Understanding the Unit Titles Act and proposed amendments.

 

At Barfoot & Thompson we are so lucky to have an in-house expert, head of Body Corporate, Adriana Radich, to provide advice on all things related to Body Corporate. At present, there is a lot of industry discussion around the proposed amendments to the Unit Titles Act. We sat down with Adriana for an explanation of some of the basics and to get her thoughts on the potential updates.

In simple terms, can you explain what the Unit Titles Act means in the world of body corporate?
The Unit Titles Act is the legislation governing all unit title properties, which most multi-unit complexes are. It was initially introduced in 1972 and then modified in 2010. Further amendments are now being considered by the government to address many confusing points and also a number of things that are not currently included. Right now, with regard to bodies corporate, there are a shocking number of things that are unregulated. As a company, we fully support revisions to the Unit Titles Act to set some industry standards to protect owners.

Can you provide an example of an issue with the current Unit Titles Act?
There is a real concern, industry-wide, on disclosure. Under the Unit Titles Act 2010, there are very set parameters that owners and the body corporate administrators are required to answer, however they are not all-inclusive. One main example is on a disclosure statement, you only need to advise whether there is currently, or ever has been any legal action regarding weathertight issues. This is a huge loophole as you may not have legal action happening at the present time, but you may be fully aware of significant issues that may very well end up in court shortly. 

What other problems are there with the current Act?
In a nutshell, it is basically an unregulated industry. There are no professional standards or formal governance. One major difference between Barfoot & Thompson and competitors is that we keep the funds for each of our body corporate clients in separate bank accounts.  99% of our competitors pool all funds into one account. This is problematic as it can lead to errors and a lack of accountability. Funds can be misappropriated and even stolen. Also, the body corporate does not accrue any interest from the account. Instead, the company receives the interest from the pooled money which is a lost chance for revenue for the body corporate. In my opinion, Trust accounts should be abolished altogether and only private, individual accounts set up for any type of complex.

How does the Unit Title Amendment Bill hope/intend to strengthen corporate governance?

We have put forward our recommendations to strengthen the legislation. We have suggested things around fund management, professional qualifications and set consequences for not meeting industry standards.It would be great if one day soon, body corporate people had to be licensed professionals.

There are also many areas that remain silent under the Act, with no specific guidance and there is no allowance for the technological age, which are some of the other areas we are advocating to be updated.

What are some examples of how a lack of standards can affect a body corporate?
We recently acquired a new client who wanted to switch from their previous body corporate firm. We were unable to access the body corporate’s funds from the previous company for two to three months because they were pooled with other body corporates in their portfolio. This is obviously problematic because should something major have come up from a financial standpoint, owners would have been without the money to cover repairs or receive their prompt payment discounts from suppliers. To be clear, there is no law against pooling funds but I feel it creates a serious lack of transparency. 

What does Barfoot & Thompson think of the newly proposed revisions?
We are 100% behind the idea of creating set rules around the industry that advocate for professional standards and creating protections for owners. Barfoot & Thompson is also an owner in bodies corporate and it is from our own personal experience that better industry standards are required as you are talking about a significant amount of money held by these companies.

Why should owners pay attention to what is happening around the Unit Title Act?
There is a lot of money at stake. Having a professional body corporate company taking care of your complex increases the value of your unit. This is because it creates assurances for potential purchasers that there will not be problems if they buy there. A good audit trail is critical in proving to purchasers that their investment will be safe and in good hands.

Is there anything that investors would be keen to know about this topic?
What I am seeing a lot of is investors considering doing developments related to the Auckland Unitary Plan seeing the benefits of a Resident Society versus a Body Corporate. There is less regulation and less cost to them per unit should they decide to take that route.

In our next piece with Adriana, we will take a closer look at the difference between body corporates and resident societies, so look out for this. For further information on Body Corporate, please get in touch with Adriana Radich or any of her Body Corporate Managers.

For property management advice and more information contact one of our property managers.