Problem with the Act #2 - Who pays?

Problem with the Act #2 - Who pays?

Problem no 2 with the Act - nobody knows who is required to pay for maintenance

This is my second article listing what I consider are problems with the Unit Titles Act 2010.  Read "Problem no 1" here.

Starting with a story

Let me start this article with a story.

In late 2019 a senior body corporate manager called me asking for my opinion on a problem he had.  

It went like this -

He had a high rise where the committee wanted to replace corroded bathroom ventilation grills in all of the apartments and the committee had proposed they use some of the healthy reserves in the long-term maintenance fund (Fund). The BC manager also explained that the BCs (expensive) LTMP (not prepared by us - I hasten to add) did not mention ventilation or HVAC.

But one committee member had read the Act (don't knock it - it's what they are supposed to do) and correctly point out that Section 117 (2) states that the Fund can only be applied to spending that related to the LTMP. 

Therefore to comply with the legislation the body corporate should not use the cash in the Fund for that work.

There wasn't enough cash in the operating account to pay for the project so the question put to me was - what should they do?  After all, it seemed crazy that they had to raise a special levy for maintenance when they had enough cash in the Fund.

To me the answer was fairly obvious.  They should opt-out of having a Fund and transfer the cash into another account called a "reserve" or whatever. 

But unfortunately, that's where the committee's understanding and confidence came to a grinding halt.  Apparently, after much debate, they elected to get legal advice on whether or not they could opt-out and transfer the funds.  And to be doubly sure, they thought it best to get not one - but two expert legal opinions.

Yes.  You've guessed it.  These two legal opinions gave conflicting advice and the committee was no better off.

I haven't followed up to see what they eventually decided so that's where this story ends.

But there is a moral.

The moral of the story

I understand that the two firms asked to give their opinion were as qualified and respected as any in the country when it comes to property law, especially unit titles law and so the moral of the story is this. If legal experts can't agree on something as simple as the example above - how the hell are the rest of us expected to know the answers?

The problem

The problem, as I see it, is that even though the UTA contains over 50,000 words, the two sections that create the rules relating to maintenance - S126 and S138 - between them contain less than 600 words.  Only 600 words to define who pays for maintenance, when every unit title development is different, every situation is different and there is often a lot of money involved. 

We should also remember that "who pays for maintenance" is probably the most important consideration for all bodies corporate and their unit owners to understand and agree upon. It's also the area that creates the most debate and tension. That's not surprising because nobody wants to pay for maintenance when there is a possibility that someone else should pay.

And because the Act is so vague, there is always that possibility.

It's been left to case law

This situation will explain why millions of words of case law have had to be created - to help establish the interpretation of those 600 words in the Act - at the cost of millions of dollars paid by unit owners. 

But because all developments and their situations are different, the precedents established in case law often don't fit with each new set of circumstances - and so it's back to the courts we go.

Summary of the problem

In summary, the problem we have is that in a large number of situations, nobody knows for sure who is required to pay for maintenance.  Not owners, committee members, chairpersons, body corporate managers or even legal experts.  Because of the limitations of Sections 126 and 138 of the Act, we have learnt that ultimately the only people who are able to interpret the legislation are high court judges.  (And heaven forbid the Supreme Court and Appeal Court.)

And owners have to pay those judges and the associated barristers and solicitors to make the decision for them.

For that reason, I suggest that Sections 126 and 138 of the UTA are not fit for the purpose.

The proposed changes don't address this problem

That begs the question as to why the proposed changes to the UTA don't address this problem. We do have some highly qualified and capable property lawyers in New Zealand and many of them have had input into the development of the 2010 Act and the current proposed changes.  Their opinions are respected by the officials who recommend legislative changes to the government of the day. 

So why hasn't this situation been addressed in the proposed changes?  I would be interested in any feedback on that.

The solution

As I have said before, these articles I am writing on what I see are problems with the Act will sound like a bit of a rant but I will always commit to providing solutions to the problems I raise.

In this case, I suggest that the legislation needs to be amended so that the rules are clear and precise.  If we need 20,000 words to define who pays for maintenance under each set of circumstances - so be it.

If you think that is too much to expect, take a look at the Building Code.  Consider E2/AS1 which is a subset of regulations that specifically provides a set of acceptable solutions to make the exterior of low rise buildings weathertight.  It consists of over 200 pages and for example covers the details required for every external wall junction and penetration, for all cladding types - down to the last millimetre.

Considering there are only 83 pages in the whole UTA, one subset of the Building Regulations is more than twice the size. So we could try harder and if we really wanted to fix the problem, as the Building Code has been designed to do. 

We have learnt from the building industry that you can't leave it to the market to work it out.  But that's what we are trying to do with the Unit Titles Sector - including with the proposed new changes. 

The evidence is that most people understand the Building Act

Maybe the most significant comparison between the Building Act and the Unit Titles Act is how the end users understand them.

Talk to your average builder and ask something like "can I put a door in that space where there is currently a window?" He won't have to ask a lawyer for an opinion, or the council, he knows the answer.  He will say something like "Yes. No problem.  It's covered in the Building Code. We won't even need a building consent".  And he will be correct because he has read the Building Code and understands it.   The Building Code is complete, concise and can be understood by laypeople.

On the other hand, say to a body corporate committee member "My balcony of the unit above is leaking down onto the balcony below.  Who pays for that?"  The committee member is likely to give an answer but it is equally likely to be wrong.  Because even if the committee member has read the Unit Titles Act, that will be no guarantee that the answer is correct. 

Conclusion

Chairpersons and committee members should be able to fully understand the rules so they can make compliant decisions - without having to call for a legal opinion.  For them to do that, the legislation should be clear and precise.

And there is no reason why it shouldn't be.

If you have any feedback or questions please use the feedback form.

The Plan Heaven team.

Disclaimer. Plan Heaven is not qualified in law and any comments made on this website should not be regarded as legal advice. Our comments are merely providing some thoughts on how the legislation might be interpreted and how we went about attempting to meet its requirements. You should not rely on this information in isolation and do you own homework and at all times if you wish to be sure of your position relating to legal matters you should seek advice from a suitably qualified lawyer.