Assessment of the operation of the Unit Titles Act 1972

A recently-published legal text (GW Hinde, NR Campbell and Peter Twist, Principles of Real Property Law, LexisNexis, Wellington, 2007) provided an assessment of the operation of the Act in the intervening 35 years.

The authors made the following points:

• A unit title is preferable to a cross-lease title because it confers a stratum estate. The unit title depends on statute and common law and not on a lease as with a cross-lease;
• in relation to small unit title blocks, the owners of the units may be reluctant to incur the expense of having the body corporate professionally managed and may have difficulty in doing the necessary work themselves and therefore the expense and potential difficulty involved in the administration of the body corporate is a significant deterrant to the use of unit titles in small and medium-sized residential developments;
• in some types of unit title developments, contributions levied by the body corporate according to the unit entitlements do not always fairly reflect the benefits corresponding to those contributions. In particular, there has been criticism that the funding regime is too rigid and lacks flexibility to permit operating expenses necessary for day-to-day operations to be allocated and levied in a way which, in terms of ordinary commercial expectations, is fair and appropriate;
• when alterations or additions are made to a unit which extend beyond the boundaries of the unit there is an encroachment either into another unit or on to the common property. This encroachment constitutes a defect in title which can be cured only by the deposit of a plan of redevelopment, which is in a new unit plan in substitution for the existing unit plan;
• "The Act in its present form gives developers no real choice. The only room for manoeuvre lies in amendments to the rules, and even this is strictly circumscribed as to the powers and duties that can be created. As a result, it has been the case since the enactment of the Unit Titles Act 1972 (especially when a small development is concerned) that developers have continued to opt for cross-lease schemes when possible, even though it will often leave the owners for the time being in an unsatisfactory situation. In more recent times, drawing on ideas from overseas, developers have wanted to evolve more complex schemes which cannot be done within the provisions of the present Act" [4]   .

Commencement

The Select Committee has recommended that the commencement date of the Bill will be a date to be appointed by the Governor-General by Order in Council instead of on the " ... day that is six months from the first day of the month following the month in which this Act receives the Royal assent" (Clause 2).

Definitions

The Select Committee has recommended changes to the definitions of "building elements" and "principal unit". A principal unit may be a car park (Part 1, Clause 5(1), amending the definition of "building elements"; inserting New Clause 5B ("Meaning of principal unit")).

Retirement villages

The Select Committee has recommended that retirement villages which comprise unit titles be exempt from certain provisions in the Bill as follows:

• Clause 61 (which relates to a scheme following destruction or damage);
• Clauses 91 to 92 (which relate to body corporate operational rules);
• Clauses 100 to 105 (which relate to long-term maintenance plans, funds, and ancillary matters);
• Clauses 106 to 113A (which relate to contributions);
• Clause 116 (which relates to financial statements);
• Clause 117 (which relates to monitoring and reporting by the chief executive);
• Clauses 118 to 121 (which relate to insurance);
• Clause 122 (which relates to a body corporate's duty of repair and maintenance);
• Clauses 128 to 141 (which relate to disclosure of information);
• Clauses 155 to 159 (which relate to disputes);
• Clause 189 (which relates to the provision of records and documents); and
• Clauses 191 to 195 (which relate to minority and majority relief) (Part 1, inserting New Clause 6A).

Timeshare resorts

The Select Committee has recommended that time share resorts be subject to the Bill with some modification (Part 1, inserting New Clause 6B and New Schedule 1A).

Resource Management Act 1992

The Select Committee has recommended that the relationship between the Bill and the Resource Management Act 1991 be more clearly stated.

The Bill does not derogate from the Resource Management Act 1991, except in relation to:

• staged developments as provided in Clause 26;
• staged unit plans and certificates as provided for in Clause 27;

• a scheme following destruction or damage (Part 2, Subpart 10, Clause 61);
• the subdivision requirements of Section 11 and Part 10 of the Resource Management Act 1991 in relation to:

• schemes following destruction or damage (Clause 61);
• the cancellation of unit plans (Part 4, Subpart 2, Clauses 160-173); and
• the conversion of existing schemes ((Part 4, Subpart 2, Clauses 174-183);
• the joinder of actions (Part 5, Clause 187).

Public Works Act 1981

The Select Committee has recommended that nothing in the Bill restricts the Public Works Act 1981 and that certain procedural requirements for the making of certain decisions by bodies corporate are dispensed with (Part 1, inserting New Clause 7B).

Subdivision of principal unit

The Bill as introduced provided that the owner of a principal unit in a unit title development where the principal unit had no accessory unit could subdivide the principal unit to create a subsidiary unit title development.

The Select Committee has recommended that regardless of whether of whether or not a principal unit has an accessory unit the owner of a principal unit may subdivide their principal unit to create a further unit title development (Part 2, Subpart 2, amending Clause 16).

Restrictions on deposit of unit plans

The Select Committee has recommended that the restrictions on deposit of unit plans be redrafted in greater detail. In particular, the certificate required from territorial authorities must state that sufficient work has been carried out to the extent necessary to enable all boundaries of units and common property to be physically measured. It is also recommended that the restrictions on deposit of plan be expanded to provide that the written consent must be obtained from " ... the registered owner of any mortgage, encumbrance, or charge affecting the principal unit and every caveator whose caveat against the principal unit was lodged with the Registrar before deposit of the plan" (Part 2, Subpart 3A, inserting New Clause 27C).

Ownership and utility interests

The Select Committee has recommended that it be possible for ownership and utility interests to differ at the time the unit plan is deposited. However this must be recorded when the unit plan is deposited (Part 2, Subpart 4, amending Clause 29).

Reassessment of ownership interest and utility interest

The Select Committee has recommended that the reassessment provision in the Bill be changed. The ownership or utility interest may be reassessed for each unit if the body corporate decides by special resolution at a general meeting to reassess one or the other or both interests. If a unit plan is deposited for the subdivision of a unit to create a subsidiary unit title development, the ownership interest and utility interest for the principal unit must be reassessed by the body corporate (Part 2, Subpart 4, amending Clause 31).

Additions to common property

The Select Committee has recommended that the provision in the Bill as introduced relating to additions to common property be amended. Such additional property must be free of any registered mortgage, encumbrance. charge, lease, or sublease (Part 2, Subpart 7, substituting Clause 47).

Easements and covenants for benefit of common property

The Select Committee has recommended that bodies corporate may grant easements not only over other land but also over any unit (Part 2, Subpart 8, amending Clause 50).

Owners of principal units may make alterations

The Select Committee has recommended an amendment to the provision enabling the owners of principal units to make any alterations, additions, or improvements to his or her unit provided these are within the unit boundary and do not affect any other unit or common property. The adjective "materially" is to be inserted before the word "affect" (Part 2, Subpart 11, amending Clause 67).

Consent of mortgagee before voting in a poll

The Select Committee has recommended that an owner of a principal unit must consult with his or her mortgagee, if required to do so, before exercising a vote under Clause 84 ("Counting of votes for ordinary resolution subject to request for poll") \or Clause 85 ("Counting of votes for special resolution subject to request for poll") (Part 2, Subpart 11, amending Clause 68; cf. Clauses 84 and 85).

Responsibility to appoint agent and advise body corporate

The Bill as introduced required an owner of a principal unit who is overseas for more than three consecutive weeks, to appoint an agent and advise the body corporate of the agents name and contact details. This obligation applied whether or not the property was leased.

The Select Committee has recommended that the obligation should only apply where the property is leased or licensed out (Part 2, Subpart 11, amending Clause 69).

Power of body corporate to sign for recalcitrant owner

The Select Committee has recommended that a body corporate be given the power to sign a document on behalf of any owner who refuses such a signature within 10 working days of being served by the body corporate with a notice or where the owner refuses to sign any document needed for a resolution passed by the body corporate or, if an objection has been made, confirmed by a Court (Part 2, Subpart 11, inserting New Clause 73A).

Voting in polls and on resolutions

The Select Committee has recommended that in voting on special resolutions and in voting on polls, owners must obtain the written consent of their mortgagees (if that is required). In respect of voting on resolutions eligible voters may not vote unless all body corporate levies and other amounts have been paid (Part 2, Subpart 11, amending Clauses 83, 84 and 85).

Meeting need not be held

The Select Committee has recommended that a resolution may be passed without the holding of a general meeting provided that the required notice is given to eligible shareholders. A resolution in writing signed by not less than 50% of eligible voters in respect of an ordinary resolution or 75% of eligible voters in respect of a special resolution is as valid as if it had been passed at a meeting of those voters (Part 2, Subpart 11, inserting New Clause 90A).

A committee must be formed

The Select Committee has recommended that a body corporate comprising ten or more principal units must form a body corporate committee unless by special resolution a body corporate decides not to form such a committee (Part 2, Subpart 11, amending Clause 97).

Long-term maintenance plan and fund

The Bill provides that a body corporate must establish and regularly maintain a long-term maintenance plan and must establish and maintain a long-term maintenance fund.

The Select Committee has recommended that a plan must be reviewed within 10 years of the last review of the plan and that a body corporate need not establish and maintain a long-term maintenance fund if it decides by special resolution not to establish such a fund. It is also recommended that the body corporate must, by special resolution, approve any amount to be spent on any one maintenance item if the amount exceeds the amount specified for that item in the long-term maintenance plan by more than 10% (Part 2, Subpart 12, amending Clauses 101 and 102).

Bank accounts

The Bill as introduced provided that a body corporate must keep separate bank accounts for each fund.

The Select Committee has recommended that a body corporate may establish, in accordance with any regulation, separate bank accounts for each of the funds or a single bank account in which the separate funds are kept entirely separate and are able to be identified (Part 2, Subpart 12, substituting Clause 105).

Recovery of money from person at fault

The Select Committee has recommended amendment to the provision enabling a body corporate to recover money expended for repairs made necessary by any unit owner, tenant, lessee, licensee, or invitee.

The Select Committee has recommended that the remedying may relate to any breach of any provision under this Bill, regulations or under the body corporate rules. The cost may be collected as a debt of the body corporate and interest up to an amount not exceeding 10% per annum may be imposed (Part 2, Subpart 12, amending Clauses 112 and 113).

Auditing and verification

The Select Committee has recommended that a body corporate may submit financial statements for professional auditing or for review by an accountant. Another option is for the body corporate to engage an accountant to undertake specific verification procedures as determined by the body corporate by special resolution at a general meeting (Part 2, Subpart 12, amending Clause 116).

Repair and maintenance costs

The Select Committee has recommended that any repair or maintenance costs relating to repairs to any building element or infrastructure which benefit substantially one or more units, or where unit owners are actually at fault, may be recoverable from the owner of a principal unit (Part 2, Subpart 12, amending Clause 122)

Compensation for service contracts

The Select Committee has recommended the insertion in the Bill of a mechanism to provide for compensation to a body corporate if, for example, a developer enters into a service contract without exercising reasonable skill, care and diligence in the best interests of the body corporate. The Bill as introduced provided that orders may be sought to terminate a service contract if it is considered "harsh or unconscionable". The Select Committee has continued this provision (Part 2, Subpart 12, amending Clause 124).

Comment

There is no definition of the term "harsh or unconscionable" in the Bill.

Pre-settlement disclosure to buyer

The Select Committee has recommended that a body corporate may withhold a certificate necessary for the pre-settlement disclosure statement if the owner has not paid nay debt due to the body corporate. It is also recommended that a buyer be given the right to cancel a sale and purchase agreement by giving ten days notice to the seller where disclosure statements required under Clauses 131 and 132 are not provided (Part 2, Subpart 12, amending Clause 131 ("Pre-settlement disclosure to buyer"; cf. Clause 132 ("Buyer may request additional disclosure") and amending Clause 135 ("Cancellation by buyer")).

Jurisdiction to provide relief to majority in respect of voting on special resolution

The Select Committee has recommended that where the threshold for a special resolution is not met (i.e. 75% of eligible voters), and at least 65% of eligible voters have voted in favour of the special resolution, any eligible voter who voted in favour of the resolution may apply to the Tenancy Tribunal or the Court to have the resolution confirmed on the grounds that the effect of the failure of the resolution to be passed would be unjust or inequitable to the majority (Part 5, Subpart 3, inserting New Clause 191A).