News & Resources
Residential Tenancies Amendment Act 2020: Its place in the unit title ecosystem
On 11 August 2020, substantial reforms to the Residential Tenancies Act 1986 (the Act) became law through the passing of the Residential Tenancies Amendment Act 2020 (the Amendment Act). The changes were made to modernise tenancy laws and align them with the present-day realities of renting, while striking a balance between the rights and obligations of both landlords and tenants.
The Ministry of Housing and Urban Development provides a summary sheet of the changes brought by the Amendment Act. Although the Act relates to tenancy relationships within single dwellings, the Amendment Act brings changes that will inevitably affect neighbouring properties. This will be particularly true in unit title developments. As such, body corporate members, managers, and stakeholders alike should be aware of these changes and plan their affairs accordingly.
This article will discuss provisions that will come into force on 11 February 2021, namely the provisions for ‘minor changes’ and installation of fibre. It will then emphasise the importance of body corporate rules that are up to date, amended lawfully and fit for purpose.
Minor changes
The Act currently prevents tenants from making changes to their properties without their landlords’ consent and landlords could not object to changes ‘unreasonably’. However, it is unclear what would be unreasonable in practice so landlords effectively have the sole discretion to deny changes.
Section 42A(1) will continue to prevent landlords from unreasonably objecting to changes, but s 42B(1) will make it unreasonable for landlords to prohibit ‘minor changes’. Section 42B(2) lists the elements that will form a minor change. The Ministry’s summary sheet provides examples of minor changes such as adding fire alarms, door bells, curtains and baby-proofing. Section 42B(2)(d) will be particularly important to unit title stakeholders. It implies that a change will be ‘more than minor’ if it “compromises the structural integrity, weathertightness or character of any building”.
In unit title developments, such changes will likely affect neighbouring units and potentially the entire development. Section 42A(1) will prohibit landlords from objecting to minor changes, but it is silent on what will happen if the proposed changes are more than minor. The wording of s 42A(1) arguably gives landlords the option to allow any changes that are more than minor. For example, landlords can choose to allow works that require a building consent and make the tenant pay for the application. They can also allow changes to their properties even if they cannot be returned to the same condition once the changes are made. However, as established below, landlords must prohibit changes that will cause a breach of the Building Code.
The Building Code contains the structural and weathertightness standards that need to be achieved by all buildings. The Building Act 2004 requires unit owners to ensure all building work (e.g. renovations, alterations or additions) comply with the Building Code, whether they be to their principal units or common property (as owners through their bodies corporate). Similarly, the Unit Titles Act 2010 requires bodies corporate to repair and maintain common property, and building elements and infrastructure that relate to or serve more than one unit. Owners will be liable to their bodies corporate for repair costs incurred because of any defective works they (or their tenants) undertake. Section 42A(1) must therefore be interpreted consistently with these imposed duties and owners must continue to take steps to ensure compliance.
Installation of fibre
Section 45B(1) will require landlords to allow the installation of fibre if they do not have to pay for the installation and none of the exceptions in s 45B(2) apply. For example, ss 45B(2)(a) and (b) will allow landlords to object to fibre if it would compromise the structural integrity or weathertightness of any building. Similar to s 42A(1), the wording of s 45B(2) will arguably give landlords the option to allow fibre to be installed even if an exception applies. However, the reasoning in the previous section applies; landlords should prohibit work that would breach the Building Code.
Unlike s 42B(2)(d), s 45B(2)(a) will only allow landlords to object to fibre if it would ‘materially’ compromise the weathertightness of any building. This acknowledges that in most cases a fibre installation will require a cable to penetrate the exterior weatherproofing fabric of the building. As long as the affected wall would continue to “prevent the penetration of water that could cause undue dampness, damage to building elements, or both” (performance requirements of Clause E2 of the Building Code), a landlord will unlikely have valid grounds to object.
Body corporate rules
Bodies corporate may choose to amend their operational rules to provide certainty for their members. For example, rules could be amended to identify prohibited changes to unit property. This will avoid issues as to what a minor change is or whether tenants could install fibre, and will allow owners to withhold consent under ss 42B(2)(g) and 45B(2)(c). With the guidance of lawyers and experts, updating the rules will assist bodies corporate in identifying works that will breach the Building Code. It will also give them certainty when recovering costs from owners who consent to non-compliant works.
Conclusion
This article serves to remind stakeholders of unit title developments that the duties imposed by the Building Act and Unit Titles Act still apply despite the changes in the Act. In summary, the new provisions should be interpreted consistently with these duties and owners should only allow tenants to alter their units if the proposed works comply with the Building Code. Bodies corporate can also amend their rules to guide owners on the changes they can allow their tenants to make.
Alphonso Sales, Solicitor
Grimshaw & Co
Unit Titles: Paying for the actions of former owners
There are many things a purchaser of an apartment in a unit title complex needs to consider. The Clearwater Cove Court decision highlights the risks for purchasers arising from historic costs awards against the body corporate.
In 2008 the Clearwater Cove body corporate commenced a representative claim in the Weathertight Homes Tribunal against the Auckland Council and Fletchers in relation to building defects. The claim was unsuccessful. The Auckland Council and Fletchers sought costs. The Tribunal found the claims in relation to the majority of the units lacked substantial merit and there was bad faith on the part of the body corporate in the conduct of the claim. It ordered the body corporate to pay costs to the Auckland Council and Fletchers in the sum of $894,000. The body corporate did not pay and the Court appointed an administrator to manage the affairs of the body corporate.
A lengthy dispute then ensued as to which owners should pay the costs award. In 2020 the High Court considered whether the costs should be paid by the owners of the units whose conduct resulted in the adverse costs award or the owners as a whole. The Court found the costs should be apportioned to those units at fault under section 127 of the Unit Titles Act.
However, in some cases the units of the owners at fault had sold and the new owners purchased without knowledge of the misconduct of the previous owners. The Court held the body corporate should first seek to recover the costs from the former owners who were at fault, but if the funds could not be recovered from those parties, the correct interpretation of section 127 is that the current owner must pay.
Gareth Lewis, a Grimshaw & Co Partner advises the decision “is a reminder that the way in which a body corporate is required to manage historic liabilities under the Unit Titles Act can result in recent purchasers incurring significant costs that were not anticipated”. He states “the disclosure requirements under the Unit Titles Regulations will not necessarily put purchasers on notice of these matters. This emphasises the need for purchasers and their lawyers to make comprehensive enquiries about issues of this nature at the time of purchase”.
Grimshaw & Co regularly advises bodies corporate and unit owners. We are experts on the Unit Titles Act and are well placed to advise your body corporate on the validity of body corporate rules, repair and maintenance obligations, section 74 schemes and provide other specialist advice. For assistance, please call us on (09) 377 3300.
Hot tips for body corporate remediation projects
A major repair or renovation to an apartment building is a significant undertaking which requires careful planning, clear lines of communication and specialist expert advice.
There is a lot at stake for the owners. A well-managed remediation project will take less time, enhance the reputation of the building and add value to the apartments. A poorly managed project can lead to incomplete repairs and years of delay and frustration.
Here are 10 hot tips for bodies corporate undergoing remediation or renovation projects:
Take independent building advice. The body corporate should take advice on building defects and remediation options from independent building professionals. Avoid taking informal advice from others such as the developer or members of the body corporate.
Beware of targeted repairs. There can be a temptation to undertake ‘targeted’ or ‘patch’ repairs which are cheaper but essentially cover over problems and do not address the underlying issues. These repairs often fail and result in the need for further repairs in the future. Seek confirmation the proposed repairs will be durable in the long term.
Obtain advice on claim options. Consult legal advisors who specialise in building defect claims to identify whether you have a claim against those involved in the construction or certification of the complex for the cost of repair works. All claims are subject to strict limitation periods, so legal advice should be sought as soon as possible.
Get the owners on board. Any remediation project needs the support of the owners. This means satisfying the owners the work is necessary and there is a commercial benefit in undertaking the work. Provide a valuation report which sets out the potential capital gain and a business plan with details of the estimated cost and timing of the repair project.
Apply for a section 74 scheme. Engage lawyers to apply to the High Court for a repair scheme under section 74 of the Unit Titles Act. This will clarify the basis upon which owners are to be levied for the work and authorise the body corporate to undertake work to both unit and common property, amongst other things. The scheme provides an assurance the project will proceed in an organised and professional manner.
Engage a body corporate manager with experience in remediation projects. Body corporate managers who have managed other remedial projects are familiar with the issues that are likely to arise, know the best experts, will have systems that can be used to manage the project and can provide useful advice to owners throughout the project.
Put in place clear lines of responsibility. The contractual arrangements between the body corporate, the building professionals and the head contractor are important. Seek legal advice in relation to the contracts. Ensure there is a clear understanding as to the responsibilities of each building professional and who ultimately oversees the work.
Appoint an owners representative. An owners representative fulfils an important role in liaising between the building professionals and the owners. He or she provides important information to the owners, such as when they need to vacate their apartments, and can assist with other matters such as finance and alternative accommodation options.
Provide regular updates. The body corporate should provide regular updates to the owners so they have a clear understanding of how the project is progressing and have up to date estimates of the costs and timing of the work. Reports from the building experts should be provided to explain any significant changes in the scope of the work.
Resolve disputes quickly. If disputes between the body corporate, building professionals and/or the head contractor develop it can result in significant delays to the project or at the conclusion of the project the body corporate may have difficulties obtaining the producer statements it needs from contractors. Address any disputes which arise as soon as possible, and where necessary invoke the dispute resolution process in the contract.
Grimshaw & Co regularly acts for bodies corporate undergoing remedial work projects. We are experts in building defect claims, construction contract disputes, section 74 schemes and the Unit Titles Act 2010. Call us on 09 377 3300 for practical expert advice.
Why your body corporate home is not necessarily your castle
For many New Zealanders who grew up in a home on a quarter acre section it takes time to adapt to the complex issues that can arise from owning and living in an apartment building. One of these issues is the extent to which owners have control over their own apartments and, in particular, who is responsible for repairs and maintenance to the apartments. In this article we discuss the way in which the law relating to work of this nature has developed from a position of some autonomy for unit owners to one of collective responsibility.
The Unit Titles Act 1972 introduced laws to govern bodies corporate. To a large extent the Act gave unit owners control over their own unit space. It allocated responsibility for the repair and maintenance of a unit to the owner and responsibility for common property to the body corporate. The Act granted the High Court the power to sanction schemes for the repair of buildings, including cost apportionment, but in the leading Court decision, Tisch, the Court of Appeal ruled scheme cost allocations should only depart from the Act where this was necessary to achieve fairness between the parties. As a result, most Court decisions on schemes under the 1972 Act allocated the cost of unit repairs to the owners of the unit and the cost of common property repairs to the body corporate.
In this way, although the owners collectively managed the common property, they exercised a degree of autonomy over their own apartments.
The Unit Titles Act 2010 was passed in response to the leaky building crisis and the difficulties that bodies corporate often faced in undertaking remedial work to the exterior of buildings, in particular to unit property. The 2010 Act gives bodies corporate the power and the obligation to repair and maintain all building elements which relate to or serve more than one unit, irrespective of whether these building elements are within unit or common property. The costs of these works are payable by all unit owners and may only be reapportioned to individual owners in certain circumstances. This change in the law has been reflected in a number of recent Court decisions:
In The Links the Court approved a body corporate scheme to apportion all weathertightness repair costs according to utility interest in circumstances where the balconies and at least part of the exterior were within unit property but the work benefitted the building as a whole.
In Sebel Suites the Court held that weathertightness repairs to a deck over a restaurant in Auckland’s Viaduct Harbour, which was within unit property, was payable by all owners in accordance with utility interest.
In Otway the Court of Appeal held that repairs to decks within unit property over shops in a Mt Maunganui tower block were payable by all owners in accordance with utility interest, as the repairs were important for the storm water system for the entire building and were of benefit to all owners.
In Pavilions the Court approved a body corporate scheme for repairs (including a reclad) to a 4 level tiered apartment building in Mt Maunganui in accordance with utility interest, on the basis the works addressed the weathertightness and compliance of the building as a whole.
This case law reflects the reality that building elements in an apartment building will often be interlinked and that significant remedial works will often benefit all of the owners. In these situations the interests of the owners are interdependent so that the maintenance of the building is necessarily a collective responsibility. In many ways, a body corporate of this type is more accurately described as a group ownership arrangement rather than a collection of individual properties. This may mean that your body corporate home is not necessarily your castle, in the sense that there is not the same level of control as a stand alone home. But that is not necessarily a bad thing. It is a different form of property ownership which needs to be managed in its own way.
Grimshaw & Co regularly acts for bodies corporate. We are experts on the Unit Titles Act and are well placed to advise your body corporate on the validity of body corporate rules, repair and maintenance obligations, section 74 schemes and provide other specialist advice. For assistance please contact Gareth Lewis on (09) 375 2376 or Gareth.Lewis@grimshaw.co.nz.
A Body Corporate Guide For First-Home Buyers
One of the by-products of high house prices in Auckland and our expanding population is that more and more first-home buyers are choosing apartment living as their primary step on the property ladder.
For Grimshaw & Co partner Gareth Lewis the trend comes with an added incentive for home-owners to be more aware of their responsibilities and rights when living in a shared structure.
“Compared to say 10 years ago, more and more people around town have either lived in apartments or have owned them and are a lot more people are aware of what’s involved in owning an apartment, how they’re levied and what their obligations are,” Gareth says.
“But its still quite common for first-home buyers to have their first home-buying experience in an apartment building.”
Gareth says the three main issues to consider when buying a unit in an apartment block are:
Body corporate levies: People are used to paying rates and then separate amounts for power, maintenance etc but in an apartment building all of that is administered by the body corporate which bills you a significant amount per annum. Gareth says that getting used to the levies and understanding how these are calculated needs to be considered right from the outset.
Building defects: Gareth warns against buying into an apartment building with weathertightness, fire rating or structural problems. “Unfortunately a lot of buildings in Auckland do have these issues and it can lead to very expensive repairs.” The best way to be pre-warned about any potential problems is to get body corporate minutes from meetings going back as far as possible. “It’s hard when buying into a unit title complex to identify all problems but you should look at the minutes. You have to accept the fact that you’re going to contribute to repairs in other parts of the building and for common property, but you tend to find that defects are common throughout a building and some issues will relate to more than one unit. So, yes, if someone on level five is having major deck problem or a ranch slider leaking, it could well be your apartment next.”
Understanding that the majority rules: Although there are a lot of benefits in body corporate living – someone else taking care of maintenance and living close to the middle of town and all those services – Gareth says it’s important to realise that you are “sacrificing control” over many aspects of your property. “Generally the courts have said that you have to go along with the wishes of the majority – whether that’s over repairs or even painting it a different colour.”
So if you are buying into a body corporate should you seek to be involved in the body corporate committee? Gareth says there are two key requirements:
You must have plenty of time as understanding the obligations of a body corporate committee and handling body corporate affairs can be a very time-consuming process.
You must be the sort of person who is willing to seek advice from qualified professionals and not try to run the show yourself. Gareth says problems arise usually when body corporate committees makes decisions or carry out actions when they don’t have the expertise or are not independent. “It’s when someone has a brother who’s a builder who can carry out any work, or who takes on the cleaning contract, or who has a small amount of accounting experience or who thinks they know the law, that it becomes a problem. You must be willing to take advice where appropriate.”
Gareth Lewis is a Partner at Grimshaw & Co with expertise in construction claims, body corporate disputes and employment law. He is a Fellow of the Arbitrators and Mediators Institute of New Zealand and uses various forms of dispute resolution, including mediations and arbitrations. He has appeared in the Employment Relations Authority, WHT, District Court, High Court, Court of Appeal and Supreme Court, including interlocutory applications, trials, appeals, interim injunction applications and insolvency matters.