23 May 2023
New Body Corporate Governance Rules Offer Greater Protection
One of the complaints about body corporates generally has been a lack of clear governance procedures, and managers have carried on largely unchecked. The Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Act 2022 has been introduced to clarify some of the issues and bring greater transparency to the activities of body corporate management and governance.
The new rules will provide greater protection for those who own (and those who are looking to buy) unit title properties.
The key changes to be aware of are:
1. The provisions relating to remote attendance and voting at meetings, which came into force on 9 December 2022:
You have the right to virtually attend meetings via audio visual means or other remote access facilities.
A body corporate general meeting requires a minimum number of people for a meeting of at least 25% of the principal units.
The body corporate committee must produce an agenda for its meetings, keep written records of its meetings, record its decisions and report back to the body corporate as prescribed by the regulations.
Body corporate committee members must comply with a new code of conduct to comply with the Unit Titles Act and regulations: https://www.legislation.govt.nz/act/public/2022/0019/latest/LMS368100.html
Committee members must disclose if they are ‘interested’ in a matter.
2. The following provisions came into effect on 9 May 2023:
- Increased Standards for Body Corporate Managers:
Body corporate managers must comply with a new code of conduct.
A large body corporate development (10 or more units) will need to engage one or more body corporate managers.
A body corporate manager must disclose any conflict of interest to the body corporate committee or chairperson.
- Improved Disclosure Provided to Buyers:
A seller will be required to provide an enhanced pre-contract disclosure statement.
An agreement for sale and purchase could be cancelled, or a settlement delayed, if the pre-contract disclosure is not provided, is incomplete or inaccurate.
- Planning and Funding of Long-Term Maintenance and Infrastructure Projects.
A body corporate must have a long-term maintenance plan covering a period of at least 10 years.
Large unit title developments (10 or more units) will require a long-term maintenance plan covering a period of 30 years and must review these plans every 3 years.
A body corporate will need to establish a Long-Term Maintenance Fund unless it decides not to by special resolution.
- New Disputes Resolution Rules:
A person may apply to the Tenancy Tribunal for mediation or adjudication if their dispute amounts to less than $100,000.00 regarding their unit title.
The District Court and High Court may hear a unit title dispute.
3. New regulatory powers to improve compliance will come into effect on 9 May 2024:
o The Ministry of Business, Innovation and Employment (“MBIE”) will have a number of new enforcement measures:
1. Application for an Administrator: An application can be made to the High Court for an administrator to be appointed to manage the unit title development on behalf of the body corporate.
2. The Regulator can Require Documents: Body corporates and body corporate managers must retain certain documents for at least 3 years.
3. A New Monitoring Function: MBIE can monitor and assess compliance of body corporate managers and body corporates.
4. Power of Entry: MBIE have the right to enter and inspect a unit title development.
5. Improvement Notice: MBIE may issue to a person an improvement notice for a breach or likely breach of the Unit Titles Act or regulations.
6. Legal proceedings: MBIE can bring, defend, conduct or enforce legal proceedings on behalf of another person in certain cases (it needs to be in the public interest to take on a legal proceeding).
7. Pecuniary Penalties: The Tenancy Tribunal can make an order for a body corporate or body corporate manger to pay a pecuniary penalty (which is a monetary fine) if MBIE have made an application to the Tenancy Tribunal in relation to certain non-compliance that occurs after the Amendment Act commences.
The new rules go some way to offering more protection to purchasers of unit titles by strengthening governance, improving disclosure obligations, clarifying what information should be made available to prospective purchasers, ensuring proper planning for long term maintenance, setting rules for dispute resolution and raising the standards required of body corporate managers. Some commentators argue this is long overdue and does not go far enough. They should however give owners of unit title properties greater confidence in the ownership of their property.
The above information is of a general nature only. The information in this article does in no way constitute legal advice and all readers should contact a law firm for advice relating to their specific circumstances.