Business bites: Reforms in unit title ownership laws open doors

After years of consultation and discussion, much needed reform of the unit title ownership regime in New Zealand has finally been implemented.

Unit title ownership has been embraced more enthusiastically in centres such as Auckland, Wellington and Queenstown, where apartment complexes and mixed-use commercial-residential buildings are more common.

The concept of unit title ownership allows owners to privately own an area of a building and share common property with other unit owners.

What is often not well understood is that this concept of individual and shared ownership brings a bundle of rights and responsibilities which differs significantly from traditional house and land ownership.

Unit title developments require a body corporate management structure to ensure decisions affecting the development can be made jointly by the unit owners.

Some of the key changes introduced by the Unit Titles Act 2010 which came into force on June 20, 2011 are:

• Common property (property shared by all owners) is now vested in the body corporate rather than being owned directly in equal shares by the unit owners. This creates flexibility to acquire additional common property and to deal with easements and land covenants over common property.

• The body corporate now has powers to carry out repairs beyond the common property.

• Introduction of a comprehensive disclosure regime by developers and sellers of units.

• Adoption of a disputes regime using the Tenancy Tribunal and district court.

• Strengthening of the governance regime for bodies corporate and providing for improved financial management and maintenance obligations.

Some of these changes create opportunities for property market professionals but will also create some additional obligations. Note that the new Act does not apply to retirement villages.

Developers - New disclosure obligations are imposed on developers if new owners come on board and take up more than 25% of the voting rights of the body corporate. The developer has obligations to disclose certain information prescribed by the Act to the body corporate and also give details of any interest the developer and its associates have in any contracts. The developer has a duty to ensure any service contracts it negotiates are fair and reasonable.

Sellers - All sellers of units have obligations to give a disclosure statement before the sale contract is signed and again before settlement. Strict time limits apply and failure to comply can result in cancellation of the contract.

Real estate agents - Real estate agents are already under increased obligations to ensure both vendors and buyers are aware before signing a contractual document that they can and may need to seek legal advice. This obligation will become increasingly important in the case of sales of unit titles because many unit owners may be unaware of their obligations to provide a pre-contract disclosure statement and the strict time frame surrounding that. The obligation to disclose arises even where the agreement is conditional and may even include an option agreement.

Valuers - The new legislation creates opportunities for valuers because there is greater flexibility in determining what is now called an ownership interest. It is expected the new Act will see a flood of reassessments, particularly where some units in a complex receive less benefit from certain items of common property than others (for example, a ground floor unit gets little benefit from a lift).

Solicitors - Solicitors advising both vendors and buyers will need to be very careful that they are familiar with the new disclosure requirements, the time frames for compliance and the consequences of non-compliance. There is provision for a buyer to request additional information in the form of an additional disclosure statement, provided the buyer meets the reasonable costs of the provision of that. Failure to supply it in time can result in delay of the settlement date or cancellation of the contract. Solicitors acting for bodies corporate will also need to be aware of the transitional provisions of the Act and the requirement for existing bodies corporate to hold an annual meeting before December 20, 2011 and to adopt new rules not later than September 20, 2012.

Insurers - The Act also creates significant obligations for bodies corporate and their chairmen, who become more powerful in the new structure. Many bodies corporate will want to take out insurance to cover potential liability and liability of the office bearers.

Overall, it is hoped the new legislation will provide greater flexibility for the development of community-of-interest ownership structures.

- Sally Peart is a partner at Mitchell Mackersy Law.



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