What Is a Unit Title? Essential Guide for First-Home Buyers in New Zealand
Schnauer & Co often have enquiries about unit titles (or cross leases), considering how expensive it is to buy a freehold property in Auckland. Most first home buyers don’t quite know what "bundle of rights" comes with owning this type of property.
When buying a unit title, you must study the plan to ensure there are no structural or physical alterations to the unit which are not shown on the plan (which is also done when looking at a cross-lease property). Unit titles are often referred to as 'strata title' or 'stratum estates”. Apartment buildings, townhouses, and units in a complex are common examples of strata-titled properties.
Pros and cons
A strata title can be a more affordable way to enter the property market, with the benefit of shared amenities and the fact that the Body Corporate ensure a lot of the general maintenance is attended to. The downside can be high levies, ongoing costs and rules which some may find complex. Also, some lenders tend to only approve finance for buyers with at least a 20% deposit.
Unit title owners own a defined part of a building (the relevant unit and an accessory unit, which can be a carpark and/or a locker to store sporting equipment, etc) within a larger building or complex, and along with a shared ownership of the common property (lobby, gardens, pool, lifts etc). This differs from freehold ownership where one owns the land and building outright. It is similar to owning a piece of a larger puzzle, where you have your own piece (your unit) and share the rest of the puzzle (common areas) with others.
It essentially provides that all the unit owners together constitute a “Body Corporate” which in turn has rules relating to what the various unit owners can and can't do. Some complexes appoint a professional Body Corporate manager to handle the complex administrative, financial, and maintenance duties of managing a multi-dwelling building. There is a standard set of rules set out in the Unit Titles Act 2010 (UTA) which can be varied by unanimous resolution of all unit owners and certain other rules which can be amended by a simple majority resolution at the meeting of the Body Corporate.
You must not undertake any structural alterations to your unit without the consent of the Body Corporate. Furthermore, if you intend to make any alterations to your unit or improvements at the property then depending on the nature of such alterations, you may need to obtain a new unit title which can be costly.
In addition, all units in the complex must be insured for building insurance under a sole Body Corporate policy which will already be in existence. The insurer can be changed if the owners resolve to do so at a Body Corporate meeting. Your legal adviser can order your COC (Certificate of Currency – the certificate to confirm that the unit is insured under your name and which also notes your lender as an interested party) when the agreement for sale and purchase has gone unconditional.
On the Unit Title plan, there are areas marked "Common Property" and all unit owners are entitled to use these areas. Any maintenance costs or other costs that are attributable to the entire property which are not directly attributable to the individual units, are payable by all unit owners in the shares allotted to each unit. Sometimes there are areas on the Plan that has been set aside for future development by the original developer of the entire property.
What maintenance is the Body Corporate responsible for and what would you be responsible for?
There are lengthy definitions in the relevant legislation which we will address. Any part of the building that relates to or serves more than 1 unit and are necessary to the structural integrity, the exterior aesthetics, or the health and safety of occupants is the Body Corporate’s responsibility. For example, foundations, roofing and essential structural components. As is, Infrastructure that is essentially for all shared services and utilities, whether to or from a unit or to or from the common property. For example, leaky apartments needing cladding repair are handled by the Body Corporate. In the past there have been arguments, particularly if a unit owner does not want to or could not pay to repair of say a deck which the Body Corporate had typically viewed as the individual owner’s responsibility.
However, with legislation changes, decks are a good example as these are now building elements for the Body Corporate to deal with (if they fall within the definition above).
Legislation
The UTA superseded those rules set out previously which prohibited pets. You should always refer to any agreed variations to the rules which are registered on the Supplementary Record Sheet to the Record of Title for the unit. This Act does not specifically address pets in detail, but it establishes a framework for body corporate rules, which can include restrictions on pets. A precedent set in 2018 clarifies that Body Corporate rules prohibiting pets can be challenged. It is common to see variations of rules which allow the Body Corporate the right to consent to pets (based on size, how many pets etc).
If a Unit-Titled complex wishes to add to the default rules, they can register new rules. Any new rules must relate to the control, management, administration, use, or enjoyment of the units in the Body Corporate, and cannot be contrary to the latest Act. You therefore cannot use rules to contract out of the latest Act, or any other legislation.
A final set of changes intended to improve how unit titles are managed came into force on 9 May 2024. There are now new rules around long term maintenance plans, Body Corporate contracts, regulator enforcement provisions and new regulations must now be complied with.
The Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Act 2022. This Amendment Act addresses:
all changes to requirements for long-term maintenance plans (“LTMP”) and LTMP funds;
the requirement for a contract between a Body Corporate and a Body Corporate manager to contain specific terms;
the enforcement provisions for the regulator; and
the provisions which require regulations to be made.
New regulations
The Unit Titles Amendment Regulations 2024 (Regulations) amending the Unit Titles Regulations 2011 are now in force implementing some of these new changes.
Long term maintenance plans and funds
The general position remains the same, that is:
all Body Corporates must establish and maintain a LTMP – there is no ability for a Body Corporate to ‘opt-out’ of this by special resolution; and
Body Corporates must establish and maintain a LTMP fund unless the Body Corporate resolves by special resolution not to.
There are some amendments to the requirements, form and content of the LTMP and LTMP funds, including:
all Body Corporates must have an LTMP that covers at least a 10-year period, except for large unit title developments (10 or more units) which must cover a 30-year period to be reviewed every 3 years or sooner if it will have a material impact on the unit title plan. A Body Corporate of a large unit title development must (unless special resolution occurs), consult suitable qualified processionals when preparing the LTMP;
The LTMP must now summarise the current state of the common property and state the sources of funding for the plan; and
a Body Corporate which resolves not to establish a LTMP fund will now be required to review that decision annually in accordance with the Act.
What are some of the matters that need to be included in your pre-contract disclosure statement (PCDS)?
details of all Body Corporate funds and bank accounts (i.e. bank statements);
financial statements and audits;
levy information (how much, how often it is paid, any unpaid levies), and including information about any special levies;
LTMP and funds and the next review date;
information about insurance (certain building status information depending on location);
the latest Body Corporate rules, notices, agendas and minutes of Body Corporate and committee meetings are usually enclosed as they would be requested anyway;
contact details for any current Body Corporate or committee chairperson or current or past Body Corporate manager; and
details of any proceedings in any court or tribunal that the Body Corporate is involved in, and including any disclosure about weathertightness matters.
For more information, this website will be helpful. https://www.unittitles.govt.nz/buying-or-renting-a-unit-title/buying-or-selling-a-unit-title/#pre-contract-disclosure-statement
It is important to check the pre-settlement disclosure statement (PSDS) in case new information is mentioned when this is issued just prior to settlement. There is a deadline for the vendor to provide this. The PSDS is an opportunity to provide more updated information between the date the PCDS was issued and then just prior to settlement.
What happens with unplanned maintenance?
These costs are usually paid from the operating account or, if there are insufficient funds received from the annual levies, sometimes special levies will be invoiced to unit owners. A resolution could also be passed by the Body Corporate Committee to transfer money from the long-term maintenance fund to the operating account.
Look out for Part 2 – So you want to buy a Unit Title? Here is what to look out for in disclosure!
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
You can contact the team at Schnauer & Co. by getting in touch with Kim Hunt.
Kim Hunt
Senior Registered Legal Executive/Conveyancer
Email: khunt@schnauer.com
DDI: 09 892 0351
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