Huge apartment law shake-up close to passing with unanimous support of Parliament

Buying an apartment could become less daunting as a result of sweeping changes that are likely to pass their third and final reading in Parliament shortly. The rules will govern the way tens of thousands of New Zealanders buy and sell unit titles like apartments, particularly as the Government ramps up efforts to get more people living in inner cities.

The bill has unanimous support, but two parties are concerned the legislation will not go far enough to limit the practice of proxy voting.

The changes amend the Unit Titles Act, which have been put in a Member's Bill in the name of National's Nicola Willis. It strengthens and modernises the regulations governing bodies corporate and will pass its third reading soon.

It has had a long gestation, having previously been championed by former MP Nikki Kaye and Judith Collins in opposition in 2018.

The bill is meant to fix some of the uncertainties and challenges that come with buying into unit title properties.

Issues could include sellers not properly disclosing issues with the property, poor management from body corporate managers, and the practice of "proxy farming", which involves title holders giving their votes to other owners, effectively giving the proxy farmer a bigger say on the complex's future than other owners.

Two thorny issues in particular broke the consensus around the bill: professionalisation of body corporate managers and proxy voting.

Proxy farming

Currently, people who own unit titles are able to delegate their body corporate votes to someone else. This is meant to help the body corporate function and to ensure meeting reach quorum. Proxy voting can be useful if the owners of units are overseas or in places where participating in the body corporate is difficult.

Where it becomes a problem is the practice of proxy farming, which is when one person collects the proxy votes of many owners and uses them to have an outsize say on the running of the complex.

Buying and living in an apartment could become easier thanks to new rules. Photo / Alex Burton

Green housing spokeswoman Chlöe Swarbrick said she has observed some egregious examples of proxy farming in her role as the MP for Auckland Central.

Proxy farming had led to what amounted to "corporate takeovers" of some buildings, Swarbrick said.

"I've seen pensioners who have been living in a building, which they thought would be their retirement community, and then a number of investors came along in effectively a corporate takeover."

In an attempt to maximise their return, those investors would skim on services that people living in the building wanted to pay for like security, and would defer maintenance.

Proxy voting limits were included in the bill as originally drafted by Willis. Officials at select committee recommended the limit be removed, which it was.

But National and the Greens both backed the reintroduction of limits on the number of proxy votes that could be collected, and drafted amendments to that effect.

An amendment by National housing spokesman Chris Bishop wanted a limit of acting for no more than two principal units if the development had fewer than 20 principal units, or more than 10 per cent of the total number of units, for any larger development.

Swarbrick's proposed amendment set a smaller threshold of no more than one unit in a development of fewer than 20 units, or 5 per cent of any larger development.

Both were voted down by Labour, who sided with the practice of proxy voting. Labour's Duncan Webb, who chaired the committee examining the bill, said that clamping down on proxy votes could be anti-democratic.

"The interesting thing with starting with trying to ban proxy votes is if you're trying to ban people from using your vote - it's undemocratic."

Webb said there was no evidence of "systemic" problems with proxy farming. He said often people who were unhappy with the direction of their complex simply directed their blame at the voting process.

"When decisions are made, people are unhappy - sometimes one way people can direct that is the voting process."

National deputy leader Nicola Willis. Photo / Alex Burton

Webb said that changes that allowed unit title holders to cast votes digitally would mitigate proxy voting concerns because it would make participating remotely far easier.

Willis said the bill is still an improvement on the status quo, "because now people have the ability to direct their proxy, and there is also the capacity for electronic voting to be enabled through regulation".

Professionalising body corporate managers

Another controversial matter was the professionalisation of body corporate managers.

Willis' initial proposal would have required body corporate managers to be part of a professional organisation.

Willis said the select committee heard that there were very few organisations that would be able to do the job.

"Potentially, you could have a monopoly set up if you were to have that requirement," Willis said.

There was also a concern that people living in the units would have to foot the bill for membership of those organisations.

Instead, the committee compromised on a code of conduct for managers, which has been included in the bill.

"All managers of bodies corporate must meet the requirements of code of conduct like disclosing conflicts of interest, ensuring they are familiar with the Unit Titles Act, that they adhere to it at all times and that they put the interests of the body corporate ahead of themselves," Willis said.

Webb sided with this saying the industry was "not ready" to be professional regulators. He said he was also concerned that the cost of body corporate regulation could be passed on in the form of added body corporate fees, at a time when body corporate fees were already quite high.

Swarbrick, however, said Parliament should move to professionalise the sector now, rather than waiting for it to become an issue later on.

Mandatory disclosures

The bill would also increase the amount of information disclosed to prospective buyers, and make it clear such disclosures were mandatory.

Sellers will now be required to disclose any remediation reports commissioned by the body corporate within the three years prior to sale, as the result of a late amendment to the bill from.

Willis said this was a "belt and braces" measure to make sure that if such a report was produced it would "absolutely" be disclosed. This went further than a more voluntary approach recommended by officials.

"The view of officials was if remediation reports had been produced, you would expect the seller to provide that as part of pre-disclosure - what I wanted was 'belt and braces', let's be crystal clear that if a remediation report had been produced in the last three years it would absolutely have been disclosed," Willis said.

As a result of changes at select committee, bodies corporate would have to keep more detailed records to comply with the bill.

Buyers will also have the ability to delay settlement if disclosures are delayed, subject to some limitations. This recognises the fact that in the case of unit titles, pre-settlement disclosures can be much more burdensome than for a simple standalone property.

Willis was reluctant to needle Labour for opposing Nationals proxy amendments.

"I'm reluctant to criticise because it has been a genuinely collaborative process from members in parties across the house," Willis said.

"There has been a tendency for people to put down their politics and their ideology and to think practically about how we can make this legislation work as well as possible."