Developers warned to get body corporate service contracts right!

Property

The regeneration of Christchurch's CBD is planned to include many Unit Title developments, both commercial and residential. This articles gives a few tips on requirements for developers as original owners and how to put in place a successful body corporates to keep those developments in shape.

Intentional increase in the number of Body Corporate Developments
The Christchurch central city regeneration is taking shape with more and more businesses now opening.  This year seems to be a tipping point with a forecasted 10,000 office workers to be situated within 300 metres of the corner of Colombo Street and Cashel Mall by early 2017. 

To support business growth and development in the inner city, the Christchurch City Development Unit is actively promoting attractive inner city neighbourhoods, while the now disestablished Canterbury Earthquake Recovery Authority had a vision of 20,000 inner city residents by 2020.

The new Unit Titles Act 2010 (Act) and Unit Titles Regulations 2011 (Regulations) overtook an out of date Unit Titles Act 1972 and were intended to assist with the more large scale and mixed developments for which the prior act had fallen short. 

Body Corporate developments create additional requirements
Many of Christchurch’s new inner city residential and mixed use developments will be Body Corporate developments using unit titles.  It is important that developers are aware of some of the requirements placed on them as original owners and to ensure setting a framework for a successful body corporate is put in place from the outset.

Service contracts must be of high quality
Following the deposit of a new unit plan, many service contracts are often entered into.  These can be wide ranging but common examples are professional body corporate managers, building managers, maintenance contracts etc.  It is important that these contracts are negotiated with skill, care and diligence.  A developer or their associates must, as the original owner, act in the best interests of the body corporate. 

Developers will face penalties for poor service contracts

If a service contract is entered into and:

  • the service contract is not fair and reasonable between the service provider and the body corporate; or

  • the terms of the contract are not appropriate for the particular development; or 

  • the powers and functions of the service provider are not appropriate for the development and affect the body corporate’s ability to carry out its functions;

then the newly formed post development body corporate may apply for compensation from the developer and/or apply for termination of the service contract.  Such applications for compensation can be made up to three years following the end of the control period.

Developers must take care
Developers should take care when entering into contracts at the time of development.  They are a necessary part of the running of the development but need to be fair.  Courts have discussed what can be considered as not “not fair” in this area.  The contracts should not give the service providers powers that exceed those afforded to them in the Act. 

Developers should carefully consider the terms of any service contracts.  For example, it does not appear reasonable to provide for a 10 year term with renewals from the outset of the development.  The rights in the contract should be balanced and not favouring the service provider.

Expert assistance available
Our team has considerable experience in this area and have acted for a number of Developers on body corporate developments.  Please contact us if you would like our assistance.

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Copyright © Cavell Leitch. All rights reserved. Redistribution is only permitted with express written permission. For enquiries please contact us. This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Cavell Leitch for advice specific to your situation.