The Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Act 2022 (Act) was passed into law on 9 May 2022 and largely took legal effect on 9 May 2023. The Amendment Act aims to strengthen the legal framework around apartment living and provide greater transparency and protection to the owners and potential purchasers of unit titles properties.
With the population of New Zealand growing exponentially and apartment living becoming increasingly common, these changes will come as a relief to many. Bodies corporate (including body corporate managers and committee members) will need to ensure they are aware of and comply with the more stringent obligations that are put in place by the Act. We outline the key changes below.
Improvements to the information disclosure regime
The Unit Titles Act previously contemplated the optional provision of “additional disclosure statements”. This has now been abandoned and replaced by a bulking up of the mandatory content to be contained in pre-contract and pre-settlement disclosure statements.
Pre-contract disclosure statements must now include, among other things, financial statements, audit reports, and body corporate general and committee meeting minutes for the last 3 years. Previously, there was no requirement for the pre-contract disclosure statement to include these meeting minutes.
Importantly, the pre-contract disclosure statement must also disclose whether the body corporate or body corporate committee has actual knowledge, whether or not a claim has actually been lodged, that any part of the unit title development has or has had weathertightness issues or earthquake-prone issues or other significant defects in the land that may require remediation. Disclosure was only previously required in relation to a claim which had been made in court or the Weathertight Homes Tribunal.
The pre-settlement disclosure statement must now disclose whether there are any proceedings initiated or intended to be initiated by the body corporate in any court or tribunal, and whether there is any unresolved written claim by the body corporate against a third party. Where the unit is being sold “off-the-plan”, the statement must include additional information relating to the body corporate manager and insurance aspects.
The Act includes an express obligation on bodies corporate to keep the records necessary to enable unit owners to comply with their disclosure obligations.
New clarity around non-compliance with pre-contract disclosure statement requirements
Previously the consequences for a vendor in failing to provide a pre-settlement disclosure statement (or additional disclosure statement) were clear and included either deferring settlement or cancelling the agreement, however, the consequence of failing to provide a pre-contract disclosure statement was not stated.
This lacuna has now been filled. A purchaser may now, in certain situations, cancel the sale agreement or delay settlement if the pre-contract disclosure statement is late, incomplete, inaccurate or not made at all.
Body corporate governance
Conflicts of interest
The Act imposes new clear processes for dealing with conflicts of interest, including a new formality that interests must be recorded in an interests register maintained by the body corporate committee. The Act sets out when a committee member will be “interested” in a matter and the consequences of the same. For example, a member who is interested in a matter must not vote or sign any document relating to the matter but can participate in any discussion(s) held on the matter. These processes provide clarity, consistency and transparency in the event conflicts of interest arise.
Body corporate committee obligations
A body corporate committee must produce an agenda for each committee meeting and keep written records of its meetings. This may increase the administrative burden on the committee who may have conducted their meetings on a more informal basis but provides substantial transparency to owners as to the matters being considered by committee members.
Body corporate committee members must also comply with a code of conduct which requires members to, among other things, act honestly and fairly and in the best interests of the body corporate and to not unfairly or unreasonably disclose information held by the body corporate, and to disclose any conflict of interest to the committee if the member is eligible to vote. Importantly, the code of conduct requires committee members to comply with the Unit Titles Act and commit to acquiring an understanding of the unit titles legislation.
Body corporate managers
The Act formally recognises body corporate managers and their roles and functions. Body corporate managers were not previously addressed under the Unit Titles Act. The services provided by body corporate managers include record-keeping, handling money on behalf of the body corporate and preparing disclosure statements. Bodies corporate of “large” unit title developments (being unit title developments containing 10 or more principal units) are now required to appoint a body corporate manager, unless a special resolution is passed otherwise.
Body corporate managers must also comply with a code of conduct which requires them to, among other things, act in the best interests of the body corporate and with due care and diligence, disclose any conflicts of interest, keep the body corporate informed of any significant development or issue relating to an activity that the manager performs for the body corporate, and ensure that the goods and services provided are supplied at competitive prices. Body corporate managers must also ensure they comply with and acquire a good understanding of the unit titles legislation.
Bodies corporate can no longer delegate a matter if the matter is required to be decided by special resolution under the Unit Titles Act. Previously, such matters were able to be delegated.
The minimum number of attendees required to be present at a body corporate general meeting is now at least 25% of the principal units who are entitled to vote, provided also that the attendees satisfy voting eligibility requirements – that they, for example, have no outstanding body corporate levies.
Remote attendance and electronic voting
General meetings and committee meetings may now be attended and voted at by a unit owner or committee member via audio or audio-visual means or other remote access facility. This is despite any limitation or condition which may be contained in the body corporate operational rules. This flexibility was available during the Covid-19 pandemic on a temporary basis only and has since been made permanent.
Service contracts and signage agreements
During the “control period” (being the period during which the original owner still has effective control over the unit title development), the body corporate is prevented from entering into a service contract or signage agreement that has a term that exceeds 24 months following the control period, unless certain protections are included in the contract or agreement. There is also an express obligation on the original owner and any associate of the same who is a body corporate member to exercise reasonable skill, care and diligence and act in the best interests of the body corporate.
Large unit title developments
Further requirements have been introduced for “large” unit title developments containing 10 or more principal units. In addition to the requirement to appoint a body corporate manager, large unit title developments must hold and maintain a 30-year long-term maintenance plan (previously 10 years) to be reviewed every 3 years (or more frequently in some circumstances). Unless a special resolution is passed otherwise, the drafting or review of the long-term maintenance plan must be done in consultation with the appropriate professionals.
Bodies corporate can now apportion utility charges in relation to particular utilities. Bodies corporate are permitted to assign a single utility interest, or multiple utility interests that relate to a particular service or amenity. For example, bodies corporate might use this to more heavily weight the apportionment of elevator maintenance to units on upper floors than units on lower floors.
New regulatory powers
The jurisdiction of the Tenancy Tribunal in relation to unit titles disputes has been expanded, with the Tenancy Tribunal now able to deal with disputes up to $100,000 in value (previously $50,000). Additionally, the Tenancy Tribunal may impose pecuniary penalties against a body corporate manager for certain breaches – for example, for an intentional and unreasonable breach of conflict of interest duties.
The powers of the chief executive of MBIE have also been expanded. If the chief executive (or their delegate) of MBIE reasonably believes that a person is in breach or is likely to be in breach of the Unit Titles Act or regulations, it can issue an “improvement” notice stating a reasonable period within which the breach must be remedied. The Act imposes an obligation on the body corporate and body corporate manager to retain any prescribed documents for at least three years and the chief executive can require the body corporate or body corporate manager to produce such documents. The chief executive can also inspect the unit title development either with the body corporate’s consent or by obtaining an order from the Tribunal, and may also initiate proceedings if it is in the public interest to do so.
“Building upwards” is essential to cater for the growing population in New Zealand and to reduce urban sprawl, and we see these legislative changes as an overall positive step towards making apartment living a more workable and attractive option to New Zealanders. The downside of the changes is the creation of additional burdens on body corporate committees thereby potentially discouraging participation by owners, but we anticipate these burdens to for the most part be manageable and outweighed by the benefits to body corporate members and prospective body corporate members.
Hamilton Locke (NZ) Limited
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