settlement disclosure statement which the seller provides after entering the agreement for sale and purchase but before settlement and contains financial information about the unit, levies etc. Thirdly, an additional disclosure statement which the seller provides on request of the buyer and contains key information about the development, financial statements, long-term maintenance plans, contracts and insurance. The new Regulations prescribe the specific information that must be provided in each disclosure statement.
There are various other aspects which are dealt with under the new Act and Regulations. These include how to call a meeting, what you might want to consider at your first AGM following 20 June 2011, the role of the chairperson, committee members and representatives, and how to deal with disputes.
The new Act and Regulations have been designed to be user-friendly and to better facilitate the management of unit title developments. However there are more responsibilities placed upon unit owners and bodies corporate and it is important to ensure that you are aware of these.
Please feel free to contact Ian Mellett (BComm LLB H Dip Tax) at Auckland law firm Quay Law on (09) 523 2408 or email@example.com for more information. Our website address is www.quaylaw.co.nz and our blog for regular NZ law tips and updates is www.aucklandlawfirm.co.nz.