Comment: Love thy (body corporate) neighbour?

Most apartment owners are likely to be blissfully unaware that a Bill before Parliament may turn the prudent advice of 'love thy neighbour' into Government fiat.

Inherited from the Labour government, the Unit Titles Bill (currently at Select Committee) concretes new obligations in place for unit owners which may alter the way we think about their ownership and increase due diligence when purchasing.

Those who claim the Bill is a product of the 'nanny state' are hopeful Minister for Regulatory Reform Rodney Hide will cut some of the red tape before the legislation is passed. While the Bill has had little public attention, appearances at the Select Committee included notables such as John Shewan, chairman of Pricewaterhouse Coopers.

Under the Bill, governance arrangements create a threshold of 75 per cent majority for body corporate special resolutions (cl 85) as well as the usual ordinary majority resolution (cl 84). Unit owners in the minority can be required by their body corporate to contribute separate amounts to three new funds - a long term maintenance fund, contingency fund and a capital improvement fund. What's more, the amount of these contributions is the amount the 75 per cent majority decides.

Body corporates appear to need to have separate bank accounts and cumbersome signing authority arrangements for each of the funds required by the Bill. Another potentially onerous feature of the Bill is a requirement that body corporates prepare a long term maintenance plan in accordance with regulations yet to be finalised.

Long term maintenance and improvement is an aspect of the Bill with fishhooks that may manifest themselves down the track. As the body corporate will be empowered to require all unit owners to contribute to a capital improvement fund to provide for additions and upgrades to the building, the practical reality is that a 75 per cent majority of unit owners will be able to make other owners help pay for the majority's "improvement" plans.

The fund for long term maintenance is similar. And what would happen to your share of the funds if you sell your unit or the majority invests them in a finance company that goes broke?

There's no doubt the Bill is a long overdue modernisation of the current 1972 Act written when most New Zealanders were largely unfamiliar with living in body corporate arrangements. But while the Bill appeared benign at first, concerns have been raised that provisions for the majority to compel the minority are not thought through.

Many unit title holders are elderly people with fixed incomes who have downsized in later life. Their capacity to raise funds is limited or nil.

A welcome accommodation is that buildings of 9 or fewer units are exempted from a few, but not all, of the Bill's requirements though it isn't clear why 9 should be a cut-off point. A better approach may be to allow exemptions from most of the requirements of the Bill for a building of any size if a specified majority of unit owners in that building agree.

As well as the objection to additional red tape, the concern about the legislation is philosophical. The Bill has many mandatory requirements but few opting out provisions where the unit owners unanimously agree they can manage their own property better.

And it would be thought outrageous if the Government required a freehold house owner to have specific funds and plans to satisfy regulations. Some owners have observed that there is no justification for the Government dictating the rules on keeping body corporate common property in a 'good state of repair' (cl 122) when it can't even maintain the same standards for itself and public works? Seen some of the older state houses lately? Taken a train ride?

The Bill's detractors acknowledge much of the Bill modernises outdated legislation but consider that highly prescriptive measures in the Bill will have the unintended effect of wide non-compliance with the law. They argue the legislation actually treats the owning of property - sacred to Kiwis - more like a school Board of Trustees with rules and regulations for governance rather than recognising age old property rights.

If you are a unit owner, or plan to be, you need to be aware of likely reform this year. Appropriate measures for body corporates to ensure compliance will be needed, but will have to await regulations yet to be drafted.

While the intent of the Bill is honest and many changes are beneficial, the mandatory provisions suggest a 'nanny state' legislation. National and ACT were highly attuned to this while on the Opposition benches. Those concerned by excessive legislative red tape hope the Government will re-cut Labour's Bill with a pair of 'laissez-faire scissors'.

See the Bill here:


Simon Arcus is a lawyer who has lived in Sydney and Auckland