The Government released its reform proposal for the Unit Titles Act on Wednesday. Stakeholder workshops have been organised for Auckland, Wellington & Christchurch in February and public consultation closes on Friday 3 March.
Building & Construction Minister Nick Smith said: “We need better property laws to support the change in our cities, where more people are living & investing in townhouses & apartments. The number of households in unit titles is already 145,000, with a value of more than $50 billion. This number is expected to double by 2040.
“An important driver to these reforms is that the scale of unit title developments is increasing. The average complex size currently is only 10, but many new developments have more than 100 units. The responsibilities & finances of body corporates now requires a greater degree of professionalism & regulation.
“The proposals in this discussion document aim to strike a balance between the benefits of additional compliance requirements and the costs these might impose. I want to make sure the legislative framework is flexible and works for both small & large bodies corporate.”
The focus is on 6 areas:
- Better disclosure rules at the time of purchase
- Strengthening body corporate governance
- Increasing professionalism of body corporate managers
- Ensuring proper maintenance plans
- Variable compliance requirements relating to complex size, and
- Improving the accessibility of dispute resolution.
Dr Smith said: “These reforms have been initiated by the strong advocacy of Auckland Central MP Nikki Kaye and a group of property professionals who highlighted inadequacies in the current law in a report presented to me earlier this year.
“This law reform is critical to the future shape of our cities. Getting the planning law right to allow higher density living is an important first step, but the development cannot occur without investment. These changes are about increasing the security & confidence people can have in their rights as unit title holders. We want apartment & townhouse living to be an attractive lifestyle & a sound investment.
3-step disclosure regime cumbersome
The report, from the Ministry of Business, Innovation & Employment, highlights how cumbersome & costly the 3-step disclosure regime process is, “often limiting informed decision-making. For example, additional disclosure statements that disclose important information such as body corporate financial statements, contracts & insurance policies cannot be accessed until a contract has been entered into.
“Section 148 of the Unit Titles Act also requires a purchaser to pay for this additional disclosure statement, which can cost the buyer up to $2000 and may not be received by the buyer from the body corporate or body corporate manager until after settlement. This can render the statement pointless. And the regime does not adequately protect prospective buyers, particularly as there is limited buyer recourse for incomplete or false disclosure.”
Special status for off-the-plan sales?
Stakeholders considered that the regime didn’t appropriately deal with off-the-plan unit sales: “For example, the Unit Titles Act regulations set out a number of documents to be disclosed at the time of purchase, some of which may not be held by the developer at the time specified in regulations. Given the expansion of the sector, stakeholders consider new builds need to be a priority and that a customised disclosure statement might help ensure full disclosure takes place.”
However, the ministry reviewers have rejected special treatment for new-builds: “We considered introducing different disclosure requirements for those selling brand new units or those purchased off-the-plan. Creating custom disclosure statements would help to ensure the disclosure statement captures the information relevant to the unit and takes into account that a body corporate may not yet be in place. While this option has merit, we do not consider it necessary. Prospective buyers can request information required and disregard any irrelevant information or information not available because of the timing of the unit development (such as body corporate information).”
Stakeholders identified aspects of body corporate governance that could be added, strengthened &/or clarified:
- provisions to address conflicts of interest
- the ability for unit owners to contact their fellow owners within a body corporate
- more guidance on the delegation of powers, and the duties and responsibilities of body corporate committees
- clarify sections of the act relating to quorum, alteration to units and minority relief
- unfair proxy vote ‘farming’, which could disenfranchise other unit owners, and
- lengthy or onerous contracts that bodies corporate have no recourse under the act to terminate or renegotiate.
The reviewers said they proposed to resolve these issues through minor technical changes and additions to the legislation & regulations.
On body corporate management, they said: “While the body corporate management sector is progressively introducing voluntary mechanisms to self-regulate, concerns have been raised about the adequacy of the current protections, particularly when body corporate managers are responsible for body corporate financial matters & substantial amounts of money.
“The ministry considers that increased professionalism is required to protect bodies corporate & unit title owners. The legislative & regulatory framework needs to be strengthened to address risks associated with inconsistent standards & effectiveness of body corporate managers.”
Dealing with long-term maintenance
The Unit Titles Act requires that a summary of the long-term maintenance plan (LTMP) is disclosed to buyers in the additional disclosure statement. But the reviewers said: “As the additional disclosure statement must be specifically requested, many prospective buyers may not access the plan. There have been instances where a body corporate has produced an inadequate or expired LTMP to buyers, or no LTMP at all.
“There are no penalties under the act for the body corporate or the body corporate committee failing to comply with responsibilities to produce an adequate LTMP. LTMPs are also often prepared by people that do not have the appropriate qualifications or competencies, resulting in ‘hidden’ defects not being captured or disclosed.
“Stakeholders are also concerned that the current 10-year timeframe for LTMPs does not provide for the maintenance of ‘long-life’ building components (such as roofs, exterior cladding & joinery) to be included in LTMPs. In some instances, bodies corporate choose to exclude these major components from LTMPs.
“These issues expose owners & new buyers to financial risk and, when the major building components need replacing, levy spikes that have not been budgeted for. Some stakeholders have suggested the need for the establishment of a separate entity with an enforcement mechanism (such as an ombudsman or commission) to receive & ensure each body corporate’s LTMP is compliant with the act.”
On managing long-term maintenance funds, the reviewers said: “There is a provision in the Unit Titles Act for separate accounting. We are, however, aware of instances when body corporate managers have grouped money collected through unit owners’ levies together with other body corporate funds, such as contingency & capital improvement funds. All of these funds are then held in large, undefined accounts, making it difficult for bodies corporate to view & monitor the amount of money specifically tied to their LTMPs.
“Stakeholders have suggested there needs to be an enforcement provision to ensure that body corporate managers comply with the act and hold LTMF levies separate from other funds. Doing so could increase the accountability of the body corporate managers, and enable unit owners to be paid back equal shares of the interest accrued in the LTMF account, if required. While we could add enforcement provisions, powers or penalties to the act to ensure compliance, we consider recourse available through the Tenancy Tribunal sufficient.”
Unit Titles Act review discussion document.pdf (pdf 1.47 MB)
Attribution: Review document, ministerial release.