Triggered by a report from property professionals, the Ministry of Business, Innovation & Employment (MBIE) have announced a review of the Unit Titles Act 2010 (Act). It is a timely review of the Act especially as the number of unit title complexes are increasing.
The objective of the review is to ensure that the law regulating unit titles is “functioning well and is fit for purpose in a growing market”. A discussion document has been released and written submissions on the proposals raised can be made by Friday, 3 March 2017.
We summarise the main areas for review as below.
There are already existing disclosure requirements to potential purchasers of a unit under the Act – pre-contract disclosure, additional disclosure and pre-settlement disclosure. The review aims to ensure purchasers have the best information available to them throughout their decision making process to purchase a unit.
At present, the main issues are:
The operation of the current disclosure regime results in purchasers not receiving all the information available due to time and cost constraints. In a growing and competitive market, purchasers are often unable to obtain additional disclosure prior to having to confirm their purchase.
There is no recourse available for a purchaser where disclosure is incorrect or incomplete.
If disclosure is not made a purchaser can cancel although it is not overly clear how this operates in practice.
The current disclosure does not work appropriately for off the plan units.
Often there is a lack of information or poorly maintained records to disclose.
It is clear some modification of the regime is needed as the bulk of the information to be disclosed (i.e. body corporate manager contacts, whether or not there are proceedings or weather-tightness issues, financial statements, body corporate and committee meeting minutes) should be prior to entry into a contract or very soon after it, certainly before the contract becomes unconditional.
Governance is an ongoing issue in many body corporates. The aim of the review is to enable owners to be effective decision makers regarding their respective developments.
The issues that have been identified are:
Provisions to address conflicts of interest at body corporate and committee level. There is no current provision in the Act to deal with this although it can arise often. At the very least it appears that the review suggests that conflicts are disclosed with consequences where a conflict is present.
More guidance is required from the body corporate committee to the owners in relation to their delegated powers and this should be reported more than annually. There should be guidance as to the role and responsibilities of body corporate committees. This may be more relevant to large scale developments.
Clarification of quorum, alteration to units and minority relief are required. There are some contradictory terms in the Act which require amendment or clarification.
There can be unfair use of proxy votes for body corporate decisions. At times a large number of proxies can be held by one person on behalf of absentee owners and can be a way of ensuring a certain decision is made. The suggestion is to limit the amount of proxies held by one person.
Lengthy and unfair contracts that the body corporate has no ability to terminate or renegotiate. Currently there is only an ability in respect of service contracts but perhaps should be expanded to consider all contracts.
Governance is often where problems arise in the day-to-day operation of the body corporate and development, especially in larger developments. Having clarity on some of the areas may make being part of a body corporate or body corporate committee easier for an owner.
Ensuring professionalism for body corporate management
It is now quite common for a body corporate to engage a body corporate manager. This can be very useful for ensuring the efficient and correct management of the body corporate. Managers in New Zealand are unregulated compared to Australia where there is an industry body running an accreditation and education programme.
The issues in this area largely relate to the reliance of the body corporate and/or body corporate committee on the manager in relation to information and compliance with the Act. This can be an issue where the manager acts outside of the scope of their contract, or mislead the body corporate. Further, there can be issues where the contract for the manger ends and they are then less than willing to provide previous information about the development.
The Ministry discusses in their paper the need to regulate managers to an extent – in particular requirements about holding accounts and providing information. They also suggest that it may be a requirement to have a manager in a development over a certain number of units.
Long term maintenance regime
A long term maintenance plan (LTMP) is a very important requirement of the Act. The rationale behind having such a plan is so current and prospective owners can appreciate the costs of owning a unit in that particular development, and the maintenance planned for the future.
The main issues that will be considered by the review are:
Is the 10 year period long enough? This doesn’t necessarily contemplate longer term maintenance issues like roofs which when replaced result in a large unexpected levy. It is suggested that 30 years would be more appropriate.
Often LTMP are prepared by developers or bodies corporate who have no qualifications or experience to create such a plan. This can result in items being missed and not budgeted for. It is proposed that the LTMP would need to be signed by a member of the New Zealand Institute of Building Surveyors, or Royal Institute of Chartered Surveyors, or Institute of Professional Engineers New Zealand.
There is no enforcement of the LTMP and even though they are a requirement under the Act many developments do not seem to have one. It is suggested an ombudsman or similar be set up to ensure compliance.
It is no uncommon currently to find a smaller development with no LTMP. While a development is still relatively new this may not be a major issue however as certain parts of the units and common property age, a LTMP is essential to ensure there is adequate funding to complete requirement maintenance and no unexpected and expensive cost is incurred. Arguably, this requirement is even more crucial in a larger scale development.
Disputes and resolution
Currently the Act provides for dispute resolution by way of self-resolution, mediation, the Tenancy Tribunal and access to courts. The review aims to provide cost effective access to an appropriate resolution process.
It is thought the application fee to the Tenancy Tribunal may be too high at present. The application fee ranges from $850-$3,300. The level of the fee can reduce the number of trivial claims. Further, often people are confused as to the involvement of the Tenancy Tribunal given the name suggests it deals with tenancies as opposed to issues under the Act.
The Tenancy Tribunal does not have the ability to enforce compliance with an order – this can limit the effectiveness of its decisions. To ensure an order is enforced parties are currently having to apply to the District Court.
Given there can be the potential for disputes with complex issues this is also an area that requires review to ensure that disputes can be addressed in a cost effective and timely manner.
There are significant areas of the Act that clearly require review. The Ministry as part of the discussion document have produced a number of questions to assist with their review and are calling for submissions. Should you wish to make a submission or discuss any of the specific issues further please do not hesitate to contact one of our commercial property experts.