UNIT TITLES – WHAT ARE UNIT TITLES AND HOW DO THEY WORK?
Unit titles are becoming more common as residential land becomes more scarce. Not only do they appear in apartment developments but also free-standing units in residential and commercial developments as well.
WHAT YOU NEED TO KNOW ABOUT UNIT TITLES
Purchasing, owning and selling a unit title property is different from a standard freehold property. This article sets out useful background information on unit titles. See also our separate Atticus Legal article on disclosures required, and recommended, on sale and purchase of a unit title at https://atticuslegal.co.nz/2016/10/disclosure-requirements-on-sale-of-a-unit-title/
Unit title ownership under the Unit Titles Act 2010 (the Act) gives the individual owner (the ‘unit proprietor’) ownership of his or her principal unit (and accessory units, if any), but excludes anything outside that space which will either belong to another unit proprietor or be common property.
UNIT TITLE TERMINOLOGY
Body corporate: Under the Act a body corporate is established and all the unit proprietors are automatically members. It’s like a company that represents all unit owners and ‘governs’ the entire unit title development. The body corporate (and any body corporate committee elected by the members) administers the land and buildings, enforces the body corporate rules and takes the steps needed to satisfy the requirements of the Act and the body corporate rules. The duties of the body corporate include:
- insuring the development, including all units and common property, and paying the premiums (except where, in limited circumstances, the body corporate decides that each unit proprietor is to insure their own unit – see below);
- maintaining and repairing the common property (as well as the ‘building elements’ and infrastructure that serves more than one unit) and replacing these where necessary;
- establishing a fund for payment of operating and administrative expenses, insurance premiums and other outgoings and levying contributions from the unit proprietors for these purposes in proportion to their respective ‘utility interests’; and
- establishing a long-term maintenance plan and, unless opted out by resolution of the members, a long-term maintenance fund (and possibly a contingency fund) and levying the unit proprietors accordingly.
Principal unit: Depending on the type of development, this type of unit is intended for use either as a place of residence, business or otherwise (use rights are set out in the body corporate rules).
Accessory unit: This type of unit is intended to be used in conjunction with a principal unit. Title to it cannot be separated from the principal unit and it cannot be sold separately unless transferred to the owner of another unit on the same unit plan. Examples of accessory units are garages, carparks and storage space.
Common property: This is part of the land on the unit plan that is not included in any principal or accessory unit (eg. driveways, stairways and other facilities for common use). Common property is effectively owned by all the unit proprietors in proportion to their respective ‘ownership interest’. However, its use is governed by the body corporate and the body corporate rules and it is maintained and insured by the body corporate.
Ownership interest: An ownership interest is assigned to every principal unit and accessory unit based on the relative value of a unit compared to other units in the development at the time the development is established. It is used to determine such matters as voting rights at general meetings as well as each proprietors’ liability to contribute to any legal proceedings brought by/against the body corporate or to contribute to any capital improvement fund (if any).
Utility interest: This is the same as the ownership interest except that it can be changed by the body corporate, by resolution of the members. It is used to determine such matters as each proprietors’ liability to contribute to body corporate operating costs (eg. costs of administration, insurance, common property expenses and current maintenance) as well as contributions to any contingency fund or long-term maintenance fund, if any. Annual levies require the approval of a resolution of the body corporate members. Note that a member may not be permitted to vote at a general meeting if their levies are in arrears.
MAINTENANCE OF, AND ADDITIONS AND ALTERATIONS TO, UNIT TITLES
All unit title proprietors are required to maintain and repair the interior (non-structural parts) of their own unit. However, a unit proprietor is not permitted to make additions or structural alterations to any unit (or the ‘building elements’ or infrastructure) without first obtaining the written consent of the body corporate. The body corporate will refuse consent if the proposal involves a change to the building elements or structural work that affects other units or common property or any change to the external dimensions of the unit (eg. adding a deck or balcony).
‘Building elements’ include the structure of the building itself, roof, cladding, balconies, etc. ‘Infrastructure’ means wires and pipes, etc serving or running to/from any unit or the common property.
COMPULSORY & OPTIONAL DISCLOSURE STATEMENTS
See our separate information sheet specifically relating to the disclosure statements required, and recommended, on the sale and purchase of a unit at https://atticuslegal.co.nz/2016/10/disclosure-requirements-on-sale-of-a-unit-title/
UNIT TITLES INSURANCE
The body corporate is required to insure the entire unit title development, including all units and any common property. However, rarely and in limited circumstances involving stand-alone units, the body corporate can determine (subject to the approval of a resolution of the members) that the unit proprietors must insure their own units. Any claims under the body corporate insurance are managed by the body corporate, as are repairs to the structure (the building elements and infrastructure) and common property. The insurance premiums are included in the body corporate levies.
BODY CORPORATE RULES FOR UNIT TITLES
The body corporate rules (or ‘operating rules’) are set out in the Act and regulations under it, except that the body corporate may alter or add to those rules by resolution of the members. Any addition or change to the rules must be registered at the Land Registry. The body corporate rules are binding on all unit proprietors and also any tenants. The rules relate to such matters as governance (meetings procedure and voting at meetings, election of the body corporate committee, etc), rules relating to permitted use (and restrictions on use) of units and common property and rules relating to the management of common property.
LONG TERM MAINTENANCE PLAN
Every body corporate is required to have a long term maintenance plan which must cover the common property, the building elements, infrastructure and any other items determined by the body corporate. The plan must include an estimate of the cost of maintenance and replacement of each item dealt within the plan, state whether or not there is a long term maintenance fund and, if so, state the amount required (from unit proprietor levies) to maintain that fund each year.
LONG TERM MAINTENANCE FUND (if any)
Unlike the requirement for a long term maintenance plan, the body corporate can opt out of having a long term maintenance fund if so authorised by a resolution of members at a general meeting. In those circumstances it is not compulsory for a body corporate to establish a long term maintenance fund and to levy unit proprietors in respect of it. This type of fund, if it exists, is funded by ongoing levies on the unit proprietors. The long term maintenance fund (if any) can only be applied to items contemplated in the long term maintenance plan. The presence or absence of such a fund is significant. Some owners and prospective purchasers would view the absence of a long term maintenance fund as a negative. Also relevant to owners and prospective purchasers is the perceived adequacy of the fund and ongoing contributions to it.
CONTINGENCY FUND (if any)
In addition, the body corporate may establish and operate a contingency fund and levy the unit proprietors accordingly. This fund (if any) can be applied to costs not dealt with in the long term maintenance plan.
Subject to some exceptions, the Tenancy Tribunal has jurisdiction to hear and determine body corporate disputes up to $50,000.00.
WANT TO KNOW MORE about unit titles? Just ask Atticus Legal, Lawyers Hamilton NZ
CALL ANDREW SMITH, the owner of Atticus Legal, for expert professional advice on any of the matters referred to in this information sheet.
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Disclaimer: The information contained in this information sheet is, of necessity, of a general nature only. It should not be relied upon without appropriate legal advice specific to your particular circumstances.
This information sheet is copyright © Atticus Legal, February 2016.