Are townhouses without a body corporate left exposed? Residents’ associations shoulder a major responsibility

In recent years, as the Auckland Unitary Plan has become established and the direction of the Medium Density Residential Standards (MDRS) has become clearer, more land has been developed at medium to high densities. Correspondingly, more New Zealanders are choosing townhouses over standalone houses.

Yet buyers see a hierarchy even among townhouses. In the public mind, fee simple is the best form of ownership compared with cross lease or unit title. Many townhouse buyers once shared the New Zealand dream of a quarter-acre section, and still tend to favour townhouses with freehold titles.

Ten years ago, many townhouse developments could only be subdivided into unit titles. This meant that buying a townhouse automatically made you a member of the body corporate. The body corporate consists of representatives elected by the owners, collects an annual levy from each owner and oversees its expenditure. Generally, the body corporate owns the common areas, such as driveways, communal rubbish collection points and underground stormwater systems in townhouse developments, or lifts and communal gardens in apartment buildings. Each owner effectively owns a share of those common areas.

Today, to accommodate buyers’ concerns, developers are bringing large numbers of townhouses to market with fee simple titles and no body corporate as selling points. Without a body corporate framework, how should the shared facilities listed above be regulated and managed?

What is a residents’ association?

A residents’ association (Incorporated Society / Resident Society) is a legally registered residents’ organisation. The new fee simple developments mentioned above often share numerous facilities and resources, such as roads and underground stormwater systems. Maintaining these shared facilities and resources requires all owners’ participation, giving rise to organisations such as residents’ associations.

Every residents’ association has its own constitution setting out its operating procedures and rules. These cover matters such as owners’ responsibilities and restrictions, dispute resolution, financial management requirements, owners’ payment obligations, annual general meetings and the association’s purpose. Residents’ associations usually engage an external management company, such as Crockers, where the author works, to provide secretarial assistance with drafting the constitution.

The association’s constitution and other relevant legal documents exist to protect all homes and assets within the development. Its rules generally relate to the resource consent conditions under which the project was originally developed. It is therefore very important that owners understand their responsibilities and obligations within the residents’ association. 

A residents’ association’s constitution will usually specify requirements for homes and owners, such as:

• Rules and requirements for alterations to a home’s exterior
• Requirements for exterior wall colours
• Rules and requirements for residents’ parking
• Requirements for the use and maintenance of common areas

It is particularly important to emphasise that an encumbrance is registered against each fee simple title, requiring the owner to be a member of the residents’ association. This encumbrance also binds future owners. 

What do residents’ associations and bodies corporate have in common?

Body Corp shares its main similarity with a residents’ association in that both organisations comprise owners and aim to maintain the development’s character and protect its interests. Both must hold annual general meetings, manage communal funds, prepare financial statements and annual budgets, maintain common areas and protect owners’ collective interests. At the annual meeting, owners elect a chairperson and committee to handle the development’s affairs on their behalf.

Professional management is very important for residents’ associations. As with a body corporate, owners usually appoint a professional property management company to ensure the development runs smoothly. This ensures owners receive professionally prepared association financial reports, meetings are held on schedule to discuss matters affecting the development, and common-area maintenance and repairs are coordinated. The company also uploads and updates the association’s documents on time and maintains timely communication with owners. Because association constitutions are often complex and detailed, first-time owners in a development frequently have many questions. Property management companies such as Crockers are committed to efficient communication so residents’ and owners’ concerns can be resolved promptly.

Residents’ associations and bodies corporate: what are the differences?

 

The main differences between residents’ associations and bodies corporate are as follows:

Legal framework

Bodies corporate are governed by the Unit Titles Act 2010 and the Unit Titles Regulations 2011, while residents’ associations are governed by the Incorporated Societies Act 1908. Body corporate operating rules, such as meeting frequency, owners’ obligations and decision-making processes, are subject to the relevant legislation. Residents’ associations, however, can amend their constitutions at owners’ meetings. 

Maintenance and repairs

A body corporate has the right to enter a unit to inspect and repair matters affecting the exterior, structure or shared facilities. A residents’ association can act only under the terms of its constitution and is usually responsible only for maintaining and repairing shared facilities. Maintenance and repairs to individual homes remain the responsibility of their owners.

Bodies corporate are legally required to have a long-term maintenance plan; residents’ associations are not. 

Legal entity

A body corporate is automatically created when unit titles are registered with the land registry. Once created, that legal entity continues to exist until the unit title arrangement is cancelled.

For a residents’ association, owners can collectively register a legal entity through the Companies Register website. As with a company, they must update its registration and upload the association’s accounts at the required time each year. If the registration is not renewed on time, or owners choose not to renew it, the legal entity will cease to exist.

Sharing costs

All body corporate costs are allocated proportionately according to ownership or utility interests. Residents’ association costs are generally shared equally among members, although there may be exceptions, which will be specified in the constitution.

Selling a home

An owner selling a unit must provide the buyer with a pre-contract disclosure statement when selling and a pre-settlement disclosure statement before settlement. Residents’ association rules generally require the current owner, as seller, to have the buyer complete a deed of covenant and send it to the association’s secretary.