Understanding The Nuance Of Unit Ownership
It’s important before you buy into a unit title development that you check all the rules, writes Annabel Sheppard, partner at Wynn Williams.
31 October 2022
Unit title ownership typically relates to high-rise commercial and residential buildings, but it can also apply to stand-alone houses which may or may not adjoin each other. Buying a unit title is the same as buying a house in that it has its own title. However, when you buy a unit title you become a member of a body corporate along with the owners of all the units within the unit title development.
As a unit title owner you get exclusive use to your unit/dwelling area together with the right, along with all the other members of the body corporate, to use the common property.
Together with the other members there will be maintenance and upkeep of the common property. As an entity, the body corporate is responsible for the management and upkeep of the common property and insurance premiums, along with other repair and maintenance obligations.
While the Unit Titles Act 2010 does contain rules around membership, each unit title development may have its own separate rules which override the default operational rules of the act. They may also be governed and operated in different ways.
It is important before you buy into a unit title development that you check the rules applicable to that particular development. Not only will these rules govern how you and the other owners use and enjoy your property, they will also govern the operation of the body corporate as an entity in its own right.
Invariably the rules will seem onerous. However, they can act in your favour and protect your investment. For example, other owners cannot make additions or alterations to their property without consulting you. However, these restrictions could also then apply to you.
Unlike buying a free-standing house with its own title, in a unit title scenario you will also be charged a body corporate levy in addition to your rates. The levy covers your share of the costs for maintaining the common property and your share of the insurance for the whole development. It is important to check whether the body corporate has a maintenance fund, a contingency fund or capital improvement fund. This will be a good indication of whether sufficient funds have been set aside for maintenance. It is important you clarify whether you’re required on an ongoing basis to make contributions towards such funds. This is particularly important with older developments to ensure you don’t get caught with potentially unbudgeted costs if major maintenance is required.
The body corporate is responsible for insuring all buildings and other improvements on the land. Due diligence is required to check the details of the insurance, not just in relation to your unit but the whole development. In the event of any damage, the proceeds of the insurance policy must be used for reinstatement unless there is a contrary unanimous resolution by all unit owners.
In the event of major damage it won’t be you dealing personally with the insurance company about your unit. Rather, it’s the body corporate as a whole that has to deal with the insurance company. The Christchurch earthquakes have shown that this does not necessarily equal smooth sailing when sorting out major damages. A lot of cooperation and coordination is required to reach resolution and that may take a very long time. Everyone has to agree when resolving insurance claims and dealing with repairs and you are not entitled to just ask for your share of the insurance proceeds as it is held collectively by the owners of all units that form the body corporate.
It’s also important to do due diligence on how the body corporate operates and what its governance structure is. Body corporates made up of only a few separate houses, in particular, may not be properly run and there may be no chair or person overseeing maintenance of the common property. Smaller developments are less likely to have a maintenance fund or funds set aside for future repairs, which can then potentially lead to unexpected expenses. Request a copy of the most recent financial accounts from the body corporate.
Before buying, you should:
- know the ongoing costs, especially in relation to your rates and levies and contribution to any extra maintenance/ capital funds
- carefully read the body corporate rules as they will vary between developments
- check how well organised and managed the body corporate is
- check adequacy of the insurance cover and maintenance fund.
Taking time to ensure you have the right information will ensure you avoid unwanted surprises.