Unit titled properties addressed by new act

The new law will make it easier to maintain unit-titled properties. Photo / Supplied

The Unit Titles Act 2010 passed by Parliament last month is expected to provide greater clarity for owners, tenants and bodies corporate in relation to unit titled commercial properties.

However, a date has yet to be set for the law to take effect because regulations relating to the act are still being drafted.

The regulations are expected to set out specifics concerning financial statements, disclosure requirements, body corporate management and governance structures.

The Department of Building and Housing released a discussion document about the regulations in April, and submissions close on June 10.

The act will replace legislation which is almost 40 years old and widely regarded as inflexible and unsuited to the complexities of modern, multi-unit structures.

The ongoing leaky building crisis suffered by thousands of New Zealanders has exposed the shortcomings of the old law, highlighting problems relating to decision-making and to funding major repairs.

The 1972 act also offers inadequate protection for consumers and lacks efficient dispute resolution procedures.

Peter Fuller, special counsel, for DLA Phillips Fox in Auckland, says a specialist lending market for bodies corporate could develop in New Zealand once new laws relating to unit titles take effect.

Fuller says the Unit Titles Act 2010 contains power for bodies corporate to borrow money and this could be relevant for large-scale remediation works. In Australia, specialist lending institutions have developed to lend to bodies corporate.

Jean Holt, business services manager for Crockers Property Group, says the new act brings many welcome changes. Holt says its structure will lead to greater flexibility.

"Details provided in the regulations can be updated with greater ease than acts of Parliament and so it should be possible to maintain up-to-date management arrangements for bodies corporate and easier to update the law when necessary," Holt says.

"There will be a positive obligation to maintain the common property and fund the work in accordance with a plan in what amounts to a compulsory savings scheme, unless the opt-out provisions are invoked," she says.

"The body corporate's jurisdiction in relation to maintenance also becomes clearer, in that defined building elements are the responsibility of the body corporate, regardless of ownership."

In some cases, particularly those relating to building elements, there will be a clear separation between ownership and maintenance responsibility.

The new law will also impose obligations on developers, says Holt. "Any unconscionable contracts they leave behind can be unwound. They are also required to provide plans and other prescribed documents to the body corporate when the property is handed over."

Holt says the act will make it possible to come up with fair means of apportioning costs.

"Historically, the only means of apportionment has been unit entitlement, which is based on relative value. Unit entitlement will be known as ownership interest and will be the default means of cost apportionment if a body corporate does not resolve to apportion costs by 'utility interest', which effectively is any means that may be mutually agreed."

Owners of principal units will be able to make additions and alterations without the consent of the body corporate, provided renovations are within the unit boundary and do not affect common property.

Glaister Ennor partner, Tim Jones, says the new regime will mean Aucklanders occupying unit title developments will see significant changes.

He predicts improvements to the way in which buildings are maintained and that bodies corporate will be better organised.

Jones says a key feature is the new layered development concept, which provides a more sophisticated way of subdividing units into sub-units than has been the case under the 1972 act.

"Staged development can be more precise and swifter under the new act without developers having to incur costs for future stages before they are implemented."

Jones notes dispute resolution procedures will be enhanced. There will be access to dispute resolution through the Tenancy Tribunal, instead of all problems having to go to the High Court which will mean faster and cheaper resolution of disputes.

Fuller says a lower voting threshold of 75 per cent for special resolutions is a significant change from the unanimous approval which has been required in the past.

It was often impossible to obtain unanimous approval on larger developments, particularly when the consent of mortgagees was required.

Under the new law, if there is not 75 per cent agreement, a majority owner can apply to a decision-maker for a special resolution to be endorsed if there is at least 65 per cent agreement.

"The new voting provisions may be particularly important for commercial unit title developments, for example shopping malls, that require refurbishment or realignment of unit boundaries at relatively regular intervals to maintain their attractiveness to customers and tenants. In the previous regime a small minority of owners could prevent such improvements occurring to the detriment of the majority."

Minority interests will still be able to challenge special resolutions, but objections will have to be lodged within 28 days.

Fuller says enhanced consumer protection will be achieved through the four types of disclosure:

* pre-contract disclosure to prospective buyers;

* pre-settlement disclosure;

* additional disclosure if requested by buyers; and

* "turn-over disclosure" which will be disclosure by the original owner after the date the control period ends.

Fuller says another improvement will be the ability to review services contracts that may have been entered into by the original owner.

In the past, these have sometimes involved harsh or unconscionable terms which new owners have been stuck with.

Original owners will also be required to act fairly and reasonably in creating long-term service contracts.

Chapman Tripp principal, Mark Nicholson, says all bodies corporate will have to adopt long-term maintenance plans.

However, sinking funds to back up the plans are not.

Nicholson says that sinking funds are particularly appropriate for large apartment buildings, even if they are not so suitable for developments with stand-alone units.

Nicholson says that the new flexibility relating to staged developments will be relevant to large or mixed use unit title developments. "So, in a development with a mix of retail and residential units, you could have one subsidiary body corporate looking after the retail owners and a second subsidiary body corporate looking after the residential owners."