Property / Real Estate

Unit Titles Issues #2

In this second of three articles on unit title issues we identify further issues that have been facing bodies corporate in recent times.

1.       Body Corporate Management

    The Unit Titles Act 2010 introduced new governance and management requirements for bodies corporate.  The Act did not provide clear guidance on the steps bodies corporate should take to ensure decisions are made in a manner which is both lawful and practically achievable.  While bodies corporate with large memberships have tended to engage professional managers and advisors to organise notices, agendas, resolutions and meetings, many smaller complexes have operated with informal governance structures for a number of years.  As the chairperson and members of a body corporate committee potentially have personal liability under the new regime for decisions that do not comply with the Act or Regulations, professional support has therefore become a necessity even for very small bodies corporate.

2.       Long Term Management Contracts

    It has long been common practice for developers to set up long term management contracts to manage developments, sometimes with associated parties, prior to marketing and selling the units to the public.  Most developers have acted responsibly, and those managers that have been appointed to oversee the governance of unit title complexes have acted professionally and prudently.  To ensure that practice of governance of unit title complexes continues to be professionally and prudently done, under the Act, there is a specific provision whereby bodies corporate can, under certain circumstances, terminate service contracts entered into by the developer within a certain timeframe.

3.       Chairperson and Committee Member Responsibilities

    In order to function in accordance with the Act, it is necessary for a body corporate to have a Chairperson, and it often assists to delegate many of the body corporates powers.  The body corporate chairperson and committee members appointed under the Act now have significant responsibilities placed on them.  They have personal liability for their actions.  Even where a mistake was innocent or made with the best intentions, there is the potential for a claim in damages against a body corporate or its officers. The risk of personal liability means that any owner needs to think very carefully about becoming a chairperson or joining the committee unless, before accepting nomination, there is a satisfactory assurance that the body corporate has an adequate level of appropriate insurance cover in place for its officers.  

4.       Rules

    With the introduction of the Act any rules previously in place under the Unit Titles Act 1972 became null and void effective from 1 October 2012.  Unless new rules are adopted in accordance with the Act, standard rules set out the schedule to the Regulations apply.  Those rules are very simple and unlikely to be appropriate for any body corporate other than a very small, simple, residential development. Specific rules tailored to the needs of the particular body corporate are essential where there are more than a couple of owners, mixed uses, or common property.  It is important that rules are clear and practical, and are designed to protect the reasonable interests of all members.  Members should expect to have use and enjoyment of their investment, and to respect the rights of others to reasonable use and enjoyment.

5.       Summary

    Again the issues we have highlighted are not insurmountable.  They highlight matters to be aware of when buying a unit or if you are considering becoming involved in the governance of a body corporate.< With the push towards more intensive housing, especially in and around the Auckland isthmus, it is likely that a number of future inner city and fringe city property developments are going to be structured on the basis of unit title ownership.  Understanding the obligations and risks involved with membership of a body corporate is going to become more and more important if the housing intensification proposals in Auckland Council's Unitary Plan are realised through apartment/town house construction.  Taking appropriate well timed advice for all those involved in or dealing with bodies corporate can avoid common traps and pitfalls for the unwary.

NEXT ARTICLE:

Adequacy of Insurance
Review of Ground Rent/Stratum Estates in Leasehold

Download as PDF

 

Your key contacts

Ian McCombe

Deborah Miller

Chris Paterson

 

Need Assistance?

Call

Auckland Office: +64 9 379 9350

Wellington Office: +64 4 499 9824

Email:

Contact us today
 

Signup Today!