Unit Titles Act – changes afoot to modernise and strengthen existing legislation

The Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Bill (“the Bill”) was introduced into Parliament in July 2020. The Bill received its first reading on 10th March 2021 and has now progressed to the select committee for further scrutiny.  At this point in time, the Bill looks likely to pass into law in the last quarter of 2021.

The Bill is intended to strike a balance between the benefits of additional compliance requirements and any costs that these may impose. To that end, the bill proposes to:

• Improve the information disclosure regime to prospective buyers of units;

• Strengthen the governance arrangements in relation to a body corporate;

• Increase the professionalism and standards of body corporate managers, and

• Ensure that planning and funding of long-term maintenance projects is adequate and proportionate to the size of the complex concerned.

The changes are designed to bring about more modern and coherent updates to the current Unit Titles Act 2010. With more high density dwelling approvals issuing, increases in migration (post Covid) and projected growth forecasts in the long term, together with a housing market that has some of the most expensive real estate globally (on an income to value basis), there is a real need for the proposed reforms to be implemented in interests of making apartment living a more attractive and viable option for buyers and investors, particularly in major centres such as Auckland and Wellington, where, over the past 15 years apartment complexes have sprouted like wild mushrooms.

This article will look at some of the key changes outlined in the Bill.

Disclosure regime

From a buyer investor viewpoint, an important amendment to the current legislation are the changes to disclosure requirements in respect of both pre-contract disclosure and pre-settlement disclosure statements. Importantly, the proposed changes also provide prospective buyers/investors with greater rights to delay or cancel settlement in the instance that pre-contract disclosure statements are provided incomplete, or where they have not been provided at all (the same also applies where a request has been made for an additional disclosure statements). 

The changes to the regime in this respect will provide buyers with greater transparency during the due diligence process, but conversely also mean that developers, in particular (and consequently any lender), could be adversely impacted by the changes, largely because there is a greater risk agreements could be cancelled as a result.

Under the Bill all disclosure statements would be required to be endorsed by the body corporate (or developer) as being correct.  The current position is that vendors are only required to sign the pre-contract disclosure statement without any certification from the Body Corporate.  Whilst, on the other hand, a pre-settlement disclosure certificate provided by the Body Corporate confirms that disclosure statement is correct, but not for any other types of disclosure. 

For most people, critical decision-making on whether to proceed with the purchase of a unit is generally made on the basis of information received about the unit complex and body corporate, some of that information is contained in the pre-contract disclosure statement (but not all of it) and as a consequence more often than not, requests for additional information are required from the body corporate. 

To remedy this, the Bill proposes that in addition to the requirement that all disclosure statements are endorsed by the body corporate, additional information would be provided in the pre-contract disclosure statement in the interest of transparency and proper disclosure so that prospective buyers and investors are fully informed from the outset. Additional information that is to be included as part of that disclosure is: 

• whether any part of the unit title development has weather tightness issues the subject of a claim or remediated without a claim, or earthquake-prone issues;

• whether the body corporate is involved in legal proceedings;

• financial statements or audit reports for the last seven years;

• notices and minutes of meetings for the last three years including all supporting documentation;

• the name and contact details of the body corporate manager;

• Body corporate levies for the unit for the current financial year;

• details of any outstanding amounts;

• details of any amounts held in credit for the unit;

• proposed works under the long-term maintenance plan for the next three years and estimated costs;

• the next review date for the long-term maintenance plan; and

• a summary of insurance held by the body corporate including the insurer’s contact details, the type of cover, premium, excess, specific exclusions, and statement as to where or how to view the policy.

It should be noted, that specific other information is also required as part of disclosure in instances of off-the-plans sales contracts.

Body Corporate Managers and Governance 

Interestingly, current legislation does not include a reference to a “Body Corporate Manager”.  The Bill corrects this by defining the role of a body corporate manager and setting out their functions and duties, which include a duty to act in the best interests of the body corporate. Importantly, Body corporate managers must also be members of an industry body. The requirement to be a member of an industry body adds another layer of professionalism and accountability for body corporate manager’s, which should translate into owners and investors receiving a higher standard of proficiency and service in this area.

In addition to the above, and as part of strengthening of governance, the Bill introduces a number of mandatory requirements, for example a body corporate must now have a code of conduct for its body corporate committees; it must also maintain an asset register (which must be made available for inspection by committee members on request), and it must ensure that there is a robust process for dealing any conflicts of interest.

Unit Title Disputes

The bill also sets about reducing fees for unit title disputes in the Tenancy Tribunal which will be appealing to owners, so that: 

• matters referred to mediation ($600 or $300 shared between the parties); and

• matters referred to hearing ($1,000 or $600 shared between the parties unless a party has refused mediation, in which case that party is responsible for the fee).

Utility Interests

The bill also seeks to strike a balance by allowing utility interests to be apportioned between owners on the basis of a single uniform interest, or a series of interests relating to a particular service or amenity. This will be relevant in instances of mixed use residential and commercial, where parties access different utility interests, in turn this should make levying owners for utilities much fairer.

Large and Medium Residential Developments

The Bill recognises the distinction between large (30 residential units) and medium (10 -20 residential units) and imposes certain rules accordingly, the most significant of these rules require that both large and medium developments have: 

• a 30 year long term maintenance plan, reviewable every three years or earlier in any instance the body corporate becomes aware of something that may impact the long-term maintenance plan;

• the long-term maintenance plan must also be peer reviewed by a suitably qualified and experienced professional (though notably medium residential developments are able to opt out of this requirement) and,

• a body corporate must have a long-term maintenance fund, and it must audit long-term maintenance.

The updated requirements for a long-term maintenance plan will assist buyers to immediately identify any potential defects, or issues in relation to the unit and development as a whole during a due diligence period, and it also provides an opportunity for prospective owners to review servicing costs, third-party contractors, and other stakeholder pricing and engagement as part of the proposed long-term budget. This in turn will enable buyers to gauge what recovery of those costs might look like as a levy on the unit down the track. 

For investor buyers looking to add an apartment to their portfolio the Bill appears to deliver on its objectives in areas of strengthening of governance and importantly in areas of transparency at pre-contract disclosure level. These positive changes will reduce risk to prospective investors so an informed decision can be made more quickly on whether the investment is in fact a suitable and a viable investment long term, without having to expend significant time and expense on probing for further information.

If you have a property investment related issue/query please call Michelle Igasan on 571 3660 or email michellei@harristate.co.nz

This article was written for the recent Tauranga Property Investors Association (TPIA) magazine by Michelle Igasan, Associate Solicitor at Harris Tate.  Michelle is also a TPIA Committee member.

Disclaimer: This article is general in nature and should not be treated as professional advice. It is recommended that you consult your advisor. No liability is assumed by Harris Tate Limited for any losses suffered by any person relying directly or indirectly upon the article above.