It has been four months since the third and final wave of amendments to the Unit Titles Act 2010 and Unit Titles Regulations took effect, bringing new compliance requirements to the operation of bodies corporate. In Michelle Hill and Oliver Hobb’s latest article published in the New Zealand Law Society’s The Property Lawyer magazine, we examine the key changes, including new obligations surrounding body corporate management contracts, electronic voting procedures, enhanced long-term maintenance plans and expanded MBIE enforcement powers. These developments will have a significant impact on body corporates and unit owners, ensuring greater oversight and operational transparency.

Introduction

Recent regulatory changes have bolstered the administration and governance of bodies corporate and those changes present a number of issues for property lawyers to advise their clients of. The Unit Titles (Strengthening Body Corporate Governance and Other Matters Amendment Act 2022 (the Amendment Act) has come into force in three waves – the first tranche on 9 May 2022, the second on 9 May 2023 and the final tranche on 9 May 2024. In addition, the Unit Titles Amendment Regulations 2024 came into force 6 May 2024.

In this article, we look at those amendments to the Unit Titles Act 2010 (the Act) which came into force on 9 May 2024 as well as the amendments to the Unit Titles Regulations 2011 (the Regulations). As with the previous two waves of amendments, the third and final wave has imposed further compliance requirements for bodies corporate and body corporate managers. In particular, we will cover the following new requirements:

• Management Contracts: Requirements for a contract between a body corporate and a body corporate manager to contain specific terms.
• Electronic Voting: Procedures for electronic voting and remote attendance at general meetings.
• Enhanced Long-Term Maintenance Plans: Changes to requirements for long-term maintenance plans and funding for long-term maintenance.
• Enforcement: Increased enforcement powers for MBIE as regulator and new penalties that may be ordered by the Tenancy Tribunal.

Contracts between bodies corporate and a body corporate manager

New regulations introduced by the Amendment Act set out specific terms that must be included in agreements when engaging with a body corporate manager (Regulation 28C). Agreements setting out terms of engagement must include the following terms:

• The manager’s reporting requirements to the body corporate on the performance of the manager’s functions and duties;
• The requirement to comply with the code of conduct set out in Schedule 1B of the Regulations;
• The requirement for reviews of the manager’s performance at specified intervals and the key performance targets and other measures by which the manager’s performance is to be judged;
• Grounds for termination and the process for doing so, if met;
• The role, if any, of the manager at general meetings of the body corporate;
• Records, funds, or other things of or relating to the body corporate that must be returned by the manager to the body corporate if the agreement is terminated or the term of the agreement ends; and
• The latest date, whether specified or able to be calculated, by which the things relating to the body corporate must be returned by the manager to the body corporate if the agreement is terminated or the term of the agreement ends.

Electronic voting and remote attendance

The Amendment Act introduces the ability for eligible voters to cast votes electronically at body corporate meetings (section 103A of the Act). Votes can be cast electronically before or during a meeting, and must be cast in accordance with the Regulations. 

Body corporate clients should be advised that they must take reasonable steps to:

• Provide one or more remote access facilities, which could be an audio link (e.g. phone conferencing) or an audiovisual link (e.g. video conferencing), provided that the technology adequately enables owners to participate in and vote at the meeting (Regulation 12A and section 88(3) of the Act); and 
• Enable eligible voters to vote by ‘any way in which a vote is cast using electronic means’ (Regulation 15A(2)).

When MBIE consulted with the public regarding Regulation 15A(2), some of the other options for casting electronic votes were more prescriptive, for instance, an option requiring a form to be completed and sent by electronic means. The final Regulation appears to permit informal voting, such as an owner communicating in words or by a raised hand that they vote in favour of a motion.

Any notice of a general meeting must now set out information about how to attend remotely (Regulations 6(4)(ca), 8(2)(da) and 8A(5)(da)). The following ‘electronic voting information’ (Regulation 3) must be included in the notice:

• Information about how to cast a pre-meeting vote electronically;
• The date/time of return for electronic pre-meeting votes;
• Information about how to cast a vote electronically during the meeting; and
• A statement regarding a validity of an electronic pre-meeting vote if the general meeting is adjourned, or if the motion is materially altered at the meeting.

Electronic voting must be made available to eligible voters from the last day on which the notice of meeting could have been issued, for instance, three weeks before an AGM (Regulation 15A(1)(b)). Note that a proxy is not eligible to cast an electronic vote (section 102(1) of the Act).

One Regulation that may be open to interpretation is the requirement for bodies corporate to take ‘reasonable steps’ to verify the identity of persons casting a vote electronically (Regulation 15A(1)(c)). ‘Reasonable steps’ is not defined. Notably, MBIE’s public consultation included other more rigid options such as a requirement to sight and keep copies of formal identification. The words ‘reasonable steps’ certainly indicate a more flexible approach, however, bodies corporate and their managers should be advised to keep records of the method used to identify anyone casting an electronic vote.

Long-term maintenance plans

From 9 May 2024, all bodies corporate must have updated their long-term maintenance plans to summarise the current state of the common property and state the sources of funding for the plan (Regulation 30 and section 30(1) of the Act).

The Amendment Act allows bodies corporate to determine the level of funding to be held in the long-term maintenance fund. If a body corporate has decided not to establish a fund in the past, the body corporate must review the decision annually and may establish a fund by special resolution (a 75% vote) on review (sections 117(1A) and 117(1B) of the Act). A common misconception of unit owners is that a long-term maintenance fund must be fully funded by levies in advance, a perception which may extend to purchasers of units expecting that funds have been accumulated for upcoming capital expenditure. Even with the new requirements to establish a fund and review the fund (or lack of a fund) annually, the body corporate may decide how to fund long-term maintenance items, for instance, a body corporate might decide to levy funds to paint the building exterior but not levy funds for replacement of the roof. Such an example highlights the role of a conveyancing practitioner not only to advise on the content of a long-term maintenance plan but also the way to interpret it correctly.

Special provisions for ‘large unit title developments’ (consisting of 10 or more units) now include additional requirements regarding long-term maintenance plans (section 157C of the Act). Large unit title developments must:

• Ensure the plan covers a period of at least 30 years from the date of the plan or the last review of the plan, however, in respect of years 11 to 30 the plan does not need to state the life expectancy of items or the amount to be applied to the fund and only a ‘high-level indication’ is required for the expected cost of maintenance or replacement of items (Regulation 30A);
• Review the plan every 3 years (as above) or when the body corporate becomes aware of a matter that will have a material impact on the plan; and
• Consult with one or more building professionals or other suitably qualified professionals when the body corporate develops and reviews the plan, unless it decides by special resolution not to.
• Regulation 30(1A) clarifies that a body corporate must apply levies raised for the long-term maintenance fund to that, which prevent bodies corporate from reallocating levies to the operating account, for instance. 

New regulatory powers

As regulator, MBIE now has a range of new functions and powers to ensure compliance by bodies corporate and their managers under the Act. These functions and powers include, amongst other things, the right to:

• Request relevant documents from bodies corporate (section 202A of the Act);
• Issue improvement notices (Subpart 1A of the Act);
• Use powers of entry to inspect unit title properties (sections 202B-202D of the Act);
• Apply to the Tenancy Tribunal to order a pecuniary penalty for breaching duties (section 176B of the Act); and
• Take proceedings in place of any person who is entitled to bring a claim in the Tenancy Tribunal if it is in the public interest to do so (section 202E of the Act).

Regulator requiring documents

Certain documents are now required to be retained by bodies corporate and body corporate managers for at least 3 years and may be requested by MBIE at any time. Practitioners should refer their clients to Regulation 36A for the full list of documents, many of which would be retained as a matter of course but also include the following documents which are less obvious:

• All notices, agendas, and minutes of body corporate committee meetings;
• The written agreement setting out the body corporate manager’s terms of employment or engagement;
• All service contracts entered into by the body corporate;
• Registers of conflicts of interest for both the body corporate committee and the body corporate manager;
• Any document that sets out any current warranties from third parties for common property, assets owned by the body corporate, or building elements and infrastructure of the unit title development;
• Any remediation reports or reports about earthquake-prone issues or other significant defects; 
• Any notices given to owners regarding the body corporate’s entry into a unit to carry out maintenance; and
• Any notice of designated resolution served under section 213 of the Act.

Improvement Notices

The Amendment Act introduces improvement notices as tools that MBIE can issue to a person for a breach or likely breach of the Act or the Regulations. MBIE can require the person to remedy the breach or put a stop to actions likely to cause a breach (section 176F of the Act).

A person who has been issued with an improvement notice will be able to challenge the notice in the Tenancy Tribunal within 28 days (section 176J of the Act).

Pecuniary Penalties

The Tenancy Tribunal may, on application of MBIE, order a pecuniary penalty for the following breaches (sections 176B and 176C of the Act):

• A body corporate manager failing to disclose a conflict of interest or failing to act independently when engaged as a body corporate manager for more than one body corporate – the maximum penalty for a breach is NZ $5,000.
• A body corporate or a body corporate manager failing to produce the required documents under Regulation 36A to MBIE – the maximum penalty for a breach is NZ $1,500.
• A body corporate or a body corporate manager obstructing or hindering MBIE from exercising a power of entry – the maximum penalty for a breach is NZ $3,000.
• A body corporate or a body corporate manager failing to comply with an improvement notice – the maximum penalty for a breach is NZ $3,000.

When viewed as a whole, the third wave of amendments to the Act and Regulations provide pragmatic solutions to administrative matters faced by bodies corporate, while also steering bodies corporate and their managers towards a more professional standard of governance without imposing such stringent statutory obligations as, for instance, company directors. One of the big tests for the Amendment Act will be MBIE’s ability to influence and oversee the compliance of unit title specialists and bodies corporate by way of MBIE’s new enforcement functions and powers. As ever, property lawyers have a key role to play.

This article was first published in Volume 25 Issue 1 of The Property Lawyer.