Unit titles changes on the way

As intensification – whether via infill or greenfield or brownfield conversion – and the move away from single lot / one house developments becomes increasingly common, it appears inevitable that the construction of unit title properties will increase.

Changes to the existing unit title legislation – currently contained in the Unit Titles Act 2010 (Existing Act) – set out in the Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Bill (Amendment Bill) have merit to ‘level the playing field’ and reduce risk for purchasers of units. However, in so doing, owners / developers and their funders will be required to ensure Body Corporates strictly comply with their obligations, and adopt procedures and processes to ensure such compliance.

Submissions on the Amendment Bill close on 29 April, with a report due out on 10 September 2021. Although the Amendment Bill may change as it makes its way through the legislative process, it is important to be aware of what may be coming.

Main changes

Improved information disclosure regime (for prospective buyers of units)

This will be achieved via a number of measures, including:

  • a requirement for the Body Corporate to endorse the accuracy of all pre-contractual and additional disclosure statements; and
  • broader parameters for buyers to delay or cancel settlement if pre-contract disclosure or additional disclosure statements (if requested) are provided late, are incomplete, or not provided at all.

The more robust rights to cancel or delay are likely to be a material concern for developers and their funders, who usually rely on unconditional pre-sales to support funding decisions, but the improved information disclosure regime certainly strengthens the rights of buyers by ensuring they have sufficient certainty in conducting their due diligence prior to committing to a purchase of a unit.

Stronger Body Corporate governance requirements

The Amendment Bill seeks to impose:

  • a prescribed code of conduct for Body Corporate committees;
  • a process for dealing with conflicts of interests; and
  • The introduction of an interests register to be made available for inspection by other Body Corporate committee members.

The proposed code of conduct places obligations on members, including to commit to acquire an understanding of the new Act, to act honestly and fairly in performing their duties, to maintain confidential information, and to act in the Body Corporate’s best interests. The lack of a prescribed code of conduct under the Existing Act has led to varying levels in the quality of Body Corporate management, conduct, and governance. Placing more structure around operational aspects of Body Corporates can only lead to better outcomes for unit owners.

Increased professionalism and higher standards for Body Corporate managers

Body Corporate managers should expect additional obligations in relation to their management of the Body Corporate – predominantly around reporting by the Body Corporate to unit owners. Of particular note is that Body Corporate managers will be required to act in the best interest of the Body Corporate, keep a register of disclosures of conflicts of interest made by the manager, and to be a member of an industry organisation – none of which are obligations currently imposed under the Existing Act.

Adequacy of planning and funding of long-term maintenance

All long term maintenance plans will have to identify any defects or necessary repairs in relation to the unit title development, and provide an estimate of the costs involved to resolve the defect/repair. This should already happen as part of a Body Corporate‘s duties, but the Amendment Bill will codify those obligations. It seems likely that, in order to carry out their obligations, Body Corporate’s will need to engage more specialist consultants, which in turn requires the Body Corporates to have prudent and diligent processes in place around budgeting, scope, and pricing, to ensure they are entering into sound third-party contracts, and making correct provision for the recovery of appropriate levies from unit owners.

To support the new long term maintenance plan requirements, the Amendment Bill introduces a new mandatory requirement for bodies corporate to establish and maintain a long term maintenance fund (a gap in the existing legislation that many have criticised as disincentivising robust maintenance of unit title developments). The likely immediate impact of this new requirement is that buyers and sellers may become more aware of the ongoing or “life-cycle” servicing costs of owning a unit title: while owners may not necessarily realise the benefit of their contributions to the long term maintenance fund if they dispose of the unit before the relevant expenditure is undertaken, these contributions should equally have positive value implications for the development as a whole.

Next steps

These are by no means the only proposed changes in the Amendment Bill, rather a selection that we consider are likely to be most relevant to our Property clients. We will be keeping a watching brief as the Amendment Bill progresses through Parliament.

If you have any queries on the Amendment Bill, or unit title development, or unit ownership in general, please contact one of our experts.

 

Authored by Jenny Ali, one of the Senior Associates in our Property team, and Co-authored by Rachel Kim, one of the Solicitors in our Corporate team. 

 

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