Toni Heath, Auckland Property Management Business Development Manager, discusses Bodies Corporate and is joined by Auckland Property Management Senior Body Corporate Manager Lisa Mak.
Welcome to the webinar on ‘Bodies Corporate and Rental Property – What landlords need to know about Body Corporate property’
What are the differences between an investment property that is governed by a body corporate, residents association or cross lease?
The differences between the three main entities include:
- Body Corporate – Unit title properties can be residential or commercial, when you buy one of these units you automatically become a member of the body corporate. Unit title owners own part of a building such as an apartment or townhouse. They also own a share of common areas such as lifts, lobbies or driveways.
- Residents Association – Specific geographic community (suburb or area) where residents and business owners come together and form a residents association to provide a voice for their local community. Especially common in areas of larger subdivisions where there is a requirement to share costs, usually for maintenance of common or shared facilities
- Cross Lease – When you have an interest in a cross lease property, you and your neighbours own all of the land. Whilst you each have a separate lease for your house or flat, you have shared ownership of the entire site. This is the most complicated form of property ownership in New Zealand, the most important thing to know is that cross lease ownership means any structural changes to the property or shared areas must be agreed upon by all owners. This means that you may need to get other owners agreement on making any changes to your property – even for things like painting the exterior, building a deck or putting up a fence
How are these three entities governed?
Body corporate – Unit Titles Act
The Unit Titles Act (UTA) is the law which governs all unit title properties and sets out rules and regulations so they are managed effectively. Currently the act is under amendment, with lobbying for changes to be made to a number of aspects of current legislation, most importantly here:
- Regulation of body corporate managers
- Remote access for BC meetings
- Long term maintenance plans
- Utility interests
- Mandatory requirements for medium and large residential complexes
- Limits on holding proxies
- Disclosure regime
- Committee and body corporate decision making
The UTA covers:
- Body corporate meetings, election, financial management and disclosure of information by sellers
- Dispute resolution and fees
- How existing rules can be applied in unit title disputes (Residential Tenancies (Unit Title Disputes) Rules 2011)
NOTE: the Annual General Meeting (AGM) is an owner’s opportunity to have their say and vote on important matters
Residents association – constitution created by developers
The constitution of a Residents Association advises on the rules and requirements such as members obligations and restrictions, the process for handling internal disputes, requirements to pay membership levies, AGMs, the format of all accounts and the reason for the need to have a Residents Association, amongst others
Cross lease – memorandum of lease
A cross lease title will have easements or covenants (terms, conditions and restrictions on the property) listed which spell out the rules.
A memorandum of lease is created which records all the obligations and requirements of members and sets out how decisions are made, as well as shows any restrictions on alterations to common property such as driveways, lawns and fences or the erection of other buildings
What due diligence should landlords follow when considering investment in a body corporate?
Firstly, always consult with a property settlement lawyer / conveyancing solicitor that specialises in unit title properties when purchasing a property. They will also be able to help you to gather information required for due diligence.
As a side note, companies such as Auckland Property Management automatically provide prospective buyers with copies of operational rules, AGM minutes, financial records, long term maintenance plans and budgets.
When buying in a Body corporate: – 3 types of disclosure documents
- Pre-contract disclosure statement (Section 146 document) which contains general information about unit title ownership, amount of levy for unit, long term maintenance plans, funds held by body corporate, and whether unit or common property has been subject of weather tightness claim. Specifically one should ask your real estate agent for copies of AGM/EGM minutes, financials and budgets, as well as committee meeting minutes. This document is obtained when considering purchase of property at a cost of approx. $300
- Pre-settlement disclosure statement includes ownership levies required for the unit, whether there are any proceedings pending against the body corporate and changes to body corporate rules since the last disclosure. This document is obtained once an offer to purchase has been accepted, but prior to the sale and purchase agreement at an approx. cost of $400
- Additional disclosure statement available on request. This is a costly exercise at an approx. cost of $700, and contains information that a professionally managed body corporate would most likely provide to you when obtaining pre-contract disclosure statement
When buying in a Residents association:
- Prospective buyer should have viewed, read and understood obligations as laid out in the constitution
- Future maintenance of common areas to protect the value of homes and can include walkways, access areas, fences, , street lighting, gardens and sometimes rubbish areas
- The constitution will detail owners legal obligations in relation to the maintenance obligations for their property
When buying in a Cross lease:
- Prospective buyer should have viewed, read and understood obligations as laid out in the memorandum of lease
- Check easements and/or covenants attached to the memo of lease
- Title includes footprint of the property, check to ensure it matches the property you are looking at
- Ask your lawyer about unexpected additions e.g. decks and what ramifications these could have to owner
General due diligence considerations:
When considering the purchase of an investment property, you should consider the follows items as part of your due diligence process:
- Obtain LIM (Land Information Memorandum) as you would for any property
- Professional home inspection
- Property / geo survey
- Health and safety (asbestos, mould, etc.)
- Pump and inspect septic / water tanks if applicable
- Flood maps
- Crime levels
- Talk to the neighbours
- Consider surrounding properties and neighbourhood
- Recent sales activity and price trends (property values)
- Location (school zones, transport hubs, new business / malls)
Who is responsible?
A Body Corporate often has many different roles in order to run smoothly, so who does what?
- Maintaining and repairing common property
- Establishing long term maintenance plan
- Taking out insurance that covers buildings
- Levying owners for contributions to fund maintenance and operating expenses
- Setting a budget and managing body corporate funds
- Making and enforcing body corporate operational rules
- AGMs must be held annually
Body corporate manager
- Contracted by body corporate to preform specific management or administrative functions on its behalf
- Facilitate maintenance of common property
- Organises meetings
- Administer body corporates financial activities
- Preparing agendas, chairing meetings
- Taking minutes
- Keeping financial records
- Signing documents on behalf of the body corporate
- Maintaining register of unit owners
- NOTE: contracted to perform the tasks of operating body corporate but responsibility remains with the body corporate committee and chairperson
Body corporate committee and chairperson
- Elected by body corporate members and must be principal unit owners
- Delegated tasks by body corporate and make decisions by majority vote
- Must be formed if more than 9 units
- Provide a copy of the body corporate operational rules to tenants
- Ensure tenants understand their obligations and obey operational rules
- Issues and disputes resolved with body corporate manager
- Keep body corporate updated of changes to tenants
Building (facilities) manager
- Ensuring daily maintenance completed
- Managing residents (complaints / emergencies)
- Maintaining a safe environment with proper lighting, signage and disability access
- Implementing emergency plans and evacuation procedures
- Overseeing security, fire prevention and other safety systems
- Scheduling regular building maintenance and janitorial services
- Contacting professionals for repairs as needed
- Ensuring occupants are provide with proper utilities
- Monitoring building maintenance budgets
- Arranging for building improvements
- Overseeing contractors and inspecting completed jobs
- Supervising grounds staff
- Ensuring building WOF is up to date annually
Your rights and responsibilities
Owners have rights and responsibilities when it comes to owning Unit Title property.
Owner/Body Corporate Member rights
- Attending AGMs
- Raising points / voting on matters affecting your unit / common areas
- Standing for election as chairperson or committee member
- Having access to and share in common property
- Having quiet enjoyment of your unit without interruption by other unit owners or tenants
- Access to dispute resolution
Owner/Body Corporate Member responsibilities
- Ensuring levy payments are up to date
- Complying with body corporate operational rules
- Complying with legal requirements relating to use of your unit
- Maintaining and repairing your privately owned area so no damage is caused to other units
- Notifying the body corporate of intentions to carry out additions
Resident associations and cross leases have very similar rights and responsibilities, the only difference being the governance thereof.
Q & A with Lisa Mak, Senior Body Corporate Manager at Auckland Property Management
Lisa Mak is an Auckland Property Management Senior Body Corporate Manager and during this webinar she answers a few questions specific to Body Corporate properties.
Click on the video above to listen to the full interview.
What is a levy invoice?
At the AGM owners decide and agree on an annual budget amount for the next year. They also agree on how many instalments of the levy will be raised and sent to each owner during the budget year. Levies vary depending on size of apartments, car parks, age and type of building. Average Auckland apartment body corporate fees annually is $5,000.00. Cannot opt out of paying levies and is in addition to council rates
Ownership interest vs. utility interest
A registered valuer assess ownership interest for each unit (essentially relative market value of that unit compared with other units). Utility interest is used to calculate the share of levies paid. If a separate utility interest is not set by the body corporate then this is the same as the ownership interest for the unit
What is a special levy?
A levy raised in addition to the standard administrative budget for a special purpose, e.g. unexpectedly large repair bill or remediation work (weather tightness!)
What are the operational rules of the body corporate?
These help the body corporate govern unit title development and are a set of expectations placed on unit owners. Ultravirus – rules that cannot be legally enforced: smoking, prostitution, pets, short term accommodation. Prevent disputes between people who live or work there. Cannot contravene any rule of law, act or regulations. Cannot give body corporate extra powers or duties. Common rules include washing, pets, external appearance, parties / noise disturbance, hazardous materials, pest control, behaviour of owners, tenants and guests
What is an accessory unit?
Inseparable part of principal unit such as carparks and storage lockers. Can be let out as a separate tenancy but cannot be sold separate to the principal unit, unless sold to another principal owner
What is an EGM?
An extraordinary general meeting is any body corporate meeting other than the AGM. May be held to get agreement from the body corporate to undertake additional or unplanned repairs
What is the LTMP?
The long term maintenance plan must cover at least 10 years and is funded by the long term maintenance fund (LTMF). Must include who prepared the plan, period covered by the plan, estimated age and life expectancy of each item covered by the plan, details of LTMF and how much to put into the fund each year
What is a quorum?
25% of body corporate owners – the percentage of owners that must be present at an AGM to allow for business to be conducted and decisions to be made
What is a special resolution?
75% majority of owners (of the 25% quorum) must vote. Covers most items such as delegation of duties / powers, decision not to be audited or anything else that will have a significant effect on body corporate owners.
If you have any questions about Body Corporate Management then please feel free to complete the form below and one of our team will be in touch.