Review of the Unit Titles Act 1972
IV. Issues
Body Coporate Relationships
A unit title development involves a series of relationships between owners, individually and as represented by the body corporate, and a range of other parties such as prospective purchasers, tenants, the body corporate secretary, building manager and maintenance, gardening and other contractors. Often these relationships are reflected by formal legal contracts. The human side of these relationships, particularly within the community of the unit development, are also of significance.
This part of the discussion document considers a number of these relationships, and issues relating to them.
Developers and initial purchasers of units
As noted above, it thought that some purchasers of unit titles may not fully appreciate the particular features of their investment. This lack of clarity may exist at a general level (for example, what is a body corporate) or a more specific level (the obligation to pay for the maintenance of common property).
The initial legal relationship is between the developer and the purchaser of a unit. It is sometimes suggested that developers of unit title developments should be required, as a consumer protection measure, to provide more information to purchasers of units. Information to be included in a disclosure statement could include:
• a basic description of key features of owning and living in a unit title property, including the role of the body corporate and the significance of the rules
• an estimate of likely annual maintenance costs and of the cost and frequency of major items of capital expenditure
• a description of any property management or other similar contracts awarded by the developer
• a statement of any interest the developer will have, and for how long, in the body corporate as the owner of unsold units.
Questions
49. Do you think developers should be required to provide more information to purchasers of units? Please give reasons to support your comments.
50. If you think developers should be required to provide more information, what topics should be covered, for example general information about unit titles and living in a unit title development, or specific information, such as estimates of future maintenance costs?
51. Should the information be different depending on the size and type of the development?
Developers and bodies corporate
In order to properly discharge their functions, bodies corporate need access to a range of information about their development. Arguably they need to know as much about the development as the developer knows or what the developer, through the various contractors, can be deemed to know. There is, however, no formal relationship between the developer and the body corporate, nor any requirement for a developer to provide such information.
To address this issue, a developer could be required to provide to the body corporate, say before its first annual general meeting, copies of various documents. These could include:
• the plans and specifications for the development, including wiring, sewerage and drainage plans
• any insurance policies taken out by the developer, and the date of warranty expiry on structural and non-structural defects
• copies of all warranties from manufacturers of equipment and goods installed comprising common property.
In this way a body corporate would have access to the information it required.
Questions
52. Do you think there are good reasons to require a developer to provide certain information to the body corporate? Please state your reasons.
53. If so, is the list of information set out above a sensible one? Do you think any other types of documentation or information should be provided?
Contracts made by the developer
A developer may enter into contracts for the unit development that lock unit owners and bodies corporate into unsatisfactory relationships. For example, a developer may, in effect, grant a property management company the contract with the body corporate to manage the property, and the body corporate itself. Subsequently, the owners may have little or no ability to terminate or renegotiate that contract. Developers are, in effect, "selling" the property management rights.
One way to address this issue would be to give bodies corporate a statutory right to review, within say two years of the sale of a specific proportion of units, all contracts entered into by the developer. Alternatively developers could be prevented from entering into such contracts for longer than, say, three years.
Questions
54. What, if any, problems have you experienced or know of in relation to long-term contracts entered into by the developer? How serious have these problems been?
55. Should such contracts be controlled, and if so, how?
56. What do you think would be the impact of your answers on unit owners, bodies corporate and on business owners?
Disclosure to subsequent purchasers
It has been suggested that, as a consumer protection measure, developers should be required to disclose to initial purchasers a range of information, and that a statement functionally equivalent to the disclosure statement now provided under the Retirement Villages Act should be required by the Unit Titles Act.
This raises the question of the information provided to subsequent purchasers of units, who would not benefit directly from any obligation imposed on developers. The Act currently gives purchasers the right to obtain certain information from a body corporate (section 30, Unit Titles Act). There is no obligation, however, for that information to be provided unless it is asked for and the information to be provided is fairly limited. The Auckland Regional Council’s Case for Review suggested that, again for consumer protection reasons, it would be appropriate for purchasers of units to have access to a broader range of information. The Queensland "Community Management Statement" was referred to as a possible model. This comprises:
• a full community management statement, containing financial reports and budgets, sinking fund details, and any required annual contribution to body corporate levies of various sorts e.g. maintenance funds or sinking funds
• details of the regulation model (body corporate rules) used for the development
• details of any amendments to the unit title development where the unit is a brand new unit in the development under construction
• details of body corporate financial and property management and support service contracts, such as caretaker contracts.
Questions
57. Do you think information disclosure to purchasers should be a requirement under the Unit Titles Act? Should the range of information provided to purchasers of unit titles be broadened?
58. If so, do you think the Queensland Community Management Statement provides a good model for New Zealand to follow? Please give reasons.
59. Do you have other suggestions to improve the information available to purchasers of unit titles?
60. What do you think would be the impact of your answers on unit owners, bodies corporate and on business owners?
Relationships with body corporate managers and secretaries
In discussing issues relating to the administration of bodies corporate, the Auckland Regional Council’s Case for Review (pg 21) commented that:
The [Unit Titles Act] does not have a transparent regime or provisions for body corporate management, and there is significant confusion about the appropriate roles of body corporate secretaries, on-site managers, and the body corporate itself, or its committee, in administration and management.
Without the benefit of a legislative framework the area of professional body corporate management has become a matter of significant disharmony between body corporate owners. There is no standard of licensing for body corporate managers or a code of conduct by which they operate. As a result, owners of unit title developments have become increasingly disenchanted with the performance of some body corporate secretaries and the burden that has fallen back upon the executive committees to manage these developments.
A recent case14 has highlighted the difficulties that can arise between a body corporate and a property manager.
Questions
61. Should the Unit Titles Act provide a clearer statement of the relative roles of the body corporate, the body corporate committee and contracted property managers?
62. Should the relationship between bodies corporate and body corporate managers be regulated, and if so, how?
63. Should occupational regulation of body corporate managers be introduced?
64. Should the process whereby a body corporate contracts with a body corporate manager be regulated?
65. Should the content of contracts between bodies corporate and body corporate managers be regulated, and if so, how?
Body corporate governance
The management and governance of bodies corporate is dealt with in fairly rudimentary fashion in the Unit Titles Act. This is an important part of the regulatory framework, and arguably bodies corporate for larger and more complex developments, at least, may require more sophisticated rules.
This is an area that other jurisdictions pay considerable attention to, including in relation to:
• the composition and role of committees
• the role, if any, a body corporate manager should be allowed to play in governance, for example as a committee member, meeting chair or the holder of proxies
• the use and control of proxy votes generally.
As noted in a recent Victorian review of bodies corporate:
The management and governance of bodies corporate requires a sensibly structured regulatory framework that promotes self-governance and enables bodies corporate to make decisions by democratic processes at the lowest cost to consumers. But [this] review also recognises that the regulatory scheme must provide sufficient tools to enable effective and efficient operations of bodies corporate.
Questions
66. Have you experienced or do you know of any significant problems with body corporate governance structures in New Zealand? Please describe them and their magnitude.
67. Are the issues focused on by other jurisdictions (committees, body corporate managers, proxy voting) relevant in New Zealand?
68. Are there other issues relating to body corporate governance that should be reviewed?
69. What do you think would be the impact of your answers on unit owners, bodies corporate and on business owners?
Legal protection of body corporate committee members
The body corporate committee can, in many cases, exercise all the powers and duties of the body corporate. Members of the body corporate committee are volunteers and have no legal protection under the act.
Question
70. Should body corporate committee members be provided legal protection when carrying out the duties of the body corporate? Should there be provision to allow body corporate committee members to be paid?
Unit owners, bodies corporate and tenants
When the owner of a unit leases the unit to tenants, the tenants (knowingly or otherwise) enter into two sets of legal relationships. The first is with the unit owner, pursuant to the terms of the relevant lease. The second is with the body corporate, and the owners and occupiers of the other units in the development, pursuant to the body corporate rules.
That second set of relationships has been seen as giving rise to a number of issues. In particular:
• body corporate rules may impose additional obligations on tenants, not provided for by the lease agreement, and that could be inconsistent with, or reduce their rights under, the provisions of the Residential Tenancies Act
• bodies corporate may act as de facto landlords, although a tenant’s legal relationship is with the unit owner
• bodies corporate make decisions affecting tenants, yet tenants may have no representation in that decision-making process.
Questions
71. Do you think that the difficulties sometimes associated involving tenants in unit title developments are serious? What do you think might be done to address these issues?
72. Would you agree, for example, that a unit owner leasing their unit should be obliged to provide tenants with a copy of the body corporate rules? Should body corporate rules – as a matter of law – be incorporated into the lease and bind tenants directly?
73. Is it appropriate that tenants in bodies corporate may have fewer rights than in other tenancies, if they are fully informed before agreeing to the tenancy?
74. If body corporate rules are to become binding on tenants by being incorporated in the lease, should body corporate rules be required to recognise the interests a tenant has in the operation of the body corporate and provide a mechanism for the body corporate to consult with, and take account of the interests of, tenants?
75. Are there other ways relationships between tenants, unit owners and bodies corporate could be improved?
76. Do you think these issues should be addressed through the Unit Titles Act, or the Residential Tenancies Act?