Unit Titles Bill - improving survey and title matters for unit titles?  [May 2009]

The following is a summary of the key changes to the Unit Titles Act 1972 that are proposed within the new Unit Titles Bill released in May 2008. The key changes identified below highlight title and survey matters as opposed to Body Corporate management and administration matters. If you or your clients have any questions about the changes and the effect on your work with unit titles please feel free to contact Liza Irvine or Timothy Jones of Glaister Ennor Solicitors, Auckland on (09) 356 8243 .(JavaScript must be enabled to view this email address) or .(JavaScript must be enabled to view this email address). We would be more than happy to provide legal advice where needed.

Background of the Bill

The Unit Titles Act 1972 and its Amendment Act in 1979 were introduced to deal with an increase in small apartment developments. There has since been a dramatic increase in unit title developments including inner city apartments, complex retail and commercial developments and industrial parks. A report on the Unit Titles Act 1972 ("the 1972 Act") by Auckland Regional Council, University of Auckland and Glaister Ennor lead to the Government announcing a review of the legislation in November 2003. After submissions were gathered on the Department of Building and Housing discussion document in May 2006 the Unit Titles Bill was released in May 2008. The Bill had its first reading in March 2009 and submissions closed on 24 April 2009.

The Government's next report is due on 5 September 2009 after which the Bill will be debated in Parliament and then finalised. We understand that the new Act will commence 6 months after it is given Royal assent in Parliament and there will be a 15 month transition period. Body Corporates can also elect by special resolution to comply with the new Act immediately after it comes in to force.

Definitions and Boundaries

The definition of "Principal Unit" now includes a requirement that a unit contains a building or is contained in a building. This seems to create some consistency with the requirement that buildings on the plans have been erected to the extent that the unit and Common Property boundaries can be physically measured, before Territorial Authority ("TA") signoff is given. It is also consistent with the "shrink wrap" approach taken in the current 1972 Act where boundaries of the unit are defined by the physical walls. On the other end of the scale is the "polyhedron" approach where the unit can be a 3 dimensional space without the need for physical walls to define the boundaries. We are aware of submissions made supporting the "polyhedron" approach and it will be interesting to see if Parliament stay with their more conservative approach.

The Common Property definition has been clarified and specifically excludes Principal Unit (except where included in layered development), Accessory Unit and Future Development Unit. It may not be until the amended definitions are used in practice before we can see whether these definitions make life any easier for surveyors, council staff and legal practitioners.

Of interest is the new concept of "Building Elements". Its definition includes parts of the building that could be classed as part of the Principal Unit, Accessory Unit or Common Property. This does not necessary clarify the boundaries for title and survey matters but it does clarify who out of the Body Corporate or the individual unit owners is to repair various parts of the building as the new Bill places a statutory duty on the Body Corporate to maintain the Building Elements when they relate to more the one unit.

At this stage it seems there may be some consistency lacking between the Unit Title Bill and the proposed Surveyor - General's Rules for Cadastral Survey when it comes to defining boundaries within a Unit Title Development. When the Unit Titles Bill and the proposed Rules are each finalised it will be important to ensure that a Unit Plan complies with both and any inconsistencies are addressed early. It is hoped that the new Surveyor - General Rules will be reviewed again in light of the finalised Bill.

Depositing a Unit Plan under the New Bill

The restrictions on depositing a plan under the new Bill are very similar to the 1972 Act. Subdividing subleasehold land has been clearly prohibited in the Bill as a result of the Court of Appeal case NZPS Investments Limited V RGC where it was held that this was never intended by Parliament. This is contrary to modern development practices in New Zealand and may need to be revised.

The timing of the s224(c) certification by a TA is the same as the 1972 Act and the protection for Council staff against liability when certifying has been sustained. Key changes include the ability of the TA to certify where any building or part of the development contravenes the District Plan if the breach is authorised by the TA. A new addition is the requirement for a Valuer's Certificate confirming the ownership interest (which replaces unit entitlement as discussed below).

Ownership and Utility Interest

Units of entitlement under the 1972 Act have now been split into "Ownership Interest" (OI) and "Utility Interest" (UI). The UI is used to establish a unit owner's share of obligations in relation to the new compulsory long term maintenance fund (which must be for a minimum of 10 years), an optional contingency fund, operating account and any surplus funds. The OI on the other hand represents the owner's ownership share of Common Property, voting rights on a poll, share of interest in the underlying subdivided land, any capital improvement funds and any ground rent if the property is leasehold land.

The OI is fixed by a Valuer based on relative value. The UI is the same as the OI unless the UI is reassessed. The UI can be reassessed by Body Corporate "as it sees fit" or by a Valuer based on relative value. Any reassessment will be at the cost of the Body Corporate and they have the ability to reassess every three years. The 1974 Act does not allow for any changes to unit entitlement unless under a redevelopment or making additions to Common Property.

Methods of Development

The provisions in the Bill relating to stage developments are very similar to the 1979 Amendment Act. The same plans are required and both the developer and the TA can take advantage of the ability to defer subdivision consent conditions for later stages when providing s224(c) Certificates. If deferring conditions it is essential that the TA is satisfied that these conditions will be fulfilled before or on certification of a later Stage Unit Plan or Complete Unit Plan. It seems we will now see a series of s224(c) Certificates being issued during a stage development, one at the completion of each stage. The Bill does not give guidelines for TAs as to how they are to satisfy themselves that the conditions will be fulfilled. This will be an area that each TA will need to consider and implement appropriate procedures.

A welcomed new concept is that of layered developments where a Principal Unit can be subdivided into a Subsidiary Unit Title Development. Any of the remaining Principal Units can also be subdivided along with any of the newly formed Principal Units contained in the Subsidiary Unit Title Development. This is different from a redevelopment as each Subsidiary Unit Title Development has its own Principal Units Common Property and Body Corporate. The Unit Plan for a layered development also has specific requirements outlined in the Bill which surveyors and council staff will need to become familiar with.

It is unclear whether this new concept will support extremely complex developments with mixed uses such as residential, retail and commercial occupancy. The creation of a new Body Corporate for each layer does provide some management advantages, however the Bill in its current form does not suggest that the statutory rules will be drafted to take in to account differing uses in a large development. The rules will be contained in the Bill Regulations which have not been produced yet. Of course Body Corporates can change the rules to meet their own needs (provided they comply with the Bill) but some guidance on this matter may be useful in the Bill to not only encourage consistency but avoid disputes and rule changes being declared void.

The redevelopment provisions contained in the Bill are very similar to the 1972 Act. A redevelopment will also require a reassessment of OIs and UIs and if a new Unit Plan is required a 75% special resolution of the Body Corporate will be required. This requires 75% of only unit owners entitled to vote. To be entitled to vote they have to have paid all Body Corporate levies due. The 1972 act currently requires a unanimous resolution so this reduction in the voting threshold will allow more flexibility for Body Corporates. The Bill has replaced the need for a unanimous resolution with a special resolution in a number of areas including redevelopments, dealing with easements and cancelling a unit plan. Presumably if sufficient submissions were to be received against this lowered threshold it may be that Parliament will review this issue before the final Act is passed.

Easements and Access Lots

The Bill contains specific provisions relating to Easements and Access Lots. In particular there is more flexibility to vary, surrender, or assign an Easement by special resolution of the Body Corporate. The ownership share of an Access Lot (which may sit outside the development but is to be incorporated in the development) is vested in the Body Corporate when the plan deposits. An Access Lot will be treated as Common Property for certain purposes such as the Body Corporate Operational Rules, maintenance funds and insurance.

Other Significant Changes

Of note is the fact that the Body Corporate can do anything a "natural person" can do including acquiring new land. Certain information must now be disclosed by a unit owner when selling a unit at various points along the agreement and settlement process. As mentioned most issues are now determined by special resolution and there will only ever be one vote exercised per Principal Unit (regardless of multiple ownership). The Body Corporate rules are now prescribed within the Bill itself and are no longer contained in schedules as in the 1972 Act. Disputes shall now be heard through the Tenancy Tribunal where the claims are up to $50,000.00 with anything over $200,000 and title matters being heard in the District Court or High Court.

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