New Zealand Law Society - Unit titles, and the element of surprise

Unit titles, and the element of surprise

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One of the best editorials I ever read was entitled “The Element of Surprise”, about how new experiences, travel, and surprises can broaden the mind. Lawyers, of course, hate surprises. We like to deal in certainties, predictions, and clear outcomes. Even where outcomes are uncertain, we like to know that the rules of the game are clear, so that we can work through (or around) them.

It is against this context that, hot on the heels of a Regulatory Systems Amendment Bill that included proposed amendments of various parts of the Unit Titles Act 2010, a broader discussion document around review of the UTA was distributed in late 2016.

There is the potential for some cynicism about the UTA reform process. Plans to amend the 1972 legislation developed over many years, but the implementation and start of the UTA was somewhat rushed – to the extent that regulations were released shortly before the Act came into effect, and sample forms for disclosure documents were made available the week before commencement. Rushed law is often bad law.

Since the introduction of the UTA 2010, we have seen a 2013 Amendment Act, the 2016 Regulatory Systems Amendment Bill, and now proposals for further reform. We have also seen court decisions have a major impact on interpretation and statutory meaning. To provide some examples, the Tremont decision has (sort of) resolved questions over s 101(1) ([2014] NZHC 988); the Wheeldon decision has (sort of) resolved questions as to the prevalence of s138 over s80 ([2016] NZCA 247); the Body Corporate 201036 decision has interpreted the extent of body corporate powers under s77 ([2016] NZHC 2035), and the Supreme Court decision in Gilbert has more or less completely reinterpreted what a body corporate is, and what body corporate rules are for ([2016] NZSC 61). Such is the element of surprise.

Five key areas for reform

The discussion document draws on a report by an earlier working group, and identifies five key areas for reform:

  • Improving the disclosure regime, by making it both simpler (fewer steps) and more comprehensive (more information to buyers),
  • Strengthening body corporate governance,
  • Increasing the professionalism and standards of body corporate managers,
  • Beefing up requirements for long-term maintenance funds,
  • Making the dispute resolution process more accessible.

Beyond these specifics, the discussion document also considers more rigorous compliance requirements for larger bodies corporate, and the improvement of government services to the UTA sector.

Some proposals make obvious sense: a regime to address conflicts of interest, particularly where managers are also owners, is critical to effective body corporate governance, and is currently absent from the UTA and Regulations. Better mechanisms to deal with long-term contracts, as suggested in the report, would also be a positive outcome for owners.

Other matters are more difficult. Having transparency around committee delegations is a good thing, but liability risks must not become unpalatable. The notion that a chairperson must sign-off on a long-term maintenance plan will place too much onus on a layperson without professional training.

Similarly, the UTA disclosure regime currently does not fit off-the-plans sales, but there are no plans to provide for off-the-plans sales, even though this is where many (if not most) purchase risks arise. For some, freedom of contract should prevail; while for others, consumer protection is key. A disclosure framework that continues to operate as “vendor to purchaser”, when the reality is “body corporate manager to purchaser” will continue to have uncertainties.

Too many surprises

It is widely agreed that the UTA 2010 needs reform. There are too many surprises. But it needs to be accepted that some of these arise out of the dualistic nature of unit titles, which involve a difficult combination of individual and collective interests. Most purchasers buy a kitchen, a view, access to transport networks, or a rental return, rather than a title – let alone a stake in a community. What a unit title actually is remains poorly understood, even by the courts.

These reforms, therefore, are a step in the right direction, rather than a panacea, and broader thought on how to educate buyers, and the role that lawyers play in this role, may be needed.

That is, owners as much as lawyers will be keen to avoid any element of surprise.

Submissions on the discussion document close on 3 March 2017.

Thomas Gibbons is a Director of McCaw Lewis Lawyers in Hamilton and specialises in property and commercial law. He is author of Unit Titles Law and Practice (LexisNexis, 2nd edition 2015) and co-author of a number of other titles on real property law.

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