Body Corporate Update [Dec 2009]

PRINCIPAL UNIT AND COMMON PROPERTY BOUNDARIES

The definition of principal unit in the Bill makes it clear that it cannot comprise open space with the exception of carparks which are specifically included. There has been confusion over this point under the 1972 Act causing Territorial Authorities to be inconsistent with what they allow as a principal unit. The Bill drafters have adopted the "shrink wrap" approach and the principal unit must still contain a building or part of a building, or be contained in a building.

As well as providing some certainty, the new definition creates consistency with the requirement under the Bill that before Territorial Authority signoff is given (i.e. the equivalent of a s5(1)(g) certificate under the 1972 Act), the building on the unit plan must be erected to the extent that the unit and common property boundaries can be physically measured.

The common property definition has been clarified and specifically excludes a principal unit (except where included in a layered development), an accessory unit and a future development unit.

Other than these definition provisions the Bill makes no other mention of where boundaries lie and how these are to be determined on unit plans. The directions as to where boundaries should appear on unit plans are found in the Surveyor General's Rules for Cadastral Survey. The new Survey Rules have been released and are scheduled to apply from May 2010.

MANDATORY LONG TERM MAINTENANCE PLAN AND OTHER FUNDS

At present under the 1972 Act, Bodies Corporate are not obliged to establish a maintenance plan for ongoing maintenance and repair of common property. A welcome addition to the Bill is the compulsory long term maintenance plan under clause 101. The plan must cover a minimum of 10 years and is intended to assist in identifying and estimating future maintenance and creating a basis upon which to levy owners. A fund must be established to manage levies received and costs incurred. Unit owners can only opt out of the mandatory plan by passing a special resolution.

The Body Corporate also has the option of creating other funds for unexpected expenses and capital improvements. Utility interests and ownership interests will be used to levy members depending on the type of expense. An operating account on the other hand is a mandatory requirement under the Bill. The operating account is used to administer more general expenses relating to unit title management and compliance, services, ground rent, licence fees and maintenance.


METHODS OF DEVELOPMENT - STAGED

The provisions in the Bill relating to stage developments are very similar to the 1979 Amendment Act. The same plans are required but we will now see a series of s224(c) Certificates being issued during a stage development, one at the completion of each stage. The developer can defer subdivision consent conditions for later stages when applying for s224(c) Certificates, provided the Territorial Authority is satisfied the deferred conditions will be fulfilled at a later date.

Clause 27A in the Bill allows the Body Corporate to pass a special resolution to alter a stage development plan and lodge a new substituted proposed development plan in its place. This provides far more flexibility for the developer and unit owners as the stage development progresses. It is not uncommon that plan changes need to be made to accommodate the unexpected.

METHODS OF DEVELOPMENT - LAYERED

A new concept is that of layered developments where a principal unit can be subdivided into a subsidiary unit title development. In addition any of the newly formed principal units contained in the subsidiary unit title development can also be subdivided further. This is different from a redevelopment as each subsidiary unit title development is allocated its own principal units, common property and Body Corporate. A redevelopment only changes the common property and/or principal unit boundaries of an existing development.

It is unclear whether this new concept will support extremely complex developments with mixed uses such as residential, retail and commercial occupancy. The creation of a new Body Corporate for each layer does provide some management advantages, however the current Bill and Supplementary Documents do not provide for different Body Corporate Operational Rules for differing uses in a large development.

Of course Bodies Corporate can change the rules to meet their own needs provided the amendments comply with the Bill. Some regulatory guidance on this matter would be useful to avoid disputes and rule amendments being declared ultra vires and to encourage consistency across types of developments.


PRACTICAL TIP - HIDDEN CONDITIONS AND INSURANCE POLICIES

Under s15(1)(b) of the 1972 Act the Body Corporate has an obligation to insure all buildings on the land including principal and accessory units and common property. Clause 119 of the Bill is essentially the same, however if any of the units are stand-alone buildings the Body Corporate can request the unit owners to insure all improvements within the boundaries of their unit, provided they pass a special resolution (see section 121).

Section 15(1)(c) of the 1972 Act also places a duty on the Body Corporate to effect all other insurances required by law and any other insurance they consider expedient.

When advising Bodies Corporate on insurance matters, it is important not to overlook any special conditions relating to insurance. These are often contained in Council Encumbrances registered on the title relating to waivers under the Building Act 2004 for fire separations between carparks for example. Sometimes they also include a requirement that there is cover for any indemnities in favour of Council.

It is essential that these special insurance conditions are noted on the insurance policy otherwise the unit owners may be in breach of their obligations in the Encumbrance.

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