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De-mystifying body corporates

De-mystifying body corporates

Published in June 2019

There can be confusion about what a body corporate is, what it does, and how unit owners fit into the mix. Below is an explanation about some of the key elements of a body corporate.

Any reference in this article to “Act” is a reference to the Unit Titles Act 2010. Any reference to “Regulations” is a reference to the Unit Titles Regulations 2011.

What is a body corporate?
When a unit plan is deposited with Land Information New Zealand (“LINZ”) a body corporate is created, and that is the body corporate for the unit title development created by the deposit of that unit plan. The name of a body corporate is the words “Body Corporate Number” followed by the registered number of the unit plan.

Who are the members of the body corporate?
The members of a body corporate are the owners for the time being of the principal units contained in the body corporate. Members will change with the change of unit title ownership.

How do I become part of a body corporate?
As soon as you become the registered owner of a principal unit in a body corporate you become a member of the body corporate. The minute you no longer own a principal unit in a body corporate you are no longer a member of that body corporate.

What is a principal unit?
Generally speaking a principal unit is a unit contained in a body corporate that is designed for use as a place of residence or business (or any other use) and is shown on the relevant unit plan as a principal unit. There are exceptions, but it is usually what you would consider as “the unit”, and may have accessory units allocated to it for use in connection with the principal unit.

What is an accessory unit?
An accessory unit is a unit that is designed for use in connection with a principal unit. Typical examples include car parks and storage lockers. Accessory units cannot be owned “on their own”, they must be owned in conjunction with a principal unit on the same unit plan (i.e. as part of the same body corporate). It is possible, and quite common, to see accessory units bought and sold between members of the same body corporate.

What is a future development unit?
A future development unit is a term associated with a development completed in stages. For example, a land owner might decide that they want to complete a unit title development out of a piece of fee simple (freehold) land, but for a variety of reasons they would like to complete it in three stages. When stage one is complete (i.e. the stage one units constructed) new individual unit titles will issue for each of the units contained in stage one, and the areas designated for stage two and three will each be contained within two separate “future development unit” titles. When stage two is completed a supplementary unit plan will be lodged with LINZ showing all of the units on stage one and stage two, with the area designated for stage three still contained in its separate “future development unit” title. When stage three is completed, a further supplementary unit plan (and a compete unit plan) will be deposited with LINZ showing all of the units on stages one, two and three, and the future development unit titles will be cancelled (no longer exist).

What is common property? Who owns it?
Common property is all the land (which may include sub-surface and air space) and things affixed to it that are part of a unit title development but are not contained in a principal unit, an accessory unit, or a future development unit. The common property is owned by the body corporate, and all members of the body corporate are beneficially entitled to the common property in shares proportionate to their respective ownership interests.

Who takes care of repairs and maintenance matters? Is there a difference if it relates to my unit?
Unit owners are responsible for repairs, maintenance, and replacement in so far as they relate solely to their unit. The body corporate is responsible for repairs, maintenance, and replacement in so far as they relate to common property, assets designed for use in connection with the common property, any other assets owned by the body corporate, and any building elements and infrastructure that relate to or serve more than one unit.

The two most common issues that arise when it comes to repairs and maintenance (and why this is one of the most hotly discussed unit title issues) are:

1. If there is a cross-over in responsibilities between unit owner and body corporate, and therefore issues often arise as to who should be carrying out the work. i.e. very often repairs, maintenance, or replacement involve both an individual’s unit space as well as space that falls within the body corporate’s responsibility.
2. Allocation of costs can create challenges. The legislation is a starting point, and provides parameters for cost allocation, but this is muddied by the cross-over nature of the majority of significant works (between unit owner/s and body corporate) and therefore, especially if the costs are substantial, reaching agreement on the appropriate allocations is not always smooth sailing.

What if I want to renovate my unit?
There are two key considerations here. Firstly, you need to comply with all of the requirements of the territorial authorities (i.e. Council). Secondly, you need to comply with the requirements of the Act, which are primarily set out in s79 and s80. Some of the key requirements are:

1. All owners must repair and maintain their unit and keep it in good order to ensure that no damage or harm, whether physical, economic, or otherwise, is, or has the potential to be, caused to the common property, any building element, any infrastructure, or any other unit in the building; and
2. All owners must notify the body corporate of their intention to carry out any additions or structural alterations before the commencement of any work; and
3. Owners must not make any additions or structural alterations to their unit that materially affect any other unit or the common property without the prior written consent of the body corporate; and
4. All owners must comply with the body corporate rules; and
5. Owners must not do anything that breaches or in any way undermines any policy of insurance in the name of the body corporate.

It is important to be aware that it can be difficult to undertake renovations to your unit without impacting on the common property or another unit/s (unless of course your renovations are contained entirely within your unit boundaries). Caution is advised here; it is recommended that legal advice is obtained prior to carrying out any renovations, or prior to purchasing a unit with a view to carrying out renovations. Like repairs and maintenance, renovations (and the body corporate permissions associated with them) are one of the more hotly contested unit title issues; do not assume that all people will think like you do, or will be as reasonable as you might be.

How is a body corporate managed?
The Unit Titles Act 1972 contemplated, and provided for, body corporate management to be largely left to the body corporate secretary (often a third party specialist body corporate company). The 2010 Act changed the goal posts, and provides for body corporate management to be carried out by a combination of the body corporate (i.e. all unit owners), the chairperson, and the committee. There is no reference anywhere in the 2010 Act to “secretary”.

While this has been somewhat problematic for a large number of body corporates in New Zealand, the process is intended to work like this (in brief):

1. The Act requires each body corporate to elect a chairperson at each AGM. That chairperson has a number of duties imposed on them by the Act and the Regulations.
2. The Act enables the body corporate to elect a committee, and if so elected the Act and Regulations enable a number of the duties of the chairperson and body corporate to be delegated to the committee.
3. While there are a number of things that can be decided and dealt with by the chairperson and/or the committee, there are also a number of matters (such as changing body corporate rules) that must be decided by a vote of the full body corporate.

A number of body corporates in New Zealand continue to utilise a third party specialist body corporate company to manage and deal with a number of obligations and requirements imposed on the body corporate. These companies need to be contractually engaged by a body corporate (just like any other contractual arrangement); it is not possible to simply “delegate” responsibilities to a third party specialist body corporate company.

When engaging a third party specialist body corporate company caution needs to be taken to ensure that you are engaging a person or company with appropriate skills and experience.

How are levies charged?
Body corporates may have a number of separate accounts (operating account, long term maintenance account, contingency account/s, capital improvement account), and these accounts are funded by members of the body corporate. All funds except the capital improvement account are funded in proportion to each owner’s utility interest; the capital improvement account is funded in proportion to each owner’s ownership interest.

What is the difference between ownership interest and utility interest?
1. Every unit will be assigned an ownership interest when the unit plan is first deposited with LINZ, based on the relative value of each unit to the other.
2. The ownership interest is equal to the utility interest (i.e. they are the same) unless a body corporate decides at some stage (inducing on deposit of the unit plan) to create utility interests for each unit that are different to the ownership interests. This may be done because, despite the ownership interests perhaps being similar, the allocation of the levies between owners should be assessed differently because one or more of the units has a greater use of the utilities.

The body corporate has the power to charge special levies (typically for specific works to be carried out), and where the body corporate is required to carry out works under the Act it has the ability to charge (and re-allocate) levies to effectively ensure that each unit pays their appropriate share of a specific levy (these are typically allocated, or re-allocated, on what is known as a “benefit” basis). The Act does not do a perfect job of this and has come under some criticism but ultimately, in our experience, the majority of body corporates (sometimes through court assistance or intervention) reach the appropriate allocation of levies in the end.

How does voting work?
There are a number of decisions of a body corporate that need to be put to a vote of the full body corporate. Each decision is required by the Act to be decided by ordinary resolution (greater than 50% approval) or special resolution (greater than 75% approval).

Each unit has one vote per unit (not one vote per owner i.e. if a unit is owned by three people then those three people have one vote between them), and an owner is not entitled to vote unless all money owing to the body corporate has been paid (including any disputed amounts) and the consent of their mortgagee (if needed) has been obtained prior to voting.

Eligible owners can either vote themselves, through a valid representative, via postal vote, or via a validly appointed proxy.
No business can be transacted, or resolutions passed, at a general meeting of a body corporate unless a quorum is present. A quorum is present if, of those persons eligible to vote, at least 25% of the principal units (including postal votes and proxies) are present at the meeting.

Importantly, while completely new resolutions cannot be introduced and voted on at a general meeting (unless all eligible owners are present), as long as a quorum is present, any resolutions that are on the agenda for the meeting may be altered without informing postal voters, and if a resolution is materially altered at a meeting then any postal votes for that resolution will be deemed invalid, but the postal votes will still count towards assessing whether a quorum is present.

In the case that a unit owner votes against a particular resolution (and that resolution passes at the meeting) then that unit owner may avail itself of the minority relief provisions under the Act. This is also permitted by the Act in the reverse in specific scenarios.

Our three main suggestions when it comes to voting:

1. Make sure you are up to date with all monies owing to the body corporate prior to the meeting. If you have disputed levies then pay them (to enable yourself to vote at the meeting), but make sure the payment is made purely for that purpose and does not in any way restrict your ability to continue to dispute the levies. Legal advice should be sought to make sure this is managed appropriately.
2. Be careful submitting postal votes. As mentioned above, resolutions can change at a meeting, and if you are a “postal voter” then you are subject to things changing, and possibly your vote becoming invalid. If possible, be present at all body corporate meetings.
3. Either vote “for” or “against” resolutions. If you “abstain” from voting on a particular resolution then you will not be able to avail yourself of minority or majority relief provisions.

What are body corporate operational rules?
Body corporate operational rules sit alongside the Act and the Regulations to govern the management and operation of body corporates. The Act provides six base operational rules, and enables body corporates to amend, revoke, or make additions to these base rules.

Caution needs to be taken when drafting amendments or additions to the base rules. No powers or duties may be conferred or imposed on the body corporate that are not incidental to the powers and duties conferred or imposed on the body corporate under the Act, and any amendment or addition to the base operational rules must relate to the control, management, administration, use or enjoyment of the units or the common property, or relate to the regulation of the body corporate.

While the parameters for body corporate rules are tight, it is acceptable to consider any idiosyncrasies that may apply to a specific body corporate. Legal advice should be sought to assess whether any given rule may be deemed acceptable.

Unlike the Act or the Regulations, each body corporate has the power to alter its rules as frequently as it chooses. It must pass an ordinary resolution in each case, and no alterations are valid until they have been registered on the supplementary record sheet of the body corporate.

All owners are required to comply with the operational rules, as if they were part of the Act or the Regulations. If an owner believes a rule is invalid (known as “ultra vires”) then they may apply to the Tenancy Tribunal (or other court, if applicable) for a ruling. If the ruling is that the particular rule/s is invalid then it will effectively be struck out, with the balance of the rules continuing to apply.

It goes without saying that the above is intended for information only, it is not legal advice and is not to be construed as such. If you wish to discuss this article, or any other body corporate issue you are having, please contact us.

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