This week's question is answered by senior associate Daniel Kelleher and associate Davina Lal who can be contacted at daniel.kelleher@simpsongrier son.com and davina.lal@simpsongrierson.com
Q. I own a number of units in a large body corporate and have been frustrated with our body corporate manager for a number of years due to bad financial forecasting and constant requests for money for repairs that always seem to be urgent. Last year I understood that the Unit Titles Act was going to be replaced and that the new act might make body corporate fees more expensive. Is this really the case? As I, for one, am not happy to keep paying more for inadequate service.
A. You are correct that the Unit Titles Act 1972 is to be replaced. The unit Titles Act 2010 has now been passed by parliament, but will not come into effect until the regulations required by it have been finalised. The timeframe for this is not known, but it is likely to be at least a few months.
The decision to replace the 1972 act was based on a clear feeling that it was no longer adequate to deal with a range of matters including governance and decision making, long term building maintenance, financial management, information disclosure and dispute resolution.
The existing act is also premised on a small-scale residential model and is inadequate to deal with the diverse range and complexity of unit title developments in New Zealand.
Your question raises very simply one of the main issues that need to be resolved especially for larger developments. That issue is the management of costs and ensuring that expenses are smoothed as much as possible to prevent large one-off levies for major items of maintenance. As you have pointed out this is an area that has the potential to impact on owners.
A body corporate will be required to establish and maintain a long-term maintenance plan which must cover a period of at least ten years from the date of the plan. The purpose of this plan is to identify future maintenance requirements and estimate the costs involved, support the establishment and management of the funds, provide a basis for the levying of owners of principal units, and provide ongoing guidance to the body corporate to assist it in making its annual maintenance decisions.
A body corporate must also establish and maintain a long-term maintenance fund unless the body corporate decides not to have one. This fund may only be applied toward spending relating to budgeted maintenance items included in the long-term maintenance plan and only to the amount specified in the plan relating to each item.
The amount spent on any one maintenance item may only exceed the amount specified for that item in the long-term maintenance plan if the body corporate by special resolution approves the amount.
There are also some optional funds which a body corporate may establish. These are a contingency fund which is to provide for unbudgeted expenditure that may not be paid out of the long-term maintenance fund or the operating accounts and a capital improvement fund to provide for spending that adds to or upgrades the development.
Obviously these new obligations and rights in relation to contingency and maintenance funds will require a higher standard of body corporate management than may be currently in place throughout New Zealand. In particular, the long-term maintenance plans and the funding of those will require a relatively high level of sector knowledge.
It may be that some body corporate managers will not have the necessary skills to deal with these new measures and you should ensure that yours will be able to comply. Body corporates will have greater responsibilities in other areas such as information gathering and storage and it is unlikely that body corporate managers will be happy to take on more obligations with no increase in their fees.
As some commentators have noted there is the possibility that the expanded obligations will cause many body corporate managers to reconsider their levels of charging. You should encourage your fellow members to obtain a number of quotes to ensure that if you must pay more for your management services you will at least be getting the best price and service available.
The information contained in Commercial Property is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.
