Regulations to support the Unit Titles Act 2010
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Proposal
1. This paper seeks approval for the preparation of drafting instructions for regulations to support the Unit Titles Act 2010.
2. The proposals in this paper seek to address the key policy issues in the following areas:
- the content of disclosure statements between buyers and sellers, and developers and bodies corporate
- body corporate rules
- body corporate democracy and governance
- financial statements
- long-term maintenance plans.
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Executive summary
3. This paper reports back on public consultation agreed to by Cabinet Economic Growth and Infrastructure Committee on 21 April 2010 [EGI Min (10)7/7 refers] with proposals for regulations.
4. The purpose of the consultation was to test what regulatory and non-regulatory measures are necessary to support the main provisions in the Unit Titles Act 2010 (the 2010 Act). The consultation found:
- regulations are the best way to provide certainty for unit owners that proper processes are be followed by those running the body corporate
- consumer guidance is the best way to provide flexibility to cater to the wide variety of developments in New Zealand
- overall, both regulations and consumer guidance are necessary to provide clarity to unit owners, bodies corporate and professionals, particularly in relation to new regimes under the 2010 Act.
5. The proposals in this paper seek to deliver a package of tools for bodies corporate and unit owners to use to protect, manage and maintain property – particularly property that is under joint ownership.
6. The proposals for regulations represent minimum requirements. They are designed to be appropriate to a range of developments, both in terms of size (small and large) and type (residential, non-residential).
7. The proposals for consumer guidance provide the flexibility for unit owners and bodies corporate to add to the minimum requirements provided in regulations to suit the characteristics of their development.
8. For example, large or complex bodies corporate may want to add to or amend the default body corporate rules. The consumer guidance will provide information on areas different kinds of bodies corporate (commercial, mixed use, industrial) may wish to consider making rules on.
9. On the other hand, for small or suburban developments body corporate default rules in the regulations will often be sufficient on their own to protect unit owners’ property and rights, especially when new owners buy in to the development.
10. The purpose of using consumer guidance to support regulations is to:
- support unit owners and bodies corporate to choose how the regulations apply to them (for example, in respect of default body corporate rules and long-term maintenance planning)
- reduce compliance costs (for example, in respect of a consumer form sellers can use to meet the disclosure requirements)
- provide more detail to help in the day-to-day running of the body corporate (for example, in respect of governance provisions).
11. The following table illustrates the areas in which regulations and consumer guidance are proposed:
Table one: overview of proposed regulations and consumer guidance
| Proposed regulations |
Proposed consumer guidance |
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Disclosure – to reduce information gaps and support informed consumers
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Information that must be disclosed to potential buyer of unit titles:
- publicly available information
- financial obligations a unit owner has to the body corporate
- information the body corporate has about the development.
Information the developer must give to the body corporate.
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A plain English form for sellers to give to potential buyers.
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Body corporate rules – to protect common property and reduce disputes
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Rules relating to property rights only (option one).
In addition to option one, rules on issues that often cause disputes (option two).
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Information that will help the body corporate:
- transition to the new rules
- choose appropriate rules for the development
- help bodies corporate change rules without legal assistance.
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Governance – to ensure the body corporate is run transparently and democratically
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Election processes.
Responsibilities of office holders.
Content and use of the body corporate register.
Body corporate meetings.
Proxy voting.
Spending from body corporate funds.
How bodies corporate may sign or execute documents.
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General information on how a body corporate is run and best practice advice.
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Financial statements – to ensure common funds are managed properly
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Minimum requirements for financial statements.
Optional extra requirements for bodies corporate with big budgets.
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Long-term maintenance plans – to provide certainty that plans are reliable
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Broad principles of what a long-term maintenance plan should contain.
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General information that gives more detail about specific components a plan should contain.
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12. Appendix four provides a comparison of the proposals with existing requirements, and which:
- are similar to current requirements under the 1972 Act, or
- arise from new regimes under the 2010 Act, or
- are proposed as a result of consultation and international comparison.
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Background
13. The Unit Titles Act 2010 (the 2010 Act) provides a legal framework for the ownership and management of multi-unit property developments with unit title tenure. In particular, the 2010 Act:
- allows land and buildings to be subdivided into units and common property
- creates bodies corporate to operate and manage unit title developments
- establishes a flexible and responsive governance regime
- provides a disclosure regime to promote better informed and more confident consumers
- establishes a cost-effective and timely dispute resolution service.
14. On 21 April 2010, Cabinet Economic Growth and Infrastructure Committee:
- agreed to the release of the Discussion Paper on Regulations to Support the Unit Titles Act 2010, which set out proposals for regulations and possible regulations to be made under the 2010 Act; and
- invited the Minister of Housing to report back to Cabinet Economic Growth and Infrastructure Committee on the results of the consultation with proposals for regulations to support the 2010 Act by the end of August 2010 [EGI Min (10) 7/7 refers].
15. The policy proposals in this paper are informed by:
- the public consultation on regulations to support the 2010 Act undertaken between 29 April and 10 June 2010
- targeted consultation on the proposals with an external reference group comprised of representatives from industry stakeholder groups held in June 2010
- previous public and targeted consultation processes during development of the Unit Titles Bill between 2005 and 2007
- public consultation on the Unit Titles Bill through the Social Services Committee in 2009.
16. Some proposals in this paper incorporate Cabinet decisions arising from the policy paper Review of the Unit Titles Act 1972 in November 2006 [Cab Min (06) 44/2 refers]. Reference to those decisions is noted in this paper where relevant.
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Consultation showed overall support for proposals for regulations
17. The public consultation between 29 April 2010 and 10 June 2010 tested the extent to which regulations were preferred or necessary over non-regulatory options (such as consumer guidance). The regulatory and non-regulatory options are more fully explored in the attached Regulatory Impact Statement.
18. There were 73 submissions on the Discussion Paper on Regulations to Support the Unit Titles Act 2010.
19. The Department also held a full-day workshop for key stakeholders1 to:
- test preferred solutions to the issues raised in the public consultation
- identify any practical implementation or workability issues with the proposals
- consider any practical, policy and market implications for promoting best practice through consumer guidance over regulations.
20. Submissions received through public consultation and discussion at the reference group workshop showed broad support for the proposals.
21. Consultation found that:
- some matters require certainty to provide unit owners with the appropriate level of security that proper processes would be followed by those running the body corporate. Many submitters viewed regulations as the best way to achieve certainty and consumer guidance on its own would not be sufficient
- some matters require flexibility to cater to the wide variety of developments across New Zealand. Many submitters felt consumer guidance was the best way to achieve flexibility
- some matters require clarity especially in cases where the proposals relate to new regimes under the 2010 Act. Many submitters thought that a mix of regulations and consumer guidance would be necessary to provide support to unit owners and bodies corporate.
22. The proposals in this paper seek to deliver a package of tools for bodies corporate and unit owners to use to protect, manage and maintain property – particularly property that is under joint ownership.
23. The proposals for regulations represent minimum requirements. They are designed to be appropriate to a range of developments, both in terms of size (small and large) and type (residential, non-residential).
24. The proposals for consumer guidance provide the flexibility for unit owners and bodies corporate to add to the minimum requirements provided in regulations to suit the characteristics of their development.
25. For example, large or complex bodies corporate may want to add to or amend the default body corporate rules. The consumer guidance will provide information on areas different kinds of bodies corporate (commercial, mixed use, industrial) may wish to consider making rules on.
26. On the other hand, for small or suburban developments body corporate default rules in the regulations will often be sufficient on their own to protect unit owners’ property and rights, especially when new owners buy in to the development.
27. The purpose of using consumer guidance to support regulations is to:
- support unit owners and bodies corporate to choose how the regulations apply to them (for example, in respect of default body corporate rules and long-term maintenance planning)
- reduce compliance costs (for example, in respect of a consumer form sellers can use to meet the disclosure requirements)
- provide more detail to help in the day-to-day running of the body corporate (for example, in respect of governance provisions).
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Summary of proposals for regulations
28. The proposals in this paper seek to address the following areas:
- the content of disclosure statements between buyers and sellers, and developers and bodies corporate
- body corporate rules
- body corporate democracy and governance
- financial statements
- long-term maintenance plans.
29. An overview of these proposals compared with existing requirements is provided in appendix four.
30. Many of the proposals for regulations are similar to requirements under the 1972 Act, and have been delegated to regulations due to changes in legislative drafting style and the technical and detailed nature of the requirements.
31. Many proposals that are not requirements under the 1972 Act arise from new regimes under the 2010 Act, such as those relating to the enhanced disclosure regime and the new long-term maintenance regime.
32. Some proposals that are not requirements under the 1972 Act have been proposed as a result of consultation or as a result of international comparison.
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Content of disclosure statements
An enhanced disclosure regime will better inform consumers about purchasing a unit
33. A unit title property is inherently different than a stand-alone, fee simple house. Unit title ownership comes with a different set of rights and responsibilities than other forms of property ownership because an individual’s property decisions can affect their neighbours’ property more directly. Additionally there are some property decisions that need to be made collectively through a body corporate.
34. The Unit Titles Act 1972 (the 1972 Act) contains a rudimentary disclosure regime between sellers and buyers of unit titles. It provides limited information about the body corporate and the development for prospective buyers.
35. Significant information gaps exist regarding unit title developments in general and how a specific unit title development operates in particular. Prospective buyers sometimes make uninformed or misinformed purchase decisions that can lead to:
- a lack of knowledge about their rights and responsibilities
- a lack of knowledge about what a body corporate is and what it does; and
- misunderstandings, disagreements and disputes (especially over liability for expenses, financial accountability and maintenance responsibilities).
36. Cabinet agreed [Cab Min (06) 44/2 refers]:
- the disclosure regime between sellers and buyers be enhanced
- there would be a new disclosure regime between developers and bodies corporate; and
- the content of the disclosure statements be provided in regulations.
37. The 2010 Act provides a more comprehensive disclosure regime that seeks to provide access to more information for prospective buyers enabling them to make an informed and confident purchase decision. The regime relies on caveat emptor, leaving prospective buyers the choice and responsibility for the level of risk they want to take with their purchase based on the information they have access to.
38. The 2010 Act also requires developers to provide a disclosure statement when they no longer hold a controlling interest in the development. This requirement ensures transparency between the developer and the body corporate, who will be responsible for managing the development once the developer is no longer involved.
39. There are four disclosure statements which require content to be prescribed by regulations: three between sellers, as prospective buyers progress through the sale and purchase process, and one from the developer to the body corporate.
40. The proposals in this section seek to provide clarity for parties required to give and receive disclosure statements under the new regime in the 2010 Act. This will be achieved by mix of regulations and consumer guidance.
Pre-contract disclosure – a list of important, publicly available documents
41. A seller must provide a pre-contract disclosure statement to the prospective buyer prior to entering into a sale and purchase agreement. The form of and information in the statement must be prescribed by regulations (under section 146 of the 2010 Act).
42. I propose the pre-contract disclosure statement alert buyers to the existence of information they can obtain to assist in their decision making, being a list of documents that:
- explain unit title property ownership, such as where to obtain general information about unit title developments
- highlight important information about the property that is being sold, such as the Land Information Memorandum and the unit plan for the development
- explain what other information will be made available, such as the information to be provided in the pre-settlement disclosure statement and the additional disclosure statement (see paragraphs 45-51).
43. As previously agreed by Cabinet, the list will include documents that are publicly available (and are able to be obtained by the prospective buyer at their own cost) with a short statement of their importance [Cab Min (06) 44/2 refers].
44. I propose the Department of Building and Housing develop a plain English, default form that sellers or their agents can obtain to comply with the requirement to provide a pre-contract disclosure statement.
Pre-settlement disclosure – a statement of unit owner liability
45. A seller must provide a pre-settlement disclosure statement to the buyer once they have entered into a sale and purchase agreement. The information in the statement must be prescribed by regulations (under section 147 of the 2010 Act).
46. As previously agreed by Cabinet [Cab Min (06) 44/2 refers] the content of the pre-settlement disclosure statement will be similar to the current section 36 certificate, which is the disclosure statement required under the 1972 Act. This is information about a unit owner’s liability, or what the unit owner has to contribute financially to the body corporate.
47. The information disclosed under the pre-settlement disclosure statement will almost always be required by banks prior to approving mortgage funding. In addition, it highlights the financial commitment a buyer will be obliged to honour if the purchase is settled.
48. The body corporate will be required to certify the accuracy of this information.
Additional disclosure – key body corporate documents
49. A buyer may request additional documents from the seller prior to settlement, depending on the level of due diligence they wish to undertake in the purchase process. Regulations must prescribe what documents may be requested (under section 148 of the 2010).
50. I propose the additional disclosure statement be a list of documents the buyer can request and that a body corporate would be reasonably expected to have. I propose the list include documents that:
- give more information about the financial status of the development, such as balances of all funds or bank accounts operated by the body corporate
- give more information about how the development is run, such as recorded minutes of the last year of body corporate general meetings and key details of contracts between the body corporate and service contractors
- information about forthcoming maintenance and repair, such as the long-term maintenance plan.
51. This list will be given to prospective buyers prior to entering into a sale and purchase agreement (see paragraph 42).
Turnover disclosure – information from the developer to the body corporate
52. The original owner of the development (usually the developer) must provide a turnover disclosure statement to the body corporate. The form of and information in the statement must be prescribed by regulations (under section 156 of the 2010 Act).
53. The developer holds a raft of information that would be required by a body corporate to support their ongoing role in managing and maintaining the development.
54. When the developer is building the development they can enter into financial or contractual agreements on behalf of the body corporate. The turnover disclosure statement will make those arrangements transparent to ensure the body corporate is aware of any obligations it is required to uphold.
55. I propose the turnover disclosure statement be documentation relevant to the unit title development that:
- the developer would be reasonably expected to have compiled or obtained during the development process, such as building plans and specifications and warranty and guarantees for products
- give details of what the developer has done when he/she had a controlling interest in the development, such as existing and proposed maintenance and service contracts
- are statutory documents, such as code compliance certificates and building warrant of fitness
- would assist the body corporate in maintaining the development, such as any recommended maintenance schedules of construction materials and infrastructure from manufacturers or installers.
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Default body corporate rules
Operational rules protect property and reduce disputes between owners
56. Operational rules protect common property and reduce disputes between owners by setting expectations as to what kind of behaviour is appropriate for those living and working in the development (in order that people do not cause a nuisance to others or infringe on others’ property rights) and how the property should be treated.
57. Operational rules are a tool for the body corporate to act against owners or occupiers whose behaviour is damaging common property or causing disputes, either by directly dealing with the owner or occupier or, if they require more formal assistance, by bringing a dispute to the Tenancy Tribunal.
58. Default body corporate rules are currently prescribed under Schedules 2 and 3 of the 1972 Act. The Schedule 2 rules focus on how the body corporate is run. The Schedule 3 rules focus on operational matters.
59. The review of the 1972 Act identified three issues with the body corporate rules under Schedule 2:
- many of the rules were fundamental powers and duties of the body corporate or body corporate committee (such as the responsibility to audit accounts and reporting requirements to unit owners)
- other rules were key rights and responsibilities of unit owners (such as the responsibility to keep their unit in a good state of repair)
- these rules could be changed by the body corporate if a unanimous resolution was achieved.
60. Cabinet agreed the powers and duties of bodies corporate and the rights and responsibilities of unit owners were more appropriately contained in the main body of the Act as best practice, unable to be altered by vote [Cab Min (06) 44/2 refers].
61. Cabinet also agreed new default body corporate operational rules would be prescribed by regulations [Cab Min (06) 44/2 refers].
62. Bodies corporate can change the default rules prescribed in regulation to suit the characteristics of their development – both physically (in terms of what common property the development has) and socially (in terms of how the owners in the building choose to live).
63. If a body corporate chooses not to create their own rules, the rules provided in regulation will apply.
64. The proposals in this section seek to provide flexibility for bodies corporate and unit owners to choose what rules are appropriate to their development.
Default operational rules for bodies corporate
65. Having a default set of operational rules provides a starting point for bodies corporate in larger developments to work from and, depending on how comprehensive the default rules are, could be sufficient for smaller developments to use without amendment.
66. The purpose of prescribing default operational rules is to use the minimum set of rules as a platform for bodies corporate to tailor-make a more comprehensive set of rules to suit the individual characteristics of their development (e.g., residential, non-residential or mixed use; high-rise, townhouses or suburban), while retaining protections for those who choose not to change the default rules.
67. Default body corporate rules must be set out in regulation (under section 105 of the Act). A body corporate can change these rules by ordinary resolution, but does not have to incur legal costs to do so.
68. The default rules will apply to existing bodies corporate. The rules that existing developments currently have will expire 15 months after the 2010 Act comes into force.
69. I propose the Department of Building and Housing develop consumer guidance to assist bodies corporate to transition to the new default operational rules at their first annual general meeting following the 2010 Act coming into force.
70. There are two options for regulating the content of default body corporate rules. The options and the costs and benefits of those options are set out in the table below. Further detail on the proposed rules is set out in appendixes two and three.
Table one: options for body corporate operational rules
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Options
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Option One: property rights only.
This option provides clarity on some issues often in dispute and choice on whether to set rules on pets and external appearance of common property.
Bodies corporate can change these rules to suit the characteristics of their development.
Default body corporate rules would cover:
- protecting the common property from misuse or damage
- noise
- car parking.
Bodies corporate can choose whether or not rules relating to pets and external appearance of common property are appropriate for their development.
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Option Two: property rights and issues that often cause disputes.
This option provides clarity on issues often in dispute.
Bodies corporate can change these rules to suit the characteristics of their development.
In addition to those matters covered in option one, default rules would cover:
- pets (permissive approach)
- external appearance of common property (requiring permission).
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Costs
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- Individual cost for developments who want to change or add to default rules (filing fee for rule changes = $107 per application)
- More people will be likely to change the default rules
- Leaves open a window of uncertainty for disputes to arise prior to a body corporate making a decision on issues that often cause disputes – cost to resolve disputes for unit owners/bodies corporate
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- Individual cost for developments who want to change the default rules (filing fee for rule changes = $107 per application)
- Default rules may not be appropriate for all
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Benefits
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- Flexibility for the body corporate to decide whether rules on pets is appropriate for the development
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- Flexibility for bodies corporate to change the default rules
- Clarity on issues that cause the most disputes
- Consistent with rules that currently apply to bodies corporate
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Changing the default body corporate rules
71 The Act sets out the power of a body corporate to change the default body corporate operational rules, as long as those changes:
- relate to the control, management, administration, use or enjoyment of units or common property
- relate to the regulation of the body corporate
- do not confer or impose additional powers of duties on the body corporate that are not incidental to those already set out in the Act
- are agreed by ordinary (that is, majority) resolution at a body corporate meeting.
72. If a body corporate has agreed to change the operational rules applying to the development they must complete a simple form, attach a copy of the amended rules and deposit them with Land Information New Zealand with a filing fee of $107.
73. Bodies corporate need not engage legal or other professional assistance in designing operational rules that are appropriate for their development.
74. I propose targeted consumer guidance be developed with default lists of optional extra rules that different kinds of bodies corporate (residential, commercial, industrial) can pick up to build on the default rules, depending on the characteristics of their individual development.
75. I propose targeted consumer guidance be developed to help bodies corporate who want to change the default body corporate rules do so, without the need for legal assistance.
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Body corporate governance
Governance provisions promote democracy, transparency and accountability
76. In addition to rules about body corporate powers and duties and unit owner rights and responsibilities, the Schedule 2 default body corporate rules in the 1972 Act cover a range of body corporate governance procedures such as:
- meetings
- election procedures for and responsibilities of office holders
- delegation and reporting requirements between the body corporate and a body corporate committee
- managing body corporate funds.
77. Cabinet agreed the details of the powers, duties and functions of the body corporate and body corporate committee be detailed in regulations [Cab Min (06) 44/2 refers].
78. The 2010 Act contains high level requirements and guiding principles that cover the governance procedures set out in paragraph 76, and delegates operational detail to regulations on:
- election, terms and responsibilities of office holders
- the content and use of the body corporate register
- body corporate meetings
- the body corporate committee.
79. In addition, the regulation making powers under the 2010 Act provide the ability to prescribe regulations on:
- the manner and form of voting procedures
- managing body corporate funds
- matters associated with the functions, powers and duties of a body corporate and a body corporate committee.
80. The purpose of regulating body corporate governance procedures is to:
- provide certainty to unit owners that those responsible for the day-to-day running of the body corporate do so transparently, democratically and in the interests of the majority of unit owners
- ensure unit owner are not unjustly disenfranchised from holding elected positions within the body corporate or committee
- promote accountability between those responsible for the day-to-day running of the body corporate and unit owners.
81. The proposals in this section will be supported by targeted consumer information and guidance.
Election, terms and duties of office holders
82. The body corporate is required to have a chairperson, who is elected at the first annual general meeting of the body corporate in accordance with the regulations.
83. If a unit title development is in a layered development, a subsidiary body corporate must appoint a representative to act on its behalf at parent body corporate meetings. Consultation has shown strong support for regulating the election process for a representative.
84. I propose regulations prescribe:
- who is eligible to be the chairperson or subsidiary body corporate representative
- the election process; including nominations, running the election and voting
- the term of the chairperson or subsidiary body corporate representative
- a process for replacing the chairperson or subsidiary body corporate representative.
85. I propose regulations prescribe the minimum responsibilities of a chairperson, including responsibilities relating to general meetings and keeping and distributing documents.
86. I propose the body corporate be able to confer additional responsibilities on the chairperson as required at a body corporate general meeting.
The content and use of the body corporate register
87. The body corporate is required to keep and maintain a register of unit owners in accordance with the regulations.
88. I propose regulations prescribe:
- the content of the register, including names and corresponding unit numbers, address for service and contact details
- the purpose of the register, including advising of body corporate meetings and serving documents under the 2010 Act and under other Acts on unit owners
- that the register may only be accessed by named people, including the body corporate chairperson and/or the body corporate committee
- a process by which unit owners can distribute relevant documents to other unit owners in the development.
Body corporate general meetings
89. A chairperson of the body corporate or the body corporate committee is required to call an annual general meeting at least once a year. Other general meetings can be called throughout the year if necessary. Any general meeting must be called in accordance with the regulations.
90. I propose regulations prescribe:
- a process for calling for agenda items and nominations for any officers whose terms expire at the meeting
- a process for calling a general meeting, including notice periods and what must be contained in the notice of a general meeting
- a process for reconvening the meeting if quorum is not achieved
- the process to be followed if a unit owner chooses to exercise their vote by post or by proxy
- any modifications that would be required for layered developments.
The body corporate committee
91. A body corporate may choose to have a committee undertake many of its day-to-day functions. The body corporate must provide a written notice of what functions it has delegated to the committee. A body corporate committee must report on its activities to the body corporate as prescribed in regulations.
92. I propose regulations prescribe:
- a process for delegating responsibilities to a body corporate committee, including what the delegation notice must contain and who they are served on
- reporting requirements, including what must be contained in the report, the frequency of reporting and what documents are available to the body corporate and unit owners.
93. Although it is not required by the 2010 Act, consultation has shown strong support for regulations that prescribe the process by which the committee is elected.
94. I propose regulations prescribe:
- who is eligible to be on the committee
- the election process, including nominations, running the election and voting
- the term of committee members and minimum numbers
- a process for replacing committee members
- the quorum requirement for a committee meeting.
Voting procedures
95. A practice has developed whereby some professional body corporate managers obtain enduring proxy votes from unit owners to exercise at body corporate meetings. An enduring proxy is often carte blanche ability for the holder to vote however he or she likes on behalf of a unit owner, analogous to a power of attorney.
96. There is no regulation that guides how such proxies are given or properly exercised. For example, holders of proxy votes are not required to disclose who they are voting on behalf of or what directions form part of the proxy appointment.
97. An enduring proxy can have a range of negative consequences, particularly if improperly exercised by the holder:
- if enduring proxies are held on behalf of absentee or investor unit owners, the holder has the ability to vote to the detriment of other unit owners who actually live in the development
- the voter eligibility provisions of the legislation are circumvented, allowing a non-unit owner to vote as they wish on body corporate matters as if they have a property right in the development
- enduring proxies allow a person to vote where a professional conflict of interest may exist, for example on a motion that proposes to renew their contract for services with the body corporate.
98. The ability to appoint a proxy under the 1972 Act was originally designed so those who could not personally attend a meeting could send someone to vote on their behalf. The use to which proxy voting has developed is more suitable to existing legal frameworks for powers of attorney or principal agent law.
99. I propose regulations prohibit the use of enduring proxy votes.
Managing body corporate funds
100. The 1972 Act contains some restrictions on spending from body corporate funds. The purpose of these restrictions is to protect common funds from negligent or unauthorised spending by those in charge of running the body corporate.
101. Consultation has demonstrated a desire to retain legislative restrictions on spending from body corporate funds.
102. I propose regulations prescribe that the body corporate or committee can spend from the operating account on unbudgeted items where funds are available to do so, the spending relates to the exercise of a body corporate power or duty in the Act and does not exceed 10% of the total annual budget.
103. I propose that where spending does not meet any or all of the above requirements it must be referred to a body corporate general meeting.
Matters associated with powers and duties of a body corporate and committee
104. In exercising its powers and duties the body corporate will be required to execute or sign documents. This is provided for under the 1972 Act, where each body corporate is required to have a common seal that can be used to execute or sign documents, with the appropriate witnessing arrangements satisfied as per the body corporate rules.
105. Other corporate bodies have a range of ways to sign or execute documents on behalf of its members. For example, an incorporated society must use a common seal according to the rules set out in its rules, whereas a company may choose to have the director(s) sign or use a common seal if they have one.
106. Bodies corporate currently only have the flexibility to choose how the common seal is used, for example by whom and how many members must witness the use.
107. I propose regulations prescribe how bodies corporate may sign or execute documents.
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Financial statements
Financial statements help ensure transparent management of common funds
108. The 1972 Act provides a minimal financial reporting regime in the Schedule 2 default body corporate rules. The secretary to the body corporate is required to keep books and accounts, have them audited yearly and distribute the audited accounts to unit owners prior to the annual general meeting. No further options or guidance is provided to the body corporate in its financial reporting responsibility.
109. Cabinet agreed financial reporting was a key duty of the body corporate, and provisions relating to financial reporting were more appropriately contained in the main provisions of the Act, unable to be altered by vote [Cab Min (06) 44/2 refers].
110. The 2010 Act provides a more comprehensive and transparent financial reporting regime, coupled with flexibility to allow bodies corporate to choose the level of due diligence they wish to take with their financial records.
111. The content of the financial statements is required to be prescribed by regulations.
112. The proposals in this section seek to provide clarity for unit owners that common funds are managed transparently and certainty that they are managed appropriately. The proposals also seek to provide flexibility for bodies corporate that have larger budgets to choose more stringent reporting standards.
Different levels of scrutiny apply to different types of spending
113. The size of bodies’ corporate annual budgets varies considerably. A small, suburban development could have an annual budget of a few hundred dollars for the annual insurance payment. This could rise to several hundred thousand dollars for a large-scale inner-city office block with a range of property management and maintenance contracts in place.
114. Body corporate spending can also vary year on year. For example, a body corporate in a leaky apartment building may have an annual budget of a few million dollars in the years it is repairing the building, but only a few hundred thousand under normal circumstances.
115. I propose the regulations prescribe the minimum set of requirements a body corporate would need to provide a transparent financial report to unit owners that is capable of being audited, reviewed or verified.
116. I propose regulations prescribe an additional set of optional extra requirements for larger budgets, with the flexibility for bodies corporate to decide the level of scrutiny that is appropriate in any given year.
117. I propose the body corporate be able to opt in to any or all of the optional extra requirements for any particular year by special resolution at a body corporate meeting.
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Long-term maintenance plans
Long-term maintenance planning supports the body corporate duty to maintain
118. One of the key responsibilities of the body corporate is to repair and maintain common property in the development. The manner in which the body corporate handles this responsibility has a direct impact on the ownership interest of unit owners, the amenity of the premises and the value of individual assets.
119. The 1972 Act made no provision for bodies corporate to plan in advance for key maintenance items or supporting financial planning to meet future maintenance costs. Bodies corporate respond to capital maintenance items by imposing large, one-off levies on unit owners. This places a disproportionate amount of pressure on unit owners to meet those costs with little or no warning, including owners who have recently bought a unit in the development and who are not likely to be aware of any maintenance required.
120. Cabinet agreed there be a mandatory requirement for bodies corporate to prepare and maintain a long-term maintenance plan [Cab Min (06) 44/2 refers]. The purpose of the plan is to better manage future maintenance in line with best business and property management practice.
121. The 2010 Act makes provision for the body corporate to establish and maintain a long-term maintenance plan, with the option of setting up a complementary fund owners can contribute to incrementally to meet costs set out in the plan.
122. Consultation has shown support for further detail about the long-term maintenance plan to be clarified in regulations and consumer guidance.
123. The proposals in this section seek to provide certainty for unit owners, bodies corporate and prospective buyers that the plan is reliable. The proposals also seek to provide flexibility for different sizes and types of developments.
Broad principles to support good long-term maintenance planning
124. Although long-term maintenance plans will differ between bodies corporate, there are some broad principles that could be regulated to support bodies corporate in developing their plan.
125. The purpose of prescribing regulations for long-term maintenance plans is to:
- provide minimum details about what a plan should contain
- ensure long-term maintenance plans are reliable, with unit owners and prospective purchasers being able to make good property, financial and purchase decisions based on the contents of the plan
- provide flexibility for developments with little or no common property to create their own long-term maintenance plans.
126. I propose regulations set out the broad principles of a best practice long-term maintenance plan, including:
- broadly, what is required to be in the plan (for example, maintenance on the common property, building elements and infrastructure)
- a process for establishing the plan (for example, the requirement to have a body corporate meeting)
- the minimum review periods.
127. I propose consumer guidance be developed that gives more detail about specific building components that a plan should cover.
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Retirement villages and timeshare developments
128. Retirement villages and timeshare developments make up a very small proportion of unit title developments in New Zealand.
129. The review was a good opportunity to provide relief for retirement villages and timeshare developments that were experiencing some unique problems with the 1972 Act because of the differences in how those developments are set up and operate. The 2010 Act:
- tidies up some legislative inconsistencies and removes duplication in cases where similar or better provisions exist under the Retirement Villages Act 2003 or supporting regulations
- provide some modifications for timeshare developments where the 1972 Act imposed difficulties due to how timeshares operate.
130. Some of the exemptions and modifications made in respect of retirement villages and timeshare developments in the 2010 Act apply equally to regulations made under that Act. For example:
- under the Retirement Villages Code of Practice, retirement village operators are already required to maintain a roll of residents – which is the same as a register of unit owners under proposals for Unit Title Regulations
- a range of references to unit owners or bodies corporate throughout the regulations will be required to be modified to “timeshare owners” and “timeshare body corporate” in relation to timeshare developments.
131. I propose that in cases where similar or better provisions exist under the Retirement Villages Act 2003 or any of the supporting regulations:
- an exemption be made for registered retirement villages, or
- compliance with a provision in the Retirement Villages Act or supporting regulation is deemed to comply with the provision in the Unit Titles Regulations.
132. I propose that modifications be made under Unit Titles Regulations for timeshare developments that are consistent with modifications made under the 2010 Act.
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Forms and certificates
133. Under the 2010 Act:
- forms are required for various processes (for example, depositing a unit plan, depositing changes to body corporate rules and postal voting forms)
- certificates are required to certify the accuracy of information provided to the Registrar-General of Land (for example, from a registered valuer in respect of changes to ownership interest and from the body corporate in respect of any vote to which unit owners may object).
134. Prescribing forms and certificates in regulations will help people provide the right information to the Registrar-General of Land first time and ensure the Registrar-General of Land has all the necessary information about a unit title development that is accurate and easily accessible by unit owners, bodies corporate and prospective buyers.
135. Forms and certificates regulations will also assist people to interpret the Act correctly. The technical title and survey provisions are complex. Compliance requires people to make the correct linkages to various provisions throughout the Act. Forms and certificates have the advantage of bringing together requirements that span a range of provisions in one easy to read, user-friendly document.
136. The content of forms and certificates is largely dictated by the provisions in the 2010 Act. The recent public consultation on proposals for regulations did not seek feedback on the content because no further policy decisions are required.
137. Land Information New Zealand is currently undertaking a targeted consultation with the New Zealand Law Society and the Auckland District Law Society to ensure the necessary requirements for forms and certificates are captured.
138. I have already directed the Department of Building and Housing to issue drafting instructions to Parliamentary Counsel Office for the forms and certificates required under the 2010 Act.
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Consultation
139. The following government agencies were consulted on this Cabinet paper: Land Information New Zealand, the Ministry of Justice, the Treasury, the Ministry of Economic Development, Housing New Zealand Corporation and the Department of Internal Affairs. The Department of Prime Minister and Cabinet have been advised.
140. All agencies’ comments have been included in this paper where relevant.
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Financial implications
141. There are no financial implications arising from the proposals in this paper.
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Human rights
142. There are no human rights implications arising from the proposals in this paper.
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Legislative implications
143. Regulations will be required to give effect to the proposals in this paper.
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Regulatory impact analysis
144. A regulatory impact statement (RIS) is attached. The Policy branch in the Department of Building and Housing has reviewed the RIS and considers that the information and analysis summarised in the RIS meets the quality assurance criteria.
145. The regulatory impact statement was circulated to the same agencies identified in paragraph 139.
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Publicity
146. I propose this Cabinet paper and supporting regulatory impact statement be released on the Department of Building and Housing’s website once it has been considered by Cabinet.
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Recommendations
147. The Minister of Housing recommends that the Committee:
1 note the Unit Titles Act 2010 provides a legal framework for the ownership and management of multi-unit property developments with unit title tenure
2 note on 21 April 2010, Cabinet Economic Growth and Infrastructure Committee invited the Minister of Housing to report back to Cabinet Economic Growth and Infrastructure Committee on the results of consultation on regulations to support the Unit Titles Act 2010 with proposals for regulations by the end of August 2010 [EGI Min (10) 7/7 refers]
3 note the proposals in this paper provide a mix of regulations and consumer guidance to address the main provisions in the 2010 Act
Summary of proposals
4 note many of the proposals for regulations are requirements under the 1972 Act, and have been delegated to regulations due to changes in legislative drafting style and the technical and detailed nature of the requirements
5 note many proposals that are not requirements under the 1972 Act arise from new regimes under the 2010 Act, such as those relating to the enhanced disclosure regime and the new long-term maintenance regime
6 note some proposals that are not requirements under the 1972 Act have been proposed as a result of consultation or as a result of international comparison
Disclosure statements
7 note the 2010 Act provides a more comprehensive disclosure regime that seeks to provide prospective buyers access to existing documents so they can make an informed and confident purchase decision
8 agree the content of the pre-contract disclosure statement be a list of publicly available documents that explain unit title property ownership, highlight important information about the property that is being sold and explain what other information will be made available
9 note the Department of Building and Housing will develop a plain English, default form that sellers or their agents can obtain to comply with the regulations
10 note the content of the pre-settlement disclosure statement will be a statement of unit owner liability similar to the current section 36 certificate
11 agree the additional disclosure statement be a list of documents available on request that the body corporate would be reasonably expected to have
12 agree the turnover disclosure statement be documentation relevant to the unit title development the original owner (developer) would be reasonably expected to have compiled or obtained during the development process
Default body corporate operational rules
13 note default operational rules help protect the common property and reduce disputes between owners by setting expectations as to what kind of behaviour is appropriate for those living and working in the development and how the property should be treated
14 note default body corporate operational rules must be provided in regulations
15 note the body corporate can choose to change the default rules provided in regulations to suit the characteristics of their development
16 note the proposed default rules set the minimum details a body corporate should have for managing and protecting the common property, with optional extra rules relating to pets and external appearance of units for residential developments
17 note the appendixes two and three provide further details about what the regulations will look like in practice
18 note the detail in appendixes two and three are based on rules that currently apply to unit title developments, with some clarifications and additions arising from consultation
19 EITHER:
15.1 agree that default rules that include rules prescribed in regulations be limited to rules relating to the common property (option one);
OR
15.2 agree, in addition to those matters covered in option one, regulations also prescribe default rules relating to pets and external appearance of common property (option two);
20 note the Department of Building and Housing will develop consumer guidance to assist bodies corporate transition to the new default operational rules
21 note the Department of Building and Housing will develop targeted consumer guidance with lists of optional extra rules bodies corporate can use to build on the default rules prescribed in regulations
22 note the Department of Building and Housing will develop targeted consumer guidance to help bodies corporate who want to change the default body corporate rules do so, without the need for legal assistance
Body corporate governance
23 note the purpose of prescribing regulations for body corporate governance procedures is to provide certainty to unit owners that those running the body corporate will do so transparently and democratically and will be accountable to unit owners and the body corporate
24 agree regulations prescribe how a chairperson and a subsidiary body corporate representative is elected
25 agree regulations prescribe the responsibilities of a chairperson
26 agree regulations prescribe the content and use of the body corporate register
27 agree regulations prescribe the process of calling a body corporate general meeting
28 agree regulations prescribe matters relating to the body corporate committee
29 note a practice has developed whereby some professional body corporate managers obtain enduring proxy votes from unit owners, analogous to a power of attorney
30 note the use of enduring proxies was not envisaged or desired when the 1972 Act was originally designed and there are other existing legal frameworks under which an enduring proxy is more suitably arranged
31 agree regulations prohibit the use of enduring proxy votes
32 agree regulations prescribe restrictions on unbudgeted spending from body corporate common funds
33 agree regulations prescribe how bodies corporate may sign or execute documents
Financial statements
34 note the purpose of prescribing regulations for financial statements is to provide a minimum set of requirements a body corporate would need with options for increasing the level of scrutiny for developments with larger budgets
35 agree regulations prescribe a minimum set of requirements that would be necessary to provide a transparent report to unit owners and that will be capable of being audited, reviewed or verified
36 agree regulations prescribe an additional set of optional extra requirements for bodies corporate to opt into by special resolution
Long-term maintenance plans
37 note the purpose of prescribing regulations for long-term maintenance plans is to provide minimum details for best practice, to ensure plans are reliable and to provide flexibility for developments with little or no common property to create their own plans
38 agree regulations set out the broad principles of a best practice long-term maintenance plan
39 note the Department of Building and Housing will develop targeted consumer guidance on long-term maintenance plans
Retirement villages and timeshare developments
40 note the 2010 Act provided retirement villages and timeshare developments on unit title tenure some relief from unique problems they were experiencing with the 1972 Act arising from how those developments are set up and operate
41 agree, where similar or better provisions exist under the Retirement Villages Act 2003 or supporting regulations:
- an exemption be made for registered retirement villages, or
- compliance with a provision in the Retirement Villages Act or supporting regulation is deemed to comply with the provision in the Unit Titles Regulations
42 agree modifications be made under Unit Titles Regulations for timeshare developments that are consistent with modifications made under the 2010 Act
Forms and certificates
43 note forms and certificates are required to be prescribed in regulations for various processes and to certify the accuracy of information provided to the Registrar-General of Land
44 note the content of forms and certificates is largely dictated by the provisions in the 2010 Act and did not require further public consultation or policy decisions
45 note the Minister of Housing has already instructed the Department of Building and Housing to issue drafting instructions to Parliamentary Counsel Office for the forms and certificates required under the 2010 Act
Other matters
46 invite the Minister of Housing to issue drafting instructions to the Parliamentary Counsel Office to give effect to the above proposals
47 agree this Cabinet paper and regulatory impact statement be released on the Department of Building and Housing website after it has been considered by Cabinet.
Hon Phil Heatley
Minister of Housing
____/______/____
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Footnotes
1 Participants included: Property Council of New Zealand, Property Institute of New Zealand, Real Estate Institute of New Zealand, New Zealand Institute of Surveyors, Crocker Strata Management, Home Owners and Buyers Association of New Zealand, New Zealand Law Society, Auckland District Law Society, Duncan Cotterill, Glaister Ennor, Auckland Regional Council, Auckland City Council, BRANZ and Property Reserve Planning and Administration.
Appendix one: Regulatory Impact Statement
Attached as a separate document.
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Appendix two: default body corporate operational rules – residential
This table provides further detail of the proposed default body corporate rules for regulations to support the Unit Titles Act 2010 and compares the proposals with existing default body corporate rules under Schedule 3 of the Unit Titles Act 1972.
In developing proposals for rules under the 2010 Act, the relative costs and benefits on unit owners and unit title developments have been considered and compared with the costs and benefits of existing rules. The proposals will, on the whole, not impose any more costs than existing rules. Clearer and more explicit rules will lessen initial costs for many developments by reducing the need to amend or add to the default rules.
| Issue to be solved |
Existing rules
Unit Titles Act 1972
Schedule 3
|
New rules
Unit Titles Regulations 2010
Option One – property only
|
New rules
Unit Titles Regulations 2010
Option Two – property and issues that often cause disputes
|
| Property rights |
|
Protect common property from damage
Protect structural integrity of the building
|
N/A
|
Unit owners or occupiers must not damage or deface the common property by, for example:
- marking or penetrating the common property with another object
- erecting objects such as television aerials or satellite dishes
- damaging lawns or gardens.
Unit owners or occupiers must not leave rubbish or recycling on the common property.
Unit owners or occupiers must dispose of rubbish hygienically and tidily.
|
Unit owners or occupiers must not damage or deface the common property by, for example:
- marking or penetrating the common property with another object
- erecting objects such as television aerials or satellite dishes
- damaging lawns or gardens.
Unit owners or occupiers must not leave rubbish or recycling on the common property.
Unit owners or occupiers must dispose of rubbish hygienically and tidily.
|
|
Protect people’s right to access and use the common property
|
Unit owners or occupiers must not use the common property in a way that prevents others using or enjoying common property.
|
Unit owners or occupiers must not prevent another unit owner or occupier from using or enjoying common property.
|
Unit owners or occupiers must not prevent another unit owner or occupier from using or enjoying common property.
|
|
Protect people’s right to access and use car parking property
|
N/A
|
A unit owner or occupier must only park in their designated parking area.
A unit owner, occupier or invitee can only park on common property if the body corporate has designated part of the common property for car parking or otherwise consents.
|
A unit owner or occupier must only park in their designated parking area.
A unit owner, occupier or invitee can only park on common property if the body corporate has designated part of the common property for car parking or otherwise consents.
|
| Living arrangements |
|
Protect people’s right to peaceful enjoyment
|
Unit owners or occupiers must not create noise in the common property.
Unit owners or occupiers must not use their unit in a way that causes a nuisance or disturbance to others.
|
A unit owner, occupier or invitee must not create noise likely to interfere with the quiet enjoyment of other owners or occupiers.
|
A unit owner, occupier or invitee must not create noise likely to interfere with the quiet enjoyment of other owners or occupiers.
|
|
Ensure people are clear whether pets are permitted
|
Pets are permitted with body corporate consent.
|
N/A
|
Pets are permitted with body corporate consent.
|
|
Ensure people are clear what property they can change the appearance of
|
N/A
|
N/A
|
A unit owner or occupier must not substantially change the external appearance of common property without body corporate consent
|
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Appendix three: default body corporate operational rules – non-residential
There are currently no default body corporate operational rules that apply to non-residential developments. These proposals are based on non-residential body corporate rules that currently exist in New Zealand and default non-residential body corporate rules that apply in other jurisdictions. Consultation showed support for these proposals.
| Hours of business |
|
A unit owner or occupier must only operate a business within the timeframes specified by the body corporate or body corporate committee. The body corporate may not restrict hours of business to less than what would be permitted under the relevant local council’s district plan.
|
| Cleaning windows and doors |
|
A unit owner or occupier must keep clean all exterior surfaces of glass in windows and doors on the boundary of their unit.
The exception to this rule is if the body corporate, as part of its maintenance responsibilities, contracts or otherwise engages professional window cleaners.
|
| Notification of change in use of unit |
|
A unit owner or occupier must not change the use of a unit in a way that may affect the insurance premiums for the development without the written consent of the body corporate.
|
| Car parking |
|
A unit owner or occupier must ensure that they clearly mark any parking spaces designated solely for their staff or customers’ use.
|
| Signage |
|
A unit owner or occupier must ensurethey display any signage in away that does not obstruct orinterfere with the use of any other unitor the common property. Unit owners or occupiers must only display temporary signage (for example, sandwichboards) during thepermitted opening hours of the unit’s business.
|
| Flammable material |
|
A unit owner must not store flammable material on the common property without prior consent of the body corporate.
A unit owner must notify the body corporate of any flammable materials stored within a unit.
|
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Appendix four: overview of current requirements and proposals
| |
Unit Titles Act 1972 |
Proposed Unit Titles Regulations 2010 |
Applies to all developments? |
Changes to current requirements |
| Disclosure |
| Pre-contract disclosure statement |
No |
Yes |
Yes |
New regime |
| Pre-settlement disclosure statement |
Yes |
Yes |
Yes |
Legislative design change – in regulations rather than main Act |
| Additional disclosure statement |
No |
Yes |
Yes |
New regime |
| Turnover disclosure statement |
No |
Yes |
Yes |
New regime |
| Body corporate operational rules (note, all these requirements can be changed by body corporate resolution under the 1972 and 2010 Acts) |
| Rights and responsibilities of unit owners |
Yes |
No |
Yes |
Legislative design change – in main Act rather than default rules |
| Powers and duties of bodies corporate |
Yes |
No |
Yes |
Legislative design change – in main Act rather than default rules |
| Body corporate governance procedures (meetings, committees, roles of officers) |
Yes |
No |
Yes |
Legislative design change – in regulations rather than default rules |
| Financial statements and reporting |
Yes |
No |
Yes |
Legislative design change – in regulations rather than default rules |
| Pets |
Yes |
Yes |
Yes – both |
No change |
| Use of common property and facilities |
Yes |
Yes |
Yes – both |
More detailed clarifications made as a result of consultation (eg, those relating to protection of common property and rubbish) |
| Noise |
Yes |
Yes |
Yes – both |
No change |
|
External appearance
|
No |
Yes |
Yes |
Added as a result of consultation
|
| Car parking |
No |
Yes |
Yes |
Added as a result of consultation |
| Body corporate governance procedures |
| Election, terms and duties of office holders |
Yes |
Yes |
Yes – both |
Legislative design change – regulations rather than default rules |
| The content and use of the body corporate register |
Yes |
Yes |
Yes – both
|
Legislative design change – regulations rather than default rules |
| The notice period and quorum requirements for body corporate meetings |
Yes |
Yes |
Yes – both |
Legislative design change – regulations rather than default rules |
| Proxy voting – enduring proxies |
No |
Yes |
Yes |
Added as a result of consultation |
| Restrictions on spending from body corporate funds |
Yes |
Yes |
Yes – both |
Legislative design change – regulations rather than default rules |
| How bodies corporate execute documents |
Yes |
Yes |
Yes – both |
Legislative design change – regulations rather than default rules |
| Voting |
Yes |
No |
Yes |
Legislative design change – in main Act rather than default rules |
| Financial statements and reporting |
| Itemised list of matters that must be covered in financial statements |
No |
Yes |
Yes |
Added as a result of select committee direction and consultation |
| Long-term maintenance plans |
| Broad principles of a long-term maintenance plan |
No |
Yes |
Yes |
New regime |
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