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Problems remain with certainty and disclosure in unit title reform

25 Feb 2022

| Author: Joanna Pidgeon

On 3 December 2021 the Finance and Expenditure select committee recommended unanimously that the Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Bill be passed.

This bill arose from problems seen with the Unit Titles Act 2010 (UTA) around leaky developments and a lack of transparency. Nikki Kaye, a former Cabinet minister and Auckland Central MP, was a catalyst for the formation of the Unit Titles Working Group (UTWG), of which ADLS has been a member. This was set up to lobby and then assist with the drafting of amendment legislation which became a member’s bill and is now in the name of deputy Opposition leader Nicola Willis.

Members of the UTWG are diverse and include the Strata Community Association (a voluntary body corporate managers and industry body), the Body Corporate Chairs Group, HOBANZ (representing owners and buyers), REINZ and ADLS.

The bill was drafted to ensure the biggest problems were addressed, with the ability for debate and to make submissions at select committee, as unit title reform had not been high on the government legislative agenda.

We look forward to the passing of the bill which will be an improvement on the current legislation. But there is some detail missing in the regulations and the delay in dealing with disclosure problems until around the settlement date will leave vendors in an unacceptably precarious position up to settlement rather than being dealt with upfront. We are hopeful this will be addressed before the final reading.

Disclosure issues

The existing UTA disclosure regime was inadequate as important information was provided too late. The amended bill removes a buyer’s ability to request additional disclosure, keeping body corporate-endorsed pre-settlement disclosure and allowing sellers to delegate disclosures and removes the requirement on them to discuss any issues arising from the disclosure. All bodies corporate now have a duty to maintain records.

Pre-contract disclosure will need to include the disclosure of weathertightness issues and earthquake-prone issues as well as any other significant defects. Vendors must keep up-to-date with committee minutes so they can give accurate disclosure. This sort of issue is sometimes kept ‘in committee’ before disclosing to the wider group of owners if they don’t use a manager to provide pre-contract disclosure.

Three years of meeting minutes (general and committee), financial statements, the long-term maintenance plan (LTMP) and an extensive list of other material is required. There is no obligation, however, to provide professional remediation reports. This is a big gap as, without access, it will be difficult to assess the extent of damage and costs. Additional disclosure is removed as the select committee saw it as too onerous, which was not the industry view.

If proper pre-contract disclosure is not provided up to five working days before settlement, the purchaser may delay settlement until the fifth working day after it is provided.

But what happens if it is never properly provided? This is unworkable as it will leave vendors exposed, left in limbo and unsure whether a transaction will proceed.

There should be more certainty. Rather than notice of intention to cancel for pre-contract issues being at the settlement date, this should be done by notice upfront. That period could be extended by agreement between the parties but if inadequate pre-contract disclosure hasn’t been made by then, the purchaser should be making an election to cancel then, not delaying settlement later.

The materiality aspect for cancellation for disclosure being late, incomplete or not made at all relies on substantiality concepts taken from the previous Contractual Remedies Act. Case law developments will be watched with interest.

An opportunity has been missed to ensure the chairperson of the body corporate automatically sits on and chairs the committee.

New off-the-plan disclosure requires a draft budget, estimated ownership and utility interests, draft rules and details of proposed contracts – for example, utility contracts and manager appointment.

Electronic voting

Enabling online meetings which have been operating temporarily through covid-19 will be available on a permanent basis. Owners may now vote electronically in advance of a meeting but there is no limit on proxy farming. While electronic voting may remove the need for proxies, it can turn a meeting into a rubber-stamping exercise with the committee controlling the reports being sent to owners. People with a contrary view will be unable to communicate with owners before a meeting.

Speaking at the meeting will be of little use if all the voting has taken place ahead of time. The regulations currently give no guidance as to how to maintain the sanctity of electronic voting ahead of time to prevent voter fraud, for example. The process is left to each body corporate to determine. Postal voting at least had more rigour around signature requirements, etc.

Committee members must be up-to-date with levies to be elected and vote. Committee meeting minutes are to be provided within a month and there is provision for redacting material if it would be a breach of the Privacy Act 2020, subject to legal professional privilege or commercial sensitivity. There is a code of conduct for committees, and a requirement to disclose a conflict of interest and not to take part in decision-making on those issues.

Body corporate managers will be subject to a code of conduct and their engagement is to contain certain terms, but there is no formal regulatory body which is at odds with recent government proposals to regulate property managers. The chief executive of MBIE will have enforcement and monitoring powers. We will wait and see whether it is resourced to do this adequately. Pecuniary penalties have also been introduced for bodies corporate and managers.

Bodies corporate can opt out of funding a LTMP by special resolution. Once opted out, to opt back into funding will also require a special resolution which may make it difficult for owners to ensure adequate funding in the future.

The tribunal filing fees have reduced significantly. There will now be some different rules applying to two sizes of bodies corporate – those with fewer than 10 units and those with 10 or more.

We look forward to the passing of the bill which will be an improvement on the current legislation. But there is some detail missing in the regulations and the delay in dealing with disclosure problems until around the settlement date will leave vendors in an unacceptably precarious position up to settlement rather than being dealt with upfront. We are hopeful this will be addressed before the final reading.

Joanna Pidgeon is a director of Pidgeon Judd and chair of the UTWG.  She is also a presenter of the Property Law Half Day Conference on 10 March

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