How To Position Your Body Corporate For Success

There is a lot of doom and gloom in the body corporate sector at the moment.

Auckland is on the crest an apartment building boom but the Unit Titles Act is said to be a "dog's breakfast" (NZ Herald), bodies corporate are said to be at risk from unregulated building managers (NZ Herald) and the leaky building issues facing bodies corporate continue (Interest).

There is a fear that body corporate ills being experienced across the Tasman will shortly arrive on our shores.  Apartment owners in New Zealand may soon be experiencing theft by body corporate managers (ADLS), (Your Investment Property), and even theft of their own identities (Domain).

ABC radio in Australia has responded by inviting listeners to email their best body corporate stories: "the hilarious and the hellish" (ABC).  MP for Auckland Central Nikki Kaye has taken a more serious approach with a website asking owners to email "what you think about how bodies corporate operate" (Better Bodies Corporate).  The feedback on both sides of the Tasman is similar as full voice is given to the frustrations of body corporate living.

Lawyers and other body corporate experts have offered helpful advice to combat the problems which beset bodies corporate.  Information sheets on the Act are in plentiful supply (Consumer), purchasers are warned of the pitfalls in the disclosure regime under the Act (Hobec), and bodies corporate are encouraged to check that their body corporate manager has professional indemnity insurance and that body corporate accounts are externally audited (ADLS).

Surprisingly we are told there will not be any meaningful law reform in relation to bodies corporate until a government Minister's grandmother has a body corporate issue (NZ Herald).

So how does a body corporate rise above this negativity and create a positive vision for the future?  A vision in which the positive virtues of the body corporate are known in the community and the values of apartments in the body corporate are enhanced.  A vision in which the owners in the body corporate take pride in the group ownership arrangements they have out in place under the Unit Titles Act.

There are some basic steps a body corporate can take to create such a vision and position itself for success:

1. Foster a common understanding of how the relationship between the owners and the body corporate works

A unit title development involves relationships between owners and between the owners and the body corporate.  The rules governing these relationships are set out in the Unit Titles Act.

The Act records that the body corporate is to operate and manage the unit title development and it defines the powers and duties of the body corporate.  The body corporate's powers are intended to be limited and are no more than are necessary to enable the body corporate to undertake its statutory functions.

The Act also defines the responsibilities of owners and provides standard operational rules which may be amended by the owners.

The roles of the body corporate and owners under the Act and the operational rules can be difficult to understand.  It is advisable for bodies corporate to provide information on these roles to owners in a format which is easy for the owners to digest and to encourage discussion on the practical workings of the relationships between owners and the body corporate so that any misunderstandings are identified and resolved.

The amendment of the standard operational rules is an important step which enables the owners to determine how the relationships between themselves and the body corporate will work within the framework of the Unit Titles Act.

The preparation of these rules should be a collaborative exercise in which the owners consider and discuss rules which are appropriate to their circumstances and the nature of the development.  The amended operational rules are registered on the supplementary record sheet for the development at Land Information New Zealand (LINZ) and are available to the public.  The rules provide information to prospective purchasers as to how the relationships between owners and the body corporate are defined and how the development operates, so it is important that the rules are well prepared.

The Unit Titles Act limits the type of amendments or additions that may be made to the operational rules.  Many bodies corporate have operational rules which do not comply with the requirements of the Act and are therefore invalid.  If body corporate rules are invalid there is likely to be confusion to as to the obligations between owners and body corporate and an increased risk of costly disputes.

It is important that all bodies corporate take legal advice in relation to their rules to ensure they comply with the Unit Titles Act.  If necessary the rules should be amended to comply with the Act so that there is a well defined and common understanding of the rules governing the relationships between the owners and the body corporate.

2. Clearly identify the body corporate's repair and maintenance obligations

The issue of who has responsibility to repair and maintain building elements and what repair should be undertaken is one of the most common source of disputes within unit title developments.

The issues which arise can be complicated.  The boundaries between unit and common property can be difficult to define.  The Act states the body corporate is to repair and maintain the common property and "any building element and infrastructure that relate to or serve more than 1 unit".  How this wording applies to repairs in any given situation is often a matter of debate.  The body corporate's powers to recover costs from owners who substantially benefit from work or who are responsible for the work also needs to be taken into account.  In cases where significant repair work is required a Court ordered scheme under section 74 of the Unit Titles Act is likely to be necessary (Body Corporate FAQs).

The key to avoiding costly disputes in relation to repair obligations is to identify who is responsible for repair and maintenance of the various building elements before issues arise.  If a body corporate discovers in 10 years time that it was obliged to repair a roof, deck, cladding or other building element and it has not been doing so then the body corporate could be sued by unit owners who suffer loss as a result of the body corporate's failure.  The prudent course is the body corporate to resolve these issues at an early stage.

Problems can be avoided if bodies corporate take comprehensive legal advice as to their repair and maintenance obligations.  There is then clarity as to the parts of the building the body corporate and owners are to repair and maintain and it is more likely the body corporate and owners will comply with their obligations.  Keeping the building in a good state of repair and avoiding disputes which delay or frustrate important repair work can only enhance the value of the apartments.

3. Ensure that the body corporate committee understand its role

The body corporate elects a committee which exercises the duties and powers delegated to the committee by the body corporate.  It is common for the body corporate to delegate all of its powers to the committee.

The body corporate committee is required to report to the body corporate on the fulfilment of the duties and powers delegated to it.  The committee must exercise the body corporate's powers in accordance with the body corporate rules and the Unit Titles Act.

The Courts have held that committee members who do not comply with the rules may be held personally liable for their actions and the body corporate will be vicariously liable (Guardian Retail Holdings Ltd v Buddle Findlay [2013] NZAR 988).  So it is important the body corporate committee is fully appraised of the requirements of its role.

In many cases the body corporate committee members will have no governance experience or will be new to unit title developments.  The issues which arise in unit title developments can require expertise in building, accounting, legal or other specialist areas.  It is important that committee members recognise when expert advice is required, that they solicit such advice and then act on that advice.

A body corporate committee which understands the nature of its duties and obligations, reports to the body corporate on a regular basis and takes expert advice when required will ensure the smooth operation of body corporate business and will be a real asset to the owners as a whole.

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 and provide other specialist advice to body corporate committees.   For assistance please contact Gareth Lewis on (09) 375 2376 or gareth.lewis@grimshaw.co.nz.