UNIT TITLE WORKING GROUP REPORT MAY 2016 Presentation to Hon Dr Nick Smith, Minister of Building and Housing Unit Titles Act 2010 Working Group* Proposed Reforms All apartments and most other multi unit dwellings utilise or when built will utilise the Unit Titles Act. This legislation therefore has a significant economic and social role to perform in the intensification of Auckland and other centres. However the Working Group considers performance by some participants in the multi unit dwelling sector including administration, construction, maintenance and sales, to fall significantly short of best practice. In particular the Working Group has identified issues which include: -Difficulties by unit holders and buyers in obtaining information -Costly short cuts in building construction and maintenance -Often sloppy administration and accounting by external managers -Lack of protection for public funds -Complex and confusing legal rules as a hindrance to self governance -Unfair practices by some parties -An inability to resolve disputes in a practical manner Taken together these issues risk undermining public confidence in an important form of property ownership. The desired improvement can be achieved by a variety of methods including: -Greater awareness and education -Better compliance with the existing legislation -Membership of professional bodies -Legislative reform where appropriate The goal would be to use the right mix of policies to restore public confidence by creating a more informed market, encouraging greater transparency and professionalism in building and body corporate administration, and modernising regulation and oversight. This paper focuses on the suggested legislative reform component but regard should be had to the wider context, including the other policy options. Given the great variability in the types of body corporate (from the very large to the small) it is suggested the overall approach to legislative reform should be to markedly increase regulation of external providers/markers while allowing flexibility in and a less legalistic approach to internal management and governance. May 2016 *Working Group Auckland District Law Society Property Law Committee Crockers Body Corporate Management Limited Glaister Ennor Greenwood Roche Home Owners and Buyers Association NZ (HOBANZ) Levin Consulting limited Pidgeon Law Property Managers Group Property 101 Group (Joanne Barreto) Real Estate Institute of New Zealand (REINZ) Cait McClennan Whyte David Watt Summary of Proposals Appendix - Technical Papers 1. A Proposal for a Body Corporate Ombudsman (John Greenwood and Charles Levin) 2. The Case for the Revision of the Disclosure Regime (Tim Jones) 3. Body Corporate Managers and a Lack of Regulation (REINZ) 4. Body Corporate Governance (Joanna Pidgeon and Liza Fry-Irvine) 5. (Long Term Maintenance Plans and Funding (John Gray) Contact (TBA) Summary of Proposals 1. A user friendly alternative dispute resolution Body Corporate Ombudsman system funded by levies on Body Corporates with additional responsibility for public education Currently disputes relating to Body Corporates are dealt with though the courts on an adversarial basis. This is time consuming, expensive and promotes conflict between neighbours. A matter which potentially touches on the daily lives of thousands should be treated administratively rather than judicially. Further under the Unit Titles Act 2010, Body Corporates control access to information, which creates a lack of a level playing field. A Body Corporate Ombudsman is proposed, based on the Queensland model. The Body Corporate Ombudsman (or a commissioner appointed by that person) would have the power to require the supply of information, and would promote alternative dispute resolution. The Body Corporate Ombudsman (or commissioner) would also have power to make a binding decision if a mediated solution could not be achieved. The Body Corporate Ombudsman (or commissioner) would be the “gatekeeper “ for all disputes (except those involving special matters or title to land) with the power to refer to the District or High Court if the Ombudsman felt this was required. Strict time limits would need to be followed to ensure a timely result. In contrast to the current regime only minor filing fees should be charged. Funding in the main should come from levies on Body Corporates. Those Body Corporates containing solely commercial/industrial uses could elect to opt out of the regime yearly by special resolution. It is generally accepted the sector is plagued by a lack of public information/ misinformation. The Ombudsman should have the additional responsibility for promoting public education in this area. 2. A disclosure regime in urgent need of reform and modernisation The current pre contract/settlement disclosure regime is widely accepted by the professionals involved (body corporate managers, real estate agents and solicitors) to be broken. In particular insufficient information is provided, and at the wrong time, having regard to the legal steps involved in a purchase. The result is inadequate disclosure to buyers with limited recourse, and an ill informed market generally.By comparison with other sectors in the real estate industry the disclosure regime under the Unit Titles Act has not kept pace with reforms, particularly general duties of disclosure now imposed on real estate agents in relation to buyers. At present, only very limited information relating to Body Corporates is available to the public (titles and rules), and then only to the holder of a LINZ licence (e.g. solicitors). Body Corporates are semi public bodies with rights and responsibilities conferred by statute but are particularly opaque, with extremely limited information publicly available. Requiring basic information to be publicly available would improve accountability, provide for more informed buyers and develop depth of understanding in the marketplace in the context of intensifying urban development. Taken together the opportunity arises to create a well informed market and provide fair disclosure to buyers by making available online a certain amount of basic financial and legal information to the public, and then providing a disclosure regime which matches the legal steps involved in making a purchase. 3. The existing lack of regulation around the handling of public monies and keeping of records - a matter of public confidence Nearly all Body Corporates use a third party manager for handling their money and keeping their records. There is no regulation or supervision of these managers. There are usually significant sums of money involved (annual expenditure for larger body corporates will run into excess of $1,000,000 plus significant long term investments) and records are often poorly kept. In the past there have been defalcations and also extreme difficulties in getting access to records on a change in Body Corporate managers. This regime appears to be out of step with the greatly increased supervision applied to persons in an equivalent role in the real estate sales industry and in the financial markets. In order to preserve public confidence in the management of Body Corporates there is an obvious need for the regulation of Body Corporate mangers in the handling of funds and the keeping of records. Some smaller Body Corporates do not use managers and the use of managers should not be compulsory, but if a manager is used then it needs to be a manager which is subject to regulation. 4. Body Corporate Governance. Current abuses The governance provisions in the Unit Titles Act are badly drafted, complex and conflicting. Problems include unclear meeting and procedural provisions, and complicated rights and obligations. Personal liability on committee members for decision making could deter candidates from office. Proxy farming can also be an issue. In order to provide a workable basis for self government, reform is required. The proposals contained in the Incorporated Societies Bill provide a possible model. This would of necessity include a public register of Body Corporates, where there is currently no public listing of these organisations including contact details and office holders. The current regime for overturning unfair contracts entered into by the Body Corporate is a litigation process which is inherently expensive, time consuming and uncertain. In addition some contracts will fall outside the scope of the statutory provisions. Such contracts should be prohibited, capped and/or able to be more easily challenged (with the onus of proof on the other party to show they are of benefit to the Body Corporate). 5. Long Term Maintenance Plans and Funds - shoddy building practices and financial mismanagement incentivised There are a host of issues relating to this, but in the end they all have the same cause, and the same result. The cause is poor building and/or maintenance practices be it by developers or body corporates, which are then not properly disclosed or actively concealed from owners and buyers. This is inevitably a zero sum situation where the developers or sellers gain is always at the buyers cost, with the loss compounding as the cost in problems not attended to or short cuts taken is always greatly exacerbated by the intervening delay. The result is inevitably financial stress. This can arise with rapidly escalating annual levies in instances where the developer or even the body corporate has set the annual levy artificially low, or with special levies where often very significant un budgeted expenditure will be imposed on unit owners. Currently when LTMPs are prepared these plans lack uniformity as to standards, time frames and the qualifications of those involved. Even when prepared there is currently no legal requirement for these LTMPs to be funded. Leaving aside the individual hardship caused by these matters, lack of uniformity in approach to both plans and funding makes comparisons between different complexes difficult and inhibits the development of an efficient market. Proper disclosure of these matters will also create a positive feedback loop where developers and others will get credit for sound building and management practices. Proposal for a Body Corporate Ombudsman by John Greenwood (Greenwood Roche) and Charles Levin Current Regime The dispute regime is governed by Part 4 of the Unit titles Act 2010 (UTA) from sections 171 to 176. The Tenancy Tribunal has jurisdiction for matters where any order will not exceed $50,000, while matters involving orders up to $200,000 may be heard in the District Court. The Tenancy Tribunal and District Court do not have jurisdiction to hear any dispute relating to the title of land. Disputes in excess of $200,000 or relating to the title of land go before the High Court. The Tenancy Tribunal is an unsuitable jurisdiction for resolving matters relating to ownership as tenants are only ever indirectly involved, if at all. The more senior courts are a traditional litigation forum which involve considerable delay and legal expense. All forums require an adversarial approach by participants. None of the existing forums possess specialist expertise or knowledge. There are other difficulties with the UTA affecting disputes relating to access to information and legally complex provisions. These are covered elsewhere in the papers but the Ombudsman regime would work more effectively in conjunction with a reform of these provisions. In addition to the obvious inflexibility and complexity of the current disputes regime, which ignores any possibility of appointing investigators, auditors, arranging mediations and or adjudicators to determine disputes, the cost of filing fees is prohibitive. Disputes in the Tenancy Tribunal (which is the main forum by volume) for average complexity involving matters of repair or maintenance of common property, governance of a body corporate or decision or procedures of a body corporate attract an application fee of $3300. Category 2 low complexity disputes, such as day-to-day management and behaviour of any owner or occupier attract a fee of $850. Proposed Solution In Queensland the Body Corporate and Community Management Act 1997 has a dispute resolution process which is run by the Commission for Body Corporate and Community Management who employs dispute resolution officers. Applications for dispute resolution are made to the Commissioner who may reject the application if there is insufficient detail or if it is out of jurisdiction. Once this process is complete the Commissioner recommends one of the following processes; -Dispute resolution centre mediation -Specialist mediation -Specialist conciliation -Department adjudication or specialist adjudication Specialist mediation or conciliation or dispute resolution centre mediation maybe recommended if the parties can agree on a person to conduct the process. Otherwise department adjudication is more likely with an adjudicator coming from the office of the Commissioner. The adjudication process is relatively informal with the adjudicator observing the rules of natural justice and having to act quickly with as little formality and technicality as is consistent with fair and proper consideration and is not bound by the rules of evidence. The adjudicator may dismiss if an application is vexatious or if there is no jurisdiction or a court is better able to deal with any dispute. Adjudicators may make orders that are just and equitable in the circumstances. Orders may be enforced in the Magistrates Court. The proposal for a Body Corporate Ombudsman in New Zealand would largely follow the Queensland model. An Ombudsman (or commissioner which is an adjunct to the Ombudsman's office) would have primary responsibility to assess disputes and complaints with investigating officers appointed to determine the substance of complaints or disputes and with the power to dismiss frivolous or vexatious matters. The Ombudsman would have the ability to decline jurisdiction and refer to the District Court or High Court at the Ombudsman’s discretion. The Ombudsman would have no jurisdiction over disputes involving complex matters such as schemes under section 74 of the UTA (which should be amended to include earthquake prone buildings) and title to land. Private mediators could be engaged if the parties were agreeable. The Ombudsman (or commissioner) would have power to require the supply of information. Strict procedural time limits should also be imposed as part of the reforms. In setting up an Ombudsman’s office the following criteria will need to be met : -Availability of specialist expertise -Sufficient resources to ensure a timely response -Minor filing fees only To meet these objectives adequate funding will be required. In conjunction with the other reforms proposed (regulation of the management of Body Corporate funds) it is proposed the service be funded by a levy on Body Corporate trust accounts or alternatively an annual CPI adjusted fee per unit. Education Function There is currently no body which has responsibility for promoting public education about the sector. This would be an appropriate additional function for the Ombudsman’s office. Increased public education and awareness will be a significant part of any successful reforms. The Case for Revision of the Disclosure Regime in the Unit Titles Act 2010 Topic – the Disclosure Regime 1 The Disclosure Regime is contained in Unit Titles Act 2010 (“the Act”) in Part 2, Subpart 14, Sections 144 –147 under the heading “Disclosure of Information”. There are various Regulations dealing with the content of the disclosure statements contained in Regulations 33–36 and Form 18, which is a pre-contract disclosure statement (“PCDS”). 2 There were no similar provisions in the 1972 Unit Titles Act; however, in the submissions in support of the revision of the 1972 Act, various submitters put forward a case for a Disclosure Regime. 3 In the paper entitled “Unit Titles Act 1972: The Case For Review Discussion Document – August 2003” written by Jones, Fuller and Waghorn, the authors put a case for the need for consumer protection. They drew heavily upon examples from overseas jurisdictions, in particular Queensland. The paper proposed a Disclosure Regime to provide the consumer with information about the unit and the unit title development they were considering purchasing into. This concept has become known as the “Disclosure Regime”. 4 The authors said at page 13: “By contrast [contrasting the 1972 Act], recent legislation in other jurisdictions has provided far more sophisticated consumer protection measures. In focussing on instilling confidence in consumers in purchasing units of this type, consumer protection measures must be an essential measure of any amendment legislation. Changes should take a lead from the significant amendments, provisions and legislation from jurisdictions such as Queensland and Ontario. In those jurisdictions, the legislation contains a significant focus on the needs of the consumer to have a broad range of information about the unit that they are purchasing, whether it is a brand new unit being Nikki Kaye paper.docx 2 purchased from a developer or a unit being purchased from an existing owner. Various jurisdictions deal with matters differently, but a common emphasis is the requirement that the onus is upon the Vendor to supply information to the Purchaser.” 5 This paper published by the Auckland Regional Council and other submissions resulted in a decision to include a series of disclosure statements in the Act. 6 The issue in question is whether the series of disclosure statements collectively known as the Disclosure Regime meets the purposes set out in the policy to provide consumers with knowledge, information, and protection. Summary of issues 7 The issues in this paper are summarised as follows: (a) Is the Disclosure Regime in the Act fit for purpose in terms of the Consumer Protection Policy? (b) What are the elements required to meet the policy of Consumer Protection? (c) What are the solutions or suggested amendments that reform of the Act should contain? Is the Disclosure Regime in the Act fit for purpose in terms of the Consumer Protection Policy? 8 The answer to this question is a categorical “no”. The regime does not meet the Consumer Protection Policy. 9 There have been submissions and statements from a variety of organisations such as the Property Law Section of the New Zealand Law Society, Real Estate Institute, and other organisations involved in the unit title development industry. These submissions have criticised the disclosure statements contained in the Act for failing to satisfy the policy in many different ways. Nikki Kaye paper.docx 3 10 To some degree, this was acknowledged by the Ministry of Business Innovation and Employment (MBIE) in November 2012 in its consultation document on the Unit Titles Amendment Bill. On page 13 of that consultation document at paragraph 22, various amendments were suggested to the disclosure statements. The Property Law Section said in its submission letter of 12 February 2013: “It is essentially that the whole of the Disclosure Regime including disclosure statements under the Regulations is completely redrafted rather than piecemeal amendments made as proposed in clause 22. The whole philosophy of the Disclosure Regime, as well as its purpose, has been lost as a result of the poorly drafted part of the Act and the Regulations.” 11 The submissions then went on to state that the Pre-Contract Disclosure Statement (“PCDS”) contained in Section 146, Regulation 33, and Form 18 was a “cornerstone” of the Disclosure Regime. The submissions then, as now, are that the PCDS should contain a comprehensive list of items Purchasers need to be informed about before buying a unit, either new or second hand, in a unit title development. 12 The following criticisms have been levelled at the PCDS: (a) it contained a whole lot of standard general information that could be lodged on a website and accessible to Purchasers in that way (b) it was too long and confusing and not being simple for Purchasers to read and understand (c) the most relevant and important information about the unit (such as, financial details) are stuck at the end of the statement where often Purchasers do not see it (d) it does not contain some important and significant information (e) it did not contain enough detailed information about the unit and the unit title development within which the unit is placed Nikki Kaye paper.docx 4 (f) it should contain a significant number of pieces of information that are currently contained within the Additional Disclosure Statement (“ADS”) (but the ADS is not available until after the Purchaser has entered into a contract) (g) it should be available to a Purchaser either before a contract is entered into, or as a condition subsequent to a contract being entered into, to be provided by a Vendor within 5 working days of a contract being entered into; and (h) it should allow a Purchaser to cancel for dissatisfaction with the information or if the information is inconsistent with representations made upon entering into the contract. 13 In essence, the PCDS should contain information for prospective Purchasers or contracted Purchasers about both the unit and development in which the unit is comprised. This is the approach taken by other jurisdictions; thereby enabling Purchasers to carry out a high level of due diligence on the unit before they are contractually committed to the purchase. 14 There are no statutory penalties on a Vendor for failing to provide a PCDS. Other jurisdictions contain a right to unilaterally cancel a contract if a Vendor fails in their statutory obligation to provide a statement. The matter is left to the standard ADLSi/REINZ Agreement for Sale and Purchase of Land (in all forms – auction, private treaty and tender) to impose contractual warranties upon Purchasers to shore up the shortcomings of the Act. 15 The Additional Disclosure Statement (“ADS”) pursuant to Section 148 and Regulation 35 contains a host of very useful information. However, it can only be provided to a Purchaser once a contract is entered into. Secondly, there is no right of a Purchaser who obtains unsatisfactory information or contradictory information from representations made to cancel a contract on receipt of an ADS. That makes the ADS pointless. Anecdotal information is that real estate agents, Body Corporate managers, the legal conveyancing community do not have many clients electing to obtain an ADS. Nikki Kaye paper.docx 5 16 A further drawback with the ADS is that the statute requires a Purchaser to pay for this ADS information. This statement should be provided to a Purchaser by the Vendor, at the Vendor’s cost. 17 The third disclosure statement provided for in the Act is a Pre-Settlement Disclosure Statement (“PSDS”). This statement does provide up-to-date financial information for a Purchaser. It is mandatory, which is appropriate. However, it does not meet the Consumer Protection Policy, in that it fails to identify any changes to prior information provided. 18 Furthermore, the Act contains an unusual and as yet unexplained provision, whereby the failure to provide a PSDS (or indeed an ADS) within certain specified strict timeframes will allow a Purchaser to unilaterally cancel a contract. Such provision has been criticised by the Property Law Section and other groups as being draconian. There is no recourse to a Vendor for the unilateral cancellation. 19 The consultation document referred to above at paragraph 10 commented that: “cancellation under Section 151(2) requires 10 days’ notice to be given, though it is not clear what purpose this notice period serves as the seller has no opportunity to remedy the breach. This requirement makes it unclear whether the buyer has an obligation to settle, if settlement date falls within the 10 day period.” 20 It is clear from the above that there is a lack of clarity about the terms of Section 151. MBIE in its paper is unclear as to whether the Purchaser still has to settle or what the effect of the notice period is, or, in fact, why there is a cancellation right at all. 21 The final disclosure statement contained in the suite called collectively the Disclosure Regime is the Turnover Disclosure Statement (“TDS”). It is a statement provided by developers of new property. The difficulty with this document is that the disclosure statement under Section 156, Regulation 36, and Form 19 is not provided to a Purchaser, but to the Body Corporate. Nikki Kaye paper.docx 6 Anecdotally, it is understood many developers do not provide this, and the requirements are honoured in the breach. In addition, the information contained in the TDS is so technical as to be impossible for the average layperson to understand. Whilst it is important for the Body Corporate to receive a great deal of the information relating to the new building into which the Purchaser has bought, it does not fit comfortably within the policy of consumer protection. It should be mandatory in the Act or the Regulations for the Body Corporate to provide a simplified and condensed version of the TDS to each buyer in the new development. 22 The Disclosure Regime is an uncomfortable fit in terms of new units purchased off the plans by prospective Purchasers. For those buying off the plans, there is a completely different imperative on the information to be supplied by the developer as the Vendor about the unit and the unit title development to be constructed. Other jurisdictions acknowledge this fact. Those jurisdictions provide for specific PCDS for units, either purchased off the plan or brand new previously unoccupied and purchased from a developer. 23 Presenting a new Purchaser (that is, off-the-plan Purchasers) with a standard PCDS in which none of the financial and other essential information is provided or is a pure guess, is a waste of time. Developers should be required to provide PCDS to Purchasers in a meaningful fashion with meaningful information when the development has reached a stage where the appropriate information is available. This will generally relate to financial contributions to the Body Corporate, maintenance plans for the building (given it is a brand new building), and matters relating to the type of construction, specifications, and infrastructure within the building. Infrastructure means lifts, escalators, dry risers, safety equipment, and other equipment and appliances that will serve the building and the occupiers of the building. 24 The above identifies what is seen to be the key shortcomings of the Disclosure Regime under the Act. It serves to identify that the regime is not fit for purpose in terms of the Consumer Protection Policy. Nikki Kaye paper.docx 7 What are the elements of a Consumer Protection Regime to meet the policy of consumer protection? 25 The first question is – what is the policy? The policy could be stated as follows: “A policy to ensure that at various stages in the decision making process during the purchase of a property, Purchasers of units have available to them the best information about the unit and the activities of the body corporate in which the unit is situated so as to enable Purchasers to make informed purchasing decisions.” 26 Having identified the policy, it is then important to turn to what the elements of a consumer protection regime should be. They can be broadly stated as information that: is broad ranging and rich in information about the unit and unit title development in which the unit is situated is readily available in plain English comes from the Vendor principally; although, in some cases it is certified as correct by the Body Corporate; and provides a range of information that is available in the public domain to information only available to prospective Purchasers depending on what part of the purchasing process the Purchaser is in. 27 The policy should recognise units in a body corporate as part of a unit title development differ in detail from freehold property. A unit forms part of a larger building called the unit title development. Owners share common facilities that service each unit and the unit occupiers. Units and unit owners form part of a larger entity called the body corporate. This body corporate is a separate entity with its own duties, obligations, rules, and assets. 28 Unit owners form a part of this body corporate. What they do and how they do it is influenced by their own duties and obligations. These flow to the other unit owners and the body corporate itself. Nikki Kaye paper.docx 8 29 All the above creates a series of interlinking duties and obligations between the unit owner and the body corporate. It is a unique feature of unit ownership. These multiple features must be disclosed, identified, and provided to any prospective Purchaser during the course of the purchasing process. 30 Basically, if Purchasers have obtained no information or little information, they run a significant risk of buying without knowledge of their financial and social duties as owners of a body corporate and the activities of that particular body corporate. All of these duties, obligations, and activities could impact financially and socially upon their lives and wellbeing after they become a unit owner. 31 A Consumer Protection Regime to meet the policy needs to identify there are different types of information required depending on what stage of the purchasing process the recipient is in. Purchasing a unit is broadly called “conveyancing” and is a process. This conveyancing process is one in which Purchasers make decisions along a continuum – stage by stage. Suggested amendments in General Terms 32 This continuum or conveyancing process starts with the idea a Purchaser may wish to purchase a unit in a particular development. This is Stage 1. 33 It continues with a Purchaser entering into a contract. Once the contract is entered into, the information the Purchaser requires to make the next significant decision in the process differs from the information they obtained at the outset. This is Stage 2. 34 Once the Purchaser’s purchasing contract becomes unconditional and the Purchaser is satisfied with the information they have about the unit through the disclosure of information, the purchase continues to finality, which is called settlement. This is Stage 3. 35 Often, there is a significant time lapse between the initial decision making and the decision to become unconditional and settlement. Therefore, the information required by the Purchaser at settlement largely deals with any Nikki Kaye paper.docx 9 changes to the contractual information provided when the Purchaser makes their initial decision to purchase and become unconditional. 36 There are special circumstances about Purchasers buying a unit from a developer off the plans. The extent of the information given to the Purchaser at the contractual stage needs to address a significant number of additional features, because there is no unit to inspect and very little anticipated information about the unit title development or its body corporate. 37 As indicated above, different stages of the conveyancing process demand different types of information. At the outset on general enquiry, pre-contract, various information about the unit title could be provided in the public domain. Rather than a register of all unit titles, a solution is for all bodies corporate, both existing and to be built, should have their own website. Alternatively, the Body Corporate could have a page on the Body Corporate Manager’s website. Either way, the information could be hosted on either the Body Corporate’s own website or through a Body Corporate Manager’s website. The linkage between the unit and the website would be via the street address of the building in which the unit is situated. Developers would be required as part of the building consent process build a website rich with information about the unit, method of construction, details of the developer, and other information, which will assist prospective Purchasers. 38 The requirement for a website would be limited to developments of four units and over. Standalone unit developments of any size would be excluded if they opted out. Existing buildings would be required to build a website or have a page hosted on the Body Corporate Manager’s website. 39 The information at this enquiry stage would be similar to the other entities where information is available in the public domain; e.g. private companies and incorporated societies. 40 At contract, Stage 2, the information would be of a nature only available to those who have entered into a contract to purchase. Or the information would be available where a Vendor is selling the property by auction or tender Nikki Kaye paper.docx 10 available to all prospective Purchasers in a pre-auction, pre-tender memorandum or package. 41 The information available to Purchasers should deal with both financial, governance, and management issues relating to both the unit and the body corporate. This information would deal with body corporate levies, governance, and management details of the body corporate. 42 The consequences of a Purchaser not being provided with this information, or not being provided with the information within a statutory timeframe, would enable the Purchaser to cancel the contract unilaterally. 43 For auctions and tenders, if the disclosure statement with all the information was not provided and available to Purchasers within five working days prior to the auction or closing of tender, the sale would need to be abandoned. For other contracts, there would be a statutory contractual condition (similar to the provisions of section 225 of the Resource Management Act 1991); thereby, the Vendor was contractually bound to fully supply the information to a purchaser within five working days of entering into a contract. And the purchaser is allowed a further five working days in which to review and accept that information. The purchaser would have a unilateral right to cancel the contract if the disclosure was not given in the statutory period, or, once given, proved to be unsatisfactory or unacceptable to the purchaser. 44 At Stage 3, pre-settlement information would be limited in nature. The information would concern any changes that occurred between the satisfaction of the disclosure condition or the agreement date in the case of auctions or tenders. This would principally be covering changes to the financial obligations of the Vendor to the Body Corporate. However, it would also cover any changes to the information concerning the Body Corporate’s activities; such as, changes to Body Corporate rules, changes to whether or not the Body Corporate was involved in litigation, or whether the Body Corporate had passed resolutions requiring payments of levies post settlement that the Purchaser would be obliged to pay post settlement. Nikki Kaye paper.docx 11 45 The consequences of not providing the pre-settlement disclosure within the five working day period would be the deferment of settlement in accordance with the standard rules that apply under the ADLSi/REINZ Agreement for Sale and Purchase. This provision is currently contained in the standard agreement under clause 8 whereby settlement can be deferred if certain information is not supplied. (The provision has been a feature of the standard agreement over many decades.) 46 The consequences of significant financial or body corporate activity material changes would be a matter of more significance to the underlying contractual nexus between the Vendor and Purchaser. There could be a statutory warranty on the Vendor to disclose continuously any changes during the course of the contract. Failure of the Vendor to carry out this continuous disclosure and changes to the situation could entitle a Purchaser to seek damages against a Vendor. Or in the case of significant changes, a Purchaser would have a right to cancel the contract under the Contractual Remedies Act. Specific statutory changes in table form 47 The previous section of the paper outlines the changes to a Disclosure Regime in general terms. A Disclosure Regime should provide a bundle of information delivered to purchasers as consumers throughout the conveyancing process. Each step in the process is unique. There are essentially three steps that have been identified, requiring four different bundles of information. 48 The table attached sets out each of those steps and the information bundle that is required for each information statement, collectively called the ‘Disclosure Regime’. Nikki Kaye paper.docx Stages Registered Address for development Unit ownership and utility interest details BC Rules Unit Plan and SRS BC website BC website BC website (ex LINZ) BC website (ex LINZ) BC website (ex LINZ) MBIE website Source (with exclusions) Mandatory BC website Nil Statutory requirements penalise from their MBIE monitor BC and Nil Consequences Information required BC Website BC website corporates General information about Unit Titles Act Contact point for BC BC website Stage 1 – general BC Committee numbers BC website units, unit title developments and body BC Chairman’s name BC website enquiry Does BC have a LTMP - Y/N BC website New form of contractual conditions Right to cancel under create website for BCs website/MBIE assistance to Does BC have a long term maintenance Vendor to provide via Body statement if information supplied fund – Y/N Corporate certified by Body Requirement for BC BC Committee members names Corporate Chairperson or Stage 2 – Pre- BC Committee Chairman’s names contract (auctions and not supplied, incomplete or out of Chairperson or BC Committee Body Corporate Committee Chairperson time Unit annual levy of operating account Unit levies paid to date Unit contribution to Chairperson to certify tenders) or at sign up of conditional Nikki Kaye paper.docx contract Nikki Kaye paper.docx 13 Right to cancel contractually if Cost to vendor any) information Long term maintenance fund (if Contingent fund (if any) unsatisfactory to o o Capital fund (if any) purchaser o Details of long term maintenance plan Long term maintenance plan review date Long term maintenance plan expiry date Items of maintenance under Long Term Maintenance Plan during the period to next AGM Next AGM date Body Corporate insurance Copies of AGM and EGM minutes during the last 3 years BC Committee minutes during last year Whether BC in proceedings against the unit owner Y/N – what and why Whether BC involved in proceedings for or against third party – what and why? Possible contingent liability upon unit owner in terms of any proceedings Details of all service contracts between BC and service providers Financial accounts from last AGM Whether financial accounts are audited – Y/N Statement whether the vendor or BC is or is not aware of any structural soundness or weathertightness issues relating to the agreement or the unit title development Statement whether the vendor or BC is aware of whether the funds in the long term maintenance fund are sufficient to meet the LTMP commitments for the next twelve months – Y/N Stage 2 – Sale of contribute and set out as a long term Details of amount the developer is to for the unit Estimated levies for the operating account through a website portal to provide the information each development and to up a dedicated website for Developers required to set Costs by Regulations the Act and statement required in plans disclosure New form of off the condition in such contracts and approve as a statutory of the agreement to review 20 working days from date Purchasers have up to (say) 14 Unit off the maintenance fund on completion of the each purchaser, possibly Earthquake rating for building plans development Nikki Kaye paper.docx Nikki Kaye paper.docx Proposed changes to the standard number on each occassion with a security code access 15 operational rules for the unit (residential/industrial/commercial) Profile of the developer as in history and other developments built, and where Statement of whether any previous developments carried out by developer are suffering from or subject of weather tightness claims Dedicated ratio of owner/occupiers to investors of units sold within the development Whether any units had been sold to government agencies for rental accommodation Up to date plans and specifications (if those attached to the sale and purchase agreement were out of date or inadequate) List of resource consents and building consents and dates and TA reference numbers for each vendor/developer List of all intended service contracts to be set up and terms and conditions of those service contracts Any special features intended to be included in the opening minutes of the body corporate whilst developer Unit levies outstanding as at settlement body corporate Vendor certified by the contract statement New form of pre- five working days prior If late, not within the 16 Stage 3 – Predate to settlement (see represents the body corporate Settlement required in the Act then settlement Statement of unit’s share of funds held by to the correctness of deferred for five Disclosure the information working days from ADLSi/REINZ Change in status of any information Statutory right to correct disclosure and Regulations provided during the contractual statement cancel if disclosure of being made the BC in the optional funds – LTMF, (including the off the plans statement) – in weathertightness or If changes are of an Statement particular: structural soundness essential nature then a agreement clause 8), Body Corporate Rules issues since contract Statutory warranty as o Long term maintenance plan statutory right to contingency fund/capital fund o was entered into cancel pursuant to the Proceedings by the body the body corporate by other corporate against unit or against o information Nikki Kaye paper.docx Nikki Kaye paper.docx parties Copies of AGM or EGM minutes of any meetings held since the contract was entered into 17 Contractual Remedies Act or seek damages REINZ Submissions - Body Corporate Managers and a Lack of Regulation • Contributing factors regarding the lack of regulation of body corporate managers Legislative history 1.1 The Unit Titles Act 2010 (the 2010 Act) and the Unit Titles Regulations 2011 came into force in June 2011, replacing the previous Unit Titles Act 1972 (the 1972 Act). The 1972 Act had become increasingly ineffective in dealing with the issues raised by the rise of large inner city developments and apartment blocks. It had, however, made provision for the statutory role of a body corporate secretary. 1.2 This role was recorded in the Schedule 2 body corporate rules of the 1972 Act, which could only by amended by unanimous resolution. The body corporate secretary under the 1972 Act could be an owner or a third party, and was required to keep a true and complete account of the affairs and transactions of the body corporate, statements of financial position as well carry out any additional functions delegated to them by the body corporate. 1.3 The secretary was also required to prepare an annual statement of the body corporate's financial dealings and position, which would be sent to every unit owner within 6 months of the annual general meeting. 1.4 The body corporate secretary if knowingly party to a default by the body corporate to carry out its duty committed an offence, and was liable to a fine not exceeding $400. 1.5 Part of the changes introduced by the new regime under the 2010 Act was the complete removal of this role. Neither the 2010 Act nor the Regulations contain any reference to the role of a body corporate secretary or manager. Instead, the duties previously carried out by the body corporate secretary now fall to the body corporate or to the body corporate chairperson or committee. 1.6 REINZ has made past submissions and written papers on issues relating to the regulation of body corporate managers and property managers. The role of body corporate managers 1.6 Market practice for body corporates has been to create the role of a body corporate manager. A service contract is created between the body corporate and the body corporate manager to handle administration of the body corporate affairs, finances and to coordinate maintenance and other activities. Many businesses provide professional body corporate manager services, and it has become common practice for large unit title developments to appoint a professional body corporate manager. 1.7 The removal of their role in the 2010 Act means that the body corporate manager has no direct statutory obligations under the 2010 Act. Their obligations are solely those of a service contractor to the body corporate, under the service contract. 1.8 Body corporate secretaries (now managers) were not held to be fiduciaries under the 1972 Act, but contractors, with some statutory obligations. In the current service contract framework, body corporate managers also do not owe a fiduciary duty. They do owe the usual duties of care and skill in carrying out their responsibilities to the body corporate. 1.9 Funds that body corporate managers hold on behalf of the body corporate are held on trust, which means that a trustee's duties of account apply. While lawyers and real estate agents have their trust accounts audited, s 132(8) of the 2010 Act means that body corporates can vote against audits of body corporate managers’ accounts. In some cases, body corporate managers have used proxies to vote against audits. 1.10 Property managers are similarly unregulated. Some property managers if affiliated with a real estate agency may be covered by the Real Estates Agents Act 2008 and have their trust account audited, but most do not. The opportunity for all property managers to be covered by the Real Estate Agents Act 2008 was not pursued despite Parliament's Justice and Electoral Select Committee in 2008 recommending that "immediate action should be taken to create an appropriate regulatory regime for property management activities". . 1.11 REINZ and other organisations have lobbied for the regulation of body corporate managers and property managers. With the responsibilities of a body corporate manager stemming from the provisions of the service contract existing between them and the body corporate, and not from any other existing legislation there is not enough protection for the public. Referencing property management legislation 1.12 One of the reasons for not implementing more legislation regarding property management was that consumers and concerned parties are already protected by the Residential Tenancies Act and the Law Practitioners Act 1982. REINZ has previously submitted that neither of those Acts provided adequate regulation of residential property managers. 1.13 The Residential Tenancies Act 1986, Law Practitioners Act 1982, the Consumer Guarantees Act 1993, and the Fair Trading Act 1986 do not have existing provisions which regulate body corporate managers either. Fair Trading Act 1986 1.14 While the Fair Trading Act covers residential management services, REINZ submits that its purpose is primarily remedial, and not preventative. It has been difficult to prosecute agents and unlicensed operators under the Fair Trading Act. 1.15 The Fair Trading Act does not adequately provide coverage and regulation regarding the duties and powers of body corporate managers, nor does it allow prosecution of those who would abuse their authority as body corporate managers. • Problems associated with a lack of regulation 2.1 There is a lack of a publicly searchable register for body corporate managers, and a lack of a regulatory regime for body corporate managers, though this could be addressed by the REAA. 2.2 There is a lack of a compulsory code of conduct of body corporate managers, and a lack of method by which poor, dishonest or unsuitable body corporate managers can be removed from the industry. 2.3 There is a lack of controls/screening around who can be a body corporate manager. 2.4 There are problems with some body corporate managers who develop practices inconsistent with the Unit Titles Act for functionality purposes. 2.5 File and fund handover is often poor on the change of body corporate managers, there is no compulsory requirement to hold body corporate funds in a trust account, and no absolute obligation for trust accounts to be audited. Concerns 2.5 Body corporate managers typically carry out activities related to the administration of the body corporate’s financial activities. However, the exact scope of their powers is unclear and differs depending on each body corporate manager’s particular service contract. There are no standard recommended contracts for body corporates to review to compare the proposed contracts by their body corporate managers. 2.6 Body corporate managers have the authority and purview to handle significant amounts of money related to the body corporate’s accounts. Large apartment buildings often have annual budget of over $1 million dollars, coupled with large leaky building settlements and remediation projects body corporate managers can hold tens of millions of dollars. This responsibility is of too much gravity to exist without regulatory checks and balances. There is a lack of stringent criteria regarding both the selection and appointment of body corporate managers. 2.7 There have been instances over the years of property managers defrauding property owners and body corporate managers defrauding unit title owners off shore, and failing to adhere to a reasonable professional standard in terms of accounting practices in New Zealand: “While the evidence does not indicate deliberate misappropriation, the scale of the discrepancies and the delay in accounting for them suggest strongly that BCA’s accounting standards were below what is acceptable for a professional secretary/manager. Had the same facts arisen in the context of a solicitor’s trust account, the inevitable result would have been an inspection of the trust account by the New Zealand Law Society, probably followed by disciplinary action. There appears to be no comparable regulatory regime overseeing trust accounts operated by secretary/managers for bodies corporate. If a body corporate finds evidence of mismanagement or failure to account, a proceeding like this one in the Tribunal seems to be the only recourse.” 2.8 There is no regulatory body governing the body corporate management companies, and there is a corresponding lack of disciplinary measures and remedies available to those negatively affected by improper conduct. 2.9 Some managers do not account to their owners for interest in trust funds held saying they are applied to the cost of audit, so that audit fees are not payable. There are also anecdotes of insurance and other third party contractors providing kickbacks for referrals to body corporate managers. Other than the Secret Commissions Act 1910 which has an outdated and low penalty, there are no rules or prohibitions on conflicts of interest. Lack of body corporate regulations 2.9 There is currently no regulatory body overseeing the activities of body corporate management companies. 2.10 Body corporate management companies are indirectly trustees of the money of unit title owners who use their services, and there is a lack of transparency as well as competency illustrated by past Tenancy Tribunal cases where the crux of the problem has been inadequate management on the part of body corporate managers. 2.11 There is no clarity around whether mismanagement by an employee or contractor of a body corporate management company would impute liability on the body corporate management company. 2.11 Aside from pursuing Tenancy Tribunal proceedings, or Court proceedings, there are limited means by which bodies corporates can ensure that inadequate management is punished and the affected parties reimbursed in some way. 2.12 There are no minimum standards of competence, training, or prohibition from becoming a body corporate manager or property manager for recent criminal convictions, or other disqualifying behaviour unlike licensees under the REAA for example. There are no continuing education requirements unlike real estate agents, chartered accountants and lawyers for example. • Proposed guidelines for the regulation of body corporate managers 3.1 There needs to be statutory regime covering what a body corporate manager does, what minimum standards of education/competency and good character are required to become a body corporate manager, and maintain that registration, as well as regulation over standards for handling unit owners’ money and accounting with a view to promoting public confidence in body corporate management and uniform disclosure. There should be rules covering the handover of body corporate records and funds when a body corporate manager is removed and a new one appointed. The same applies to property managers. 3.2 Some body corporate managers take more of a secretarial role, which is more in keeping with the 2010 Act, whereas some body corporate managers may act as more of a driving force for a body corporate, usurping the role of the body corporate chairperson and committee. 3.3 There is also no professional body which investigates complaints and can stop people from continuing as body corporate managers if they continually fall below the standard. The only forum currently available is the Tenancy Tribunal which hears unit title disputes, or taking the matter to court. Some body corporate management contracts require disputes to be resolved by arbitration, which is confidential and prevents ongoing issues from coming to public attention. 3.3 A body corporate manager industry-specific body to investigate complaints and resolve disputes would be far more beneficial to keep a body corporate managers on track. 3.4 None of the extant Acts related to the regulation of property managers provide adequate guidelines as to the way forward. In the implementation of regulations regarding body corporate managers, some of the current issues accompanying inadequate regulation are analogous. There is no legislation addressing the risk of body corporate managers misappropriating funds. They do not deal with the relationship between body corporate managers and unit title owners, nor do they cover contracts between a body corporate and potential managers. There are neither education nor qualification requirements for body corporate managers. REINZ submits that the issues must be addressed. General recommendations 3.5 Amendments to the 2010 Act and any current or future legislation concerned with body corporate regulation to include provisions about the exact scope of the role and powers of body corporate managers. 3.6 Greater clarification in legislation with regard to the liability of body corporate management companies for the actions of managers under their purview who have been contracted to bodies corporate. 3.7 The implementation and enforcement of a regulatory scheme to deal with the administration of trust accounts and other funds held by body corporate managers or secretaries. A regulatory scheme similar to that which applies to lawyers under the Lawyers and Conveyancers (Trust Account) Regulations 2008 is appropriate. 3.8 The inclusion of disciplinary measures within the 2010 Act of specific penalties for body corporate managers and body corporate management companies found to be in breach of their obligations or guilty of mismanagement. 3.9 Clarification on the extent of the involvement on the part of the body corporate manager in the affairs of the body corporate e.g. using proxies to vote – should this just be to establish a quorum or can these proxy votes be used further, as well as their role in the body corporate committee. 3.10 Regular and statutorily enforceable auditing of the trust accounts of body corporate managers. • Referencing the Real Estate Agents Authority (REAA) and their Real Estate Agent Act 4.1 The Real Estate Agent Act 2008 (REAA) and the structures set up by the REAA could be tailored and adapted to suit body corporate managers and property managers but the basic framework and systems are there. 4.2 Insert a defined term of “body corporate manager” into the 2010 Act, similar to the way in which “agent” is defined under the REAA: “Body corporate manager means any person who holds, or is deemed to hold a current license as a body corporate manager under this Act.” 4.3 The appointment of a body corporate manager should be registered on the Supplementary Record Sheet by making amendment to the 2010 Act to give notice of the manager to third parties. Licensing of body corporate managers 4.4 Include a new sub-section on the entitlement to license in the 2010 Act covering licensing requirements, similar to s 36 of the REAA. The new sub-section could read: "An individual may be licensed as a body corporate manager if the individual satisfies the Registrar that he or she – • • • • Has attained the age of 18 years; Is not prohibited from holding a license (described in the recommendation below) Is a fit and proper person to hold a license; Has the prescribed qualifications" 4.5 Include a section listing persons who are prohibited from holding a body corporate manager’s license, modelled on s 37 of the REAA. 4.6 Include a definition of a body corporate managers’ license in the 2010 Act similar to s 48 of the REAA. The Real Estate Agents Licensing Regulations 2009 set out the standard qualifications required for licenses. Similar qualifications could be introducing for those seeking to gain a body corporate managers’ license. There are also specific training providers who offer training for the qualifications required by the Real Estate Agents Licensing Regulations. These are listed on the Real Estate Agents Authority website. The same could be set up for body corporate managers. 4.7 Section 10 of the REAA creates the Real Estate Agents Authority. A similar body could be established to regulate body corporate managers, and this could be included in any future changes to unit titles legislation. 4.8 Keep a register of licensed body corporate managers by inserting a section such as s 63 of the REAA. Disciplinary measures regarding body corporate managers 4.9 Part 4 of the REAA covers complaints and discipline. In particular, ss 72 and 73 cover unsatisfactory conduct and misconduct. Any future changes to unit titles legislation could include similar sections on what constitutes unsatisfactory conduct or misconduct for body corporate managers. 4.10 Section 74 of the REAA allows any person to make complaints to the Real Estate Agents Authority about licensed agents. This structure could be adopted in changes to the 2010 Act, creating opportunities for complaints to be made about licensed body corporate managers to a regulatory body. Sections 76 and 100 of the REAA creating the Complaints Assessment Committee and the Disciplinary Tribunal respectively could be tailored to meet the needs of the body corporate managers industry. 4.11 Part 5 of the REAA contains duties relating to real estate agency work. A similar part could be included in future unit titles legislation, to cover body corporate managers’ duties. This could include, for example, a requirement for trust account audits as per s 125 of the REAA – the lack of which under the current 2010 Act remains a key concern. Body corporate managers would have greater financial accountability if this change were to be made. 4.12 Section 122 of the REAA covers the duty of a real estate agent with respect to money received in the course of business – another section that, if adapted to body corporate managers, would help mitigate the issues flagged in this submission. 4.13 Part 6 of the REAA contains offences and penalties. For example, it is an offence under s 151 to fail to disclose a conflict of interest or under s 152 to render false accounts. The penalties amount to a maximum of $40,000 for an individual or $100,000 for a company. Creating similar offences and penalties for body corporate managers would help prevent improper conduct. • Referencing Queensland’s Body Corporate and Community Management Act 1997 in particular, the Body Corporate and Community Management (Standard Module) Regulation 2008 5.1 The Body Corporate and Community Management Act 1997 of Queensland (“the Queensland Act”) contains regulatory provisions regarding the administration of bodies corporate and their associated agents. REINZ submits that in the consideration of enacting new legislative framework to regulate body corporate managers, the guidance of other jurisdictions will be invaluable. Appointing body corporate managers • • 5.2 Section 58(1) of the Queensland Act lays out when a body corporate manager may be engaged on the behalf of a body corporate to carry out the functions of a committee and its executive members. The legislation also indicates that the engagement of a body corporate manager is subject to the passing of a special resolution by the body corporate approving it. It would be helpful to include a similar clause in the 2010 Act of this nature to better protect the interests of the bodies corporate and the unit title owners they represent, with the following caveats: That the original/developer owner control period has ended before the engagement of a body corporate manager That the material given to members of the body corporate pertaining to the motion for engaging a body corporate manager include - the terms of the engagement (the proposed contract between the manager and the body corporate), an explanation of those terms, and clarification about the engagement itself. 5.3 Section 118 specifies that the engagement of a person as a body corporate manager must not be longer than 3 years at a time. REINZ submits that a similar limitation on the amount of time that one person can serve as body corporate manager is appropriate, though the exact length of their tenure is up for discussion. 5.4 Section 59 of the Queensland Act has strict guidelines that must be complied with to render the engagement of a body corporate manager valid. REINZ submits that any engagement of the services of a body corporate manager should be enshrined in • • • • legislation following the criteria below: It must be in writing, and It must state clearly and concisely the duties and powers that the body corporate manager may exercise in the course of carrying out the delegated functions of the committee and its executive members, It must authorise the above duties and powers, and It must state clearly and concisely a standardised formula for working out payment for the body corporate manager’s services • This is contingent on there being regulations and a regulatory body in New Zealand establishing both a register and a standardised scheme of payment for body corporate managers in the course of their duties so as to avoid leaving room for ambiguousness and potential misconduct Body corporate managers reporting to their bodies corporate • • 5.5 Section 62 of the Queensland Act advises on the frequency of reports that a body corporate manager must submit to his/her relevant body corporate on the matter of expenses, repairs and maintenance, anything known to the manager about the assets of the body corporate, and a summary of each fund belonging to the body corporate. On the topic of expenses in particular, REINZ submits that the reports from body corporate managers be mandatory and that this is enforced in amendments to the 2010 Act. • Reports on expenses should follow the format set out in s 62(3) of the Queensland Act and contain: • The payee; • The amount; • The date the expense was incurred; • The reason the expense was incurred. It is REINZ’s hope that this will discourage instances of financial mismanagement by body corporate managers and encourage transparency in the overall processes of the role. 5.6 The Lawyers & Conveyancers (Trust Account) Regulations 2008 provide a useful framework for regulating trust accounts operated by body corporate managers. The reporting, auditing and training requirements and duties set out in those regulations can be adapted to body corporate managers. Termination of body corporate managers 5.7 The Queensland Act sets out various grounds on which body corporate managers may have their engagements terminated - s 130 details termination for conviction of a particular offence, and s 131 details termination for failure to comply with remedial action notice. 5.6 REINZ submits that clauses for termination be included in amendments to the 2010 Act, and that the list of offences set out in s 130 are helpful when determining what to include. Examples of convictions as per s 130(2) include fraud, transferring an interest in the engagement without the body corporate’s approval, and assault. Specific monetary offences should be listed. • • • • 5.7 A clause for remedial action should be inserted into potential regulations for body corporate managers, though specific instances of misconduct should be specified. Some examples from s 131 of the Queensland Act include: Failing to carry out the duties under their engagement Gross negligence Acting without authorisation of the body corporate. 5.8 All proposed termination provisions in future legislation should include guidelines for the actions that body corporates will be required to take in dismissing body corporate managers, The framework of this is set out in s 129 and s 131. In the case of disputes, REINZ submits that mediation be the most appropriate forum for disputes to be dealt with, keeping in mind the costs of bringing disciplinary matters before the Tenancy Tribunal or the Courts. 5.9 REINZ submits that on issues pertaining to the misconduct of body corporate managers, a mechanism for complaints should exist in any amendments to the 2010 Act, and there should also exist guiding provisions in terms of processing complaints or a fixed costs for having these specific matters brought before a body corporate regulation body. BODY CORPORATE GOVERNANCE AND ABUSES SUBMISSION The Unit Titles Act 1972 provided for governance matters to be dealt with in body corporate rules, which could be changed, sometimes to the detriment of bodies corporate. The Unit Titles Act 2010 brought governance into the legislation so that it could not be changed giving opportunity for governance to be dealt with in a more complete and comprehensive manner. After the passage of time it is clear there are gaps in the legislation which should be closed in matters of governance. PART 1 - BODY CORPORATE GOVERNANCE • CONFLICT OF INTEREST 1.1 A conflict of interest may arise due to a financial or other personal interest in the mind of a decision maker that creates a bias. The current legislation does not contain robust procedures for bodies corporate to address conflicts of interest. Financial conflict of interest 1.2 There is a financial conflict of interest where a decision maker is going to make a direct or indirect financial benefit from a decision, or where a decision maker has a direct financial interest as a contracting party with the body corporate. This includes voting on a contract to employ the decision maker to carry out maintenance for a body corporate, or awarding services to a company that the decision maker holds shares in. Personal conflict of interest 1.3 A personal conflict of interest arises where a decision maker has a non-financial motive for a particular decision being made. This includes, for example, making a decision which benefits a close family member or an organisation to which the decision maker belongs, or a decision that benefits themselves in a non-financial way. 1.4 Bias is a type of conflict of interest where the decision maker has not approached the issue with an open mind. 1.5 Conflicts of interest can lead to the personal liability of committee members which discourages people from joining committees, particularly when there is little guidance on how to conduct committee meetings or on conflicts of interest and how to deal with them. The net is cast wide in terms of what committee members may be personally liable for. Concerns 1.6 Body corporate committee members must approach decisions with an open mind, with no bias or predetermination, and they must act in good faith and in the best interests of all owners. Their powers should be used for a bona fide purpose, allowing natural justice. Committee members have a fiduciary duty to the body corporate as a whole. 1.7 The dynamic of standing up to strong personalities in committee meetings needs to be addressed. People often live side by side, making it difficult for them to address issues where they have a concern – it is easier not to object. When there is frank and open discussion without the person concerned present, other committee members often find that others have the same concern but have also been unable to vocalise in the presence of the conflicted party. Recommendations • • Amendments to the Unit Titles Act 2010 or future legislation should include provisions whereby: • Any conflicts of interest should be declared at the outset of a meeting, and a conflicts of interest register should be kept. The disclosure requirements of the Crown Entities Act 2004 can provide a useful framework for the disclosure of financial conflicts of interest. Under s 65 of the Crown Entities Act, the details that must be disclosed include the nature of the interest and the monetary value of the interest (if the monetary value can be quantified) or the nature and extent of the interest (if the monetary value cannot be quantified); • When a decision is being made where a person may have a conflict of interest, consideration should be given as to whether that person should leave the room to avoid any suggestion of influence. They should not be allowed to vote or take part in discussion if they have a conflict of interest; • How the conflict of interest is dealt with is recorded in the minutes of the meeting. • Remuneration of committee members or chairperson, or any employment or contract should be recorded and must have a full contract in writing. This could go back to a general meeting. At the very least, the person receiving the remuneration or being a party to the contract should not vote at the meeting or should leave the room. Schedule 1A of the Body Corporate and Community Management Act 1997 of Queensland contains a code of conduct to which body corporate committees must adhere to. Changes to New Zealand legislation may be able to draw from this to make the governance of bodies corporate more effective. It would address some of the key governance issues that bodies corporate in New Zealand face. Under Queensland's body corporate code of conduct, for example, members of the committee must: • Act honestly, fairly and with confidentiality • Act in the body corporate's best interests • Disclose a conflict of interest • • • • 2. Provisions should be added in the style of Section 101A of the Body Corporate and Community Management Act 1997 of Queensland to exclude personal liability except in the case of malfeasance or gross negligence on the part of body corporate committee members. Not limiting liability in this manner is already leading to an unwillingness to serve on the part of committee members. Section 260 of the Strata Schemes Management Act 2015 of New South Wales addresses the personal liability of strata committee members. Strata titles and strata committees are equivalent to unit titles and bodies corporate. Section 260 makes it clear that members of strata committees are not personally subject to any action, liability, claim or demand as long as the act or omission in question was done in good faith for the purpose of executing functions as such under the Strata Schemes Management Act 2015 or any other legislation. Liability instead attaches to the owners corporation (or body corporate in New Zealand). New Zealand legislation could draw from this Act a good faith defence for body corporate committee members. The Incorporated Societies Bill also sets out rules dealing with conflicts of interest, a duty to disclose and the consequences of being interest in a matter, the consequences of failing to disclose, and the ability to avoid transactions, unless fair value is obtained, and the requirement to keep an interests register. Committee members should be reminded of the application of the Secret Commissions Act 1910 to body corporate managers and consequently body corporate management companies when engaging their services, particularly in a conflict situation. There is a need to strengthen the financial penalties involved. TRANSPARENCY - ACCESS TO RECORDS AND REASONABLE COST Existing legislation 2.1 It is difficult for owners of units to find personal details of other owners in multiunit developments due to a lack of transparency and access to records. 2.2 Under s 206 of the Unit Titles Act 2010, if a unit owner requests certain records and documents, such as financial statements, the body corporate must make copies of those documents available for purchase by the unit owner within a reasonable amount of time. Regulation 4 of the Unit Titles Regulations 2011 mandates that a body corporate must have a register of unit owners. This register is not publicly searchable and may only be searched by the body corporate chairperson, the committee or any other person approved by the body corporate or the committee. 2.3 Both these provisions restrict access to information, as they require the committee's consent unless the information is covered by the additional disclosure regime for a purchaser. Access to the register is essential for the sharing of information. Issues have arisen where an owner’s attempt to contact other owners have been blocked by a committee refusing to allow access to the register of owners because they did not agree with the merits of the proposed communication. The Court of Appeal held that this was not grounds to limit access to the register. 2.4 The ability for purchasers and owners to find out details of key commercial contracts, and settlement arrangements for litigation for each body corporate is important. Under the current legislation this information can be difficult to obtain. Recommendations • The onus should be reversed so that contracts should be disclosed, unless there is a genuine reason why they should not be disclosed - for example, a confidentiality clause that might prohibit settlement amounts from being disclosed, or commercially sensitive information. In this situation, copies may still be provided with just the confidential information redacted. • Replace large deterrent charges for the provision of information with reasonable costs. • Make access to the register of owners easier for other owners. Improper or vexatious use of any information, including the register, should however be prohibited. • Set timeframes by hen a request for access to the owner’s register must be responded to, and if denied, written reasons for denial must be provided. 3. PRIVACY OF INFORMATION Existing legislation 3.1 In addition to s 206 of the Unit Titles Act 2010 and reg 4 of the Unit Titles Regulations 2011, the Privacy Act 1993 also applies to bodies corporate. This is made clear in s 1 of the Privacy Act. 3.2 Under the information privacy principles of that Act bodies corporate must ensure that people are readily able to access the personal information held about them by the body corporate. This information must not be disclosed unless it is for a reason authorised under s 6 of the Privacy Act. Recommendation • • • 4. People should be made aware that these requirements apply to personal information held by bodies corporate, particularly in relation to information such as telephone numbers and email addresses. Similar to the recommendation made above with respect to transparency, vexatious use of any information should be prohibited.   A website may be created where the information is made accessible to owners. However, care is needed here as posting information on a website would require owner approval. CLARIFICATION IN RELATION TO QUORUM Current situation 4.1 According to s 95 of the Unit Titles Act 2010, the quorum at a body corporate general meeting consists of at least 25% of eligible voters. No business can be transacted at the meeting if a quorum is not present. 4.2 A unit owner is not entitled to vote at a meeting if they have not paid levies that are due to the body corporate for their unit. However, it is unclear whether unit owners with unpaid levies may still constitute part of the quorum even if they are unable to vote. 4.3 The correct establishment of a quorum is essential to the valid running of a meeting and the current legislation creates uncertainty. Recommendation • 5. Clarify whether unit owners who are ineligible to vote due to unpaid levies may still make up the quorum. DELEGATION ISSUES 5.1 A body corporate has the power to delegate, either fully or in part, some of its duties to the body corporate committee via the method set out in s108 of the Unit Titles Act 2010 barring what is specified in subsection (2). 5.2 There are certain powers and duties that the body corporate must not delegate to the body corporate committee, but there have been blanket delegations that do not adhere to the regulations and restrictions on that duty or power outlined in s 108(2). 5.3 Body corporate committees decide on matters pertaining to their delegated duties via a majority vote. They are also mandated to report to their body corporate regarding the performance of those delegated duties. Concerns 5.4 Section 101(1) is not well drafted and can be interpreted as an indication that duties or powers not delegated to a body corporate committee require a special resolution from the relevant body corporate. In the case of decision-making on the topic of everyday matters, to require a special resolution from a body corporate seems excessive. 5.5 Section 109 sets out that a body corporate committee cannot delegate any of the duties or powers delegated to it by a body corporate, though there is no mention of a penalty for committees who breach this particular provision. This appears to be in conflict with the common practice of delegating responsibilities to body corporate managers. 5.6 A lack of monitoring regarding the actions of bodies corporate who wish to delegate their duties to the relevant body corporate committee has been problematic. There is a lack of enforceable legislative means of pinpointing and educating and correcting inadvertent errant delegation but potentially penalising bodies corporate for wilfully delegating outside of their powers and limits. The Act could state that a blanket authority is not valid. Recommendations • • • • • • • 6. Stricter guidelines should be implemented regarding the delegation of duties from bodies corporate to their committees. The existing guidelines are not extensive enough and have failed to deter blanket delegations that breach the Unit Titles Act. The power to delegate to a body corporate manager for emergencies or consumables or expenditure in the ordinary course of business within approved budget items should be included in legislation, or require this to be included in any service contract between the body corporate and body corporate manager. The Act should clearly state that all duties or powers not delegated to the committee should be decided by body corporate ordinary resolution, unless stated otherwise in the Act Penalties or disciplinary measures would ideally be defined for those in breach of the Act’s provisions on which duties are appropriate for delegation. More frequent or supervised reporting from body corporate committees to their body corporate on the performance of their delegated duties. MBIE could provide further education on this and examples of proper reporting for bodies corporate to follow Part 4 of the Strata Schemes Management Act 2015 of New South Wales covers strata managing agents, the equivalent of body corporate managers in New Zealand. The Act details the appointment, function and accountability of strata managing agents. As the section on body corporate managers notes, the New Zealand legislative framework presently omits any mention of body corporate managers. Amendments to the Unit Titles Act or future legislation in New Zealand could incorporate similar provisions. BODY CORPORATE COMMITTEES 6.1 Current legislation contains limited guidance on the obligations and conduct of body corporate committees. More detail is provided for general meetings of the body corporate. 6.2 There are no legislative provisions with which to guide the conduct of the body corporate committees in carrying out their delegated activities beyond those that merely outline the scope of their powers and their duties. Some obligations of body corporate committees may be clear but specifics regarding their operation are not. It must also be remembered that committee members are volunteers, and often do not have much formal meeting experience. 6.3 Even with the existence of Regulation 24 of the Unit Titles Act 2010 (which prescribes the committee member election process), there is a disparity in the power between those who sit on the committees or attend meetings and influence the decisions of the committee. Conduct of meetings 6.4 Section 92 is particularly helpful in outlining the conduct of meetings undertaken by body corporate committees in subsidiary bodies corporate but generally there is little guidance. 6.5 Section 101 governs how matters at general meetings of bodies corporate are decided. It stipulates that every resolution at a general meeting of body corporate must be recorded in writing. However, there is no explicit proviso for the minutes of body corporate meetings being recorded (other than the chairperson being required to record minutes under the regulations) or distributed to those affected by or participating in those meetings, and promptly while the recollection of the meeting is still fresh. There is often lag time after meetings before minutes are generated when purchasers are buying units and do not have access to records of recent decisions recorded by minutes. 6.6 Regulation 28 of the Unit Titles Regulations relates to a body corporate committee’s reporting obligations. However, there is not enough guidance as to when the onus is on the committee to report and consult with the owners in unique or unexpected circumstances, to take written minutes or distribute those minutes or if they are wishing to make a decision on an issue which may contradict an earlier vote which was made at a general meeting. Financial obligations 6.7 Body corporate committees may have financial duties to undertake as a result of delegation from their respective bodies corporate. There is no current legislation to enforce or regulate the standard of financial reporting undertaken by body corporate committees. 6.8 The financial duties a body corporate committee may have to undertake include submitting the body corporate’s financial statements to an independent auditor, keeping financial accounts and records, and engaging in other administrative activities. 6.9 While there may be a degree of control in the approval process for bodies corporate and their annual budgets, there is currently no statutory obligation to revert to the body corporate if the budget is exceeded, other than in the long term maintenance plan. Statutory provisions would ensure that all bodies corporate operated a system with checks and balances regarding this particular financial activity undertaken by body corporate committees. Concerns 6.10 There is a lack of enforcement of the provisions in the Unit Titles Act regarding the duties and functions of body corporate committees. There is also a lack of disciplinary outcomes for those committees who are in breach of the Act’s provisions, and a lack of regulation of body corporate committees as a whole has led to issues such as proxy voting becoming a recent concern. 6.11 Body corporate committees and their members do not have enough explicit restrictions and regulations on the way that they exercise their powers for their relevant body corporate. 6.12 There have been instances of body corporate members concealing illegal financial outgoings, or hiding strategic body corporate decisions and not reporting back as there is no requirement for body corporate committee meeting minutes. Some committee meeting subject matters may be confidential, such as strategic decisions in litigation, but otherwise full minutes should be taken. Recommendations • • • Legislative provisions should be amended to reflect each body corporate committee having a number of set requirements e.g. their duties, their obligations, the scope of their powers. Guidance should be drawn from the proposed Incorporated Societies Bill on the following requirements: • Detailed rules regarding committee procedure • The inclusion of dispute resolution provisions concerning grievances between committee members • Strict guidelines for the reporting of information by the committee to the body corporate • Duties and responsibilities of committee members and other involved parties should be clarified, with particular attention being drawn to any financial obligations and liability that may arise. The duties set out in the Incorporated Societies Bill include a duty of care, not to trade recklessly, or incur obligations that they do not believe the body corporate can perform. The committee would also be able to rely on information provided by third parties when they reasonably believe the third party to be competent. Penalties should be introduced to address breaches of current and future legislation on the topic of body corporate committee member conduct. • The proposed Incorporated Societies Bill suggests the introduction of a range of • • • • • • 7. criminal offences for noncompliance with its provisions. Balance needs to be sort in terms of not discouraging volunteers to become chairpersons and committee members • Provisions regarding body corporate committee misconduct should include a similar range of criminal offences to address issues where committee members are disenfranchising others e.g. proxy farming. Minutes should be required to be taken and circulated for body corporate committee meetings, and circulated. Clarity should also be given as to what should be referred back to the general meeting because it may exceed the “moral mandate” of the committee, for example changing the essential nature of management of a complex, for example changing from having a resident building manager to an external contractor. Owners may have an expectation of consultation on key decisions. Using delegated powers committee members can end up making extremely significant decisions for the body corporate, often involving significant costs eg for a complex wide remediation project The existing regulation on the election of a committee chairperson (or any chairperson or committee member) by “ordinary” resolution should be replaced with a first past the post voting system and not require over 50% support as it is unworkable often in a multicandidate election. Provisions should be added in the Unit Titles Act or in proposed legislation addressing the current absence of guidelines on the method of electing a person to a body corporate committee member. • Sections 19 to 20 of the Body Corporate and Community Management (Standard Module) Regulation 2008 (Queensland) should be referred to when drafting provisions to do with the nomination and election of individuals. • Section 21 should also be consulted in the creation of legislative provisions specific to the method of election for committees and for the conduct of elections specifically. Where a unit is owned by more than one individual the legislation should state that only one of those individuals may represent that unit on the committee. Current legislation is silent leading to confusion on this point and sometimes two people that own one unit end up holding two committee positions. Implementation of a statutory requirement for committees to revert to the body corporate when budgets are exceeded. PROXIES 7.1 A voting member of a body corporate member can appoint another voting member as their proxy for a particular general meeting. The proxy is valid for that meeting only. Legislation is unclear as to whether proxies may be granted for committee meetings. Proxy farming 7.2 Proxy farming is the act of amassing the ability to cast votes via one particular individual or group within a body corporate acting as a proxy to others. One person may end up with a sufficient amount of votes to have a motion passed at a general body corporate meeting. In extreme cases, they may also be able to effect a special resolution. 7.3 The main concern with proxy farming is the potential for an abuse of power. With all the voting power in the hands of one person, that may lead to the implementation of agendas to benefit that sole person whilst disenfranchising the others who did not essentially cast their own vote. 7.4 In cases where resolutions are passed as a result of the efforts of proxy farming, it could result in changes as crucial as the administratiion of the body corporate or the relevant rules that guide it. One might also be able to become the majority unit owner in the body corporate with enough proxies. Lack of participation 7.5 What enables proxy farming is a lack of participation from members of a body corporate committee. Currently, voting is done in person at general meetings of the committee. In situations where the majority of those in the body corporate committee are non-resident owners, nominating a proxy seems to be the only way for them to vote at all. 7.6 There are geographical barriers to voting which are an immediate concern for bodies corporate. There may also be language barriers to effective voting, particularly in the case of non-resident owners. Owners may feel pressured to vote in certain ways because of their relationship with others owners, making in-person voting problematic. 7.7 The legislation does not provide a right to attend a meeting other than by physically attending a meeting. There should be an ability to attend by telephone conference, skype or other forms of technology to encourage awareness of issues and participation. 7.7 A lack of readily available information about the requirements and obligations of being part of a body corporate may also be a reason for low participation rates. Owners may not know how crucial both their presence and potential votes are to the functioning of the body corporate and to their unit title property. 7.8 Lack of access to other owners’ contact details or the register will often lead to non-resident owners giving their proxies to either the body corporate manager or a building manager. 7.9 Some serviced apartment leases or other contractual documents require owners to give their proxy by way of granting a power of attorney to their serviced apartment operator which can disenfranchise owners. Recommendations • • • • • • 8. The implementation of electronic voting measures would address a number of the participation issues. Allowing for votes to be cast by body corporate members on the go with electronic devices instead of only at the meeting would likely increase engagement. Security concerns over the identity of voters who vote electronically can be assuaged by the use of RealMe – a government-backed identity verification service that is currently used by Studylink and other government institutions. Signing up to RealMe should be integrated into the process of purchasing a unit title and becoming part of a body corporate committee, though how the process will work for non-resident owners is not entirely clear. Whatever process is suggested it needs to be simple and easy to access to ensure that it’s difficulty for use again is not a deterrent to involvement. The record and distribution of meeting minutes should be delivered electronically to members of the body corporate whether they attended the meeting or not. The changes introduced by the Strata Schemes Management Act 2015 in New South Wales limits proxy farming. New Zealand legislation in the area could draw from this to mitigate the issue of proxy farming. Strata titles and strata committees are equivalent to unit titles and bodies corporate. The number of proxies that may be held by one person is limited to 1 if the strata scheme has 20 or fewer lots. Where there are more than 20 lots, this number cannot be more than 5%. This may be too limiting in terms of being able to reach a quorum for a meeting, as often non-resident owners only know the body corporate manager or the building manager, and would not give them their proxy unless they were happy with how they conducted themselves. Better access to contact details in the register for owners might be a way of giving owners more options as to who to appoint as their proxy. Also placing limitations on how proxies can be used should be contemplated, particularly prohibiting using proxies to say vote against having the accounts audited, or to refuse necessary maintenance expenditure. Some body corporate managers accept various proxies so that the quorum for a meeting can be reached, but do not use the proxies to vote on resolutions unless an owner has directed them how to vote. Rules and guidance on these issues would be helpful. Guidance on proxies for committee meetings should be given, if they are allowed they should only be able to be given to another committee member DECISIONS IN RELATION TO ALTERATIONS TO UNITS 8.1 Current sections 79 and 80 relate to the alterations. These provisions are stated in difficult and conflicting legal language which gives rise to many problems of practical administration. Section 79 deals with the rights of owners including the right to quiet enjoyment and there right to make alterations and improvements subject to s80(1)(h) and (i) so long as they are within the unit boundary and do not materially affect any other unit or common property. 8.2 There is uncertainty in the provisions relevant to alterations in terms of procedure and the exact role of bodies corporate in different renovations within a unit’s boundary. Recommendations: • Clarity needs to be given as to what “materially affect” means, otherwise consideration should be given as to whether all alterations apart from redecoration should have the blanket requirement of the consent of the relevant bodies corporate, such consent not to be unreasonably withheld. • Sections 79 and 80 should be amended to reflect the above suggestion and to also have clearer, more succinct wording for ease of practical application. • Sections 79 and 80 should be amended to expressly exclude any alterations to common property which an owner has no automatic right to make. PART 2 - BODY CORPORATE ABUSES 9. UNFAIR CONTRACTS 9.1 There has been various litigation in recent years using the Unit Titles Act 2010 to strike down unfair contracts, in particular contracts entered into by developers with either associated parties, or where third parties have purchased rights from the developer to the ongoing detriment of the body corporate. Section 140 of the Unit Titles Act allows service contracts entered into within the control period by the developer which are harsh and unconscionable to be terminated and also for compensation to be paid. Given these contracts annual revenues it is unlikely that they can be challenged in the Tenancy Tribunal with its $50,000 financial cap, and redress will only be able to be sought in the High Court, which is expensive. 9.2 This does not address unfair contracts which are entered into with the use of proxies after the control period is over, and does not give the ability to cancel or renegotiate those contracts. Recommendations: • • • The issue of conflicts of interest for owners needs to be addressed particularly with the use of proxies to ensure that unfair contracts are not entered into after the control period is over or s140 needs to be expanded. There needs to be a more cost effective way of dealing with harsh and unconscionable contracts without going to the High Court such as by giving jurisdiction to the Tenancy Tribunal or an Ombudsman Requiring the disclosure of all material contracts under the disclosure regime would assist. 10. MINORITY RELIEF 10.1 Owners may apply for minority relief under s 210 of the Unit Titles Act on the grounds that the resolution effected would be inequitable for the minority. This provision directs owners to the “appropriate decision-maker”, a term which may require more definition or clarification depending on the type of resolution effected. 10.2 For most owners wishing to bring a minority relief claim, costs are often an issue. Depending on the resolution in question, some owners may find it more cost-effective to not bring a claim despite any adverse impact that the resolution is having on their enjoyment and ownership of their unit title. There is also lack of awareness that you have to have voted against a resolution to be able to apply for relief if it has passed. Issues of extreme severity may need to be brought to the Tenancy Tribunal, which in itself will occur often far more in terms of costs than in benefits for the average unit title owner. Recommendations: • • • The cost of applying for minority relief is prohibitive with current filing fees for the Tenancy Tribunal. Reducing fees, and providing other options for dispute resolution would assist minority owners with access to justice, who can be disenfranchised by proxy farming and voting blocks of interest. Creating a sliding scale of fees particular to those seeking relief from a body corporate committee decision and setting up a mechanism through which those parties can have their claims dealt with up until a certain severity without the involvement of the Tenancy Tribunal. The current section 208 already requires bodies corporate to act reasonably where their consent is required. This duty should be extended to a general duty by bodies corporate to act reasonably in decision-making affecting minorities, with the Ombudsman able to make a determination where a dispute arises. Joanna Pidgeon and Liza Fry-Irvine both of Pidgeon Law Auckland District Law Society Inc Property Law Committee 11th April 2016 The case for reform of the Unit Titles Act 2010 Topic – The Long Term Maintenance Regime Submission Authored by: John Gray Introduction 1. HOBANZ is an incorporated society which provides guidance and support to home owners and buyers and seeks to improve the standard of New Zealand homes and the level of consumer protection in all matters pertaining to owning, buying, selling, building or improving their homes. We also advocate for greater protection for those that occupy homes as tenants. 2. HOBANZ operates several wholly owned companies which are operated in accordance with the not-for-profit principles of the society. These companies offer specific services to owners of defective homes and buildings, and governance support for bodies corporate. 3. We have a team that specifically provides litigation support and consultancy services to bodies corporate to provide support and guidance regarding the bringing of claims pertaining to building defects, preparation of the remedial project plans including the development of schemes under s74 of the Unit Titles Act 2010 and general governance matters. The close relationship that we have developed with bodies corporate going through major remedial works has also resulted in HOBANZ being consulted as a trusted and independent advisor with respect to crucial organisational matters and in particular the financial management, insurance and long term maintenance requirements which we facilitate through our network of trusted providers of professional services. 4. Over and above the work as described in section 3 above we also deal with enquiries from members or members of the public throughout the country about many different property and housing related matters, but the majority of these enquires pertain to buying real estate. We assist by analysing the prospective purchaser's situation and providing the framework for getting greater assurance around the quality, condition, value and risk related to the property they are considering buying. We have a service specifically tailored to the needs of those buyers that are contemplating buying an apartment or home in a complex that is governed under the Unit Titles Act which has given us access to information on a significant number of bodies corporate throughout the country. 5. Accordingly we have amassed a significant level of institutional knowledge regarding the performance, challenges and shortcomings in the sector and of the governing legislation. 6. The author has sat on many Government reference groups related to building standards and the previous amendment of the Unit Titles Act, is the HOBANZ Representative on the REAA Continuing Professional Education Reference Group, and has been the Body Corporate Chairperson of the complex in which he owns and lives for over 18 years. Relevant extracts from the Unit Titles Act 2010 (UTA) and Unit Titles Regulations 2011 (UTR) for ready reference UTA Section 116 Long-term maintenance plan (1) A body corporate must establish and regularly maintain a long-term maintenance plan. (2) A long-term maintenance plan must cover a period of at least 10 years from the date of the plan or the last review of the plan. (3) The purpose of a long-term maintenance plan is to(a) identify future maintenance requirements and estimate the costs involved; and (b) support the establishment and management of the funds; and (c) provide a basis for the levying of owners of principal units; and (d) provide ongoing guidance to the body corporate to assist it in making its annual maintenance decisions. UTA Section 117 Long-term maintenance fund (1) A body corporate must establish and maintain a long-term maintenance fund unless the body corporate, by special resolution, decides not to establish a long-term maintenance fund. (emphasis added) ………………………… Page 2 of 16 UTA Section 133: Special powers of chief executive for monitoring and reporting on long-term financial and maintenance planning regime (1) The purpose of this section is to enable the chief executive to monitor and report on the financial and maintenance planning regimes of bodies corporate. (2) For the purpose of this section, a body corporate, on receiving written notice from the chief executive, must permit the chief executive access to — (a) the unit title development; and (b) all relevant information that is in the possession of the body corporate. (3) Subsection (2) does not authorise the chief executive, or any person acting on behalf of the chief executive, to enter any principal unit without the unit occupier’s permission. (4) In this section, relevant information means any documents relating to the body corporate’s long- term financial and maintenance planning regime. ………………………… UTA Section 138: Body corporate duties of repair and maintenance (1) The body corporate must manage, maintain, and keep in a good state of repair the common property and any assets owned by the body corporate or designed for use in connection with the common property. (2) The body corporate must maintain, repair, or renew all building elements and all infrastructure that relate to or serve more than 1 unit. (emphasis added) (3) The body corporate may access at all reasonable hours any unit to enable it to carry out repairs and maintenance under this section. (4) Any costs incurred by the body corporate that relate to repairs to building elements and infrastructure contained in a principal unit are recoverable by the body corporate from the owner of that unit as a debt due to the body corporate (less any amount already paid) by the person who was the unit owner at the time the expense was incurred or by the person who is the unit owner at the time the proceedings are instituted. UTR Regulation 30: Long-term maintenance plans (1) A long-term maintenance plan must(a) cover(i) the common property, building elements. and infrastructure of the unit title development (emphasis added); and (ii) any additional items that the body corporate has decided by ordinary resolution to include in the plan; and (b) identify those items that the body corporate may decide by ordinary resolution not to maintain (emphasis added) for any period during the lifetime of the plan; and (c) state the period covered by the plan; and Page 3 of 16 (d) state the estimated age and life expectancy of each item covered by the plan; and (e) state the estimated cost of maintenance and replacement of each item covered by the plan; and (f) state whether there is a long-term maintenance fund; and (g) if there is a long-term maintenance fund, state the amount determined by the body corporate to be applied to maintain the fund each year; and (h) state who has prepared the plan. (2) A body corporate must carry out a review of its plan at least once every 3 years. (3) Subject to subclause (2), a body corporate may carry out a review of its plan as frequently as it considers necessary. Unit Titles Regulation 32: Financial statements (1) The following matters are prescribed for the purposes of section 132(3) of the Act (which requires financial statements to be in the prescribed form and to contain the matters prescribed by regulations): (a) a statement of financial position of the body corporate; and (b) a statement of the body corporate’s income and expenditure during the financial year to which the financial statement applies; and (c) any other matters that the body corporate decides by ordinary resolution should be included in the financial statement; and (d) any explanatory material that the body corporate considers necessary for the purpose of understanding the financial statement. (2) In this regulation, statement of financial position means a statement of the assets and liabilities of the body corporate at the date the statement is made. Extract tram UTA Interpretation Section Building Elements includes the external and internal components of any part of a building or land on a unit plan that are necessary to the structural integrity of the building, the exterior aesthetics of the building, or the health and safety of persons who occupy or use the building and including, without limitation, the roof, balconies, decks, cladding systems, foundations systems (including all horizontal slab structures between adjoining units or underneath the lowest level of the building), retaining walls, and any other walls or other features for the support of the building Infrastructure includes pipes, wires, ducts, conduits, gutters, watercourses, cables, channels, flues, conducting, or transmission equipment necessary for the provision of water, sewerage, drainage, stormwater removal, gas, electricity, oil, shelter, protection from fire, security, rubbish collection, air, telephone connection, Internet access, radio reception, television reception, or any other services or utilities to or from a unit or to or from the common property Page 4 of 16 Context for Concerns 7. Apartments and terraced houses in stratum estates are becoming increasingly popular and on the surface, they appear to be affordable and an attractive entry level option for first home buyers and to older people looking to downsize. However, the many and varied issues that we are confronted with almost every day in relation to stratum estates leads us to believe that a significant number of New Zealanders will suffer financially, emotionally and physically as a result of the problems they will be faced with as an owner in such complexes. This will lead to a destruction of wealth for many owners from which they may never recover and cause intergenerational losses. 8. A pre-purchase building inspection will only encompass the unit itself and can never be relied upon as an indication as to the condition of the entire building as this is well outside the scope of pre-purchase inspections. Accordingly the prospective purchasers are reliant upon the body corporate having put in place a Long Term Maintenance Plan (LTMP) that conforms to the requirements as set down in the Unit Titles Act 2010, and that the assessment of the building for the purposes of preparing the LTMP has been thorough enough to have picked up any building defects and set down a scope, cost and timetable for any repairs that are necessary. 9. With particular reference to leaky and defective buildings; there are many cases where the buildings are over 10 years old and as a consequence the body corporate and owners are time barred from bringing claims under the Weathertight Homes Resolution Services Act (WHRS Act) or through the courts. In these instances they are also precluded from obtaining funding via the Governments Financial Assistance Package for leaky building related repairs. As a result the owners somehow have to fund the repairs themselves. Based on our most recent experience at HOBANZ the repairs costs range from $160,000 to $280,000 per unit in apartment complexes and $400,000 to as high as $680,000 for terraced housing complexes. When new owners finances have been stretched to the limit to have purchased their unit in the first instance, or are on a fixed income (benefit and/or pension), many are consequently ruined financially. The impact on new and existing owners will be an enduring feature of ownership in body corporate complexes whilst there is an absence of a robust maintenance planning and funding regime which has resulted in existing construction deficiencies not being identified and remedied, or the necessary repair work has been schedule with the associated funding requirements being properly established and noted as a contingent liability in the body corporate financial statements. 10. Some complexes now under remediation have been found to not only be leaky but are seriously compromised structurally, and many have also been found not to meet the building Page 5 of 16 code requirements for the prevention of the spread of fire and/or the acoustic performance requirements. The structural and fire rating issues have therefore put the lives of residents, visitors and rescue services personnel at risk. HOBANZ believes that these problems may well be widespread amongst the apartment and terraced housing complexes throughout New Zealand. Most complexes that have not manifested problems such as leaks and subsequently requiring closer scrutiny are not being thoroughly assessed for the purposes of developing a LTMP and are therefore not capturing the serious problems that may be present in these buildings. 11. Whether it be through a lack of adequate historical maintenance, deferred maintenance, inadequate LTMP's, or LTMP's that are not fully funded, the owners, and therefore any new owners buying in, are exposed to a mountain of debt in terms of the contingent liability that is accruing in relation to the cost of future repairs and maintenance. If the owners are unable to fund the repairs HOBANZ believes that the buildings will become dilapidated, suffer significant diminution of value and potentially become unhealthy, unsafe and ultimately uninhabitable in the long term. Specific Issues Identified This section of the paper will consider two scenarios with regard to the Long Term Maintenance Planning and Funding regime; 1. Legacy Complexes – being those that have been built and handed over as of this date, and; 2. New Build Complexes – being those complexes that are planned or currently under construction. Legacy Complexes: 12. HOBANZ’s experience of assisting a significant number of prospective purchasers, and reviewing the documentation they are provided with, it is clear that these properties are frequently what we at HOBANZ consider to be high risk. Many feature a lack of maintenance and inadequate maintenance plans or that the body corporate has simply failed to establish a LTMP and are thus in breach of the UTA. Even the seemingly comprehensive maintenance plans that have been provided generally do not conform to the requirements of the UTA and have featured serious omissions. Paradoxically this situation is not helped by the templates for LTMP’s on the MBIE website not conforming to the requirements of the UTA. Page 6 of 16 Whilst we are aware of civil claims that are pending where the failure of some bodies corporate and their elected officials in this regard will be scrutinised by the courts; HOBANZ believes that this issue has arisen because there are no consequences under the UTA for the body corporate or its elected officers for failing to comply. Furthermore, to the best of our knowledge, the Chief Executive has not exercised his or her powers under UTA S133 to monitor the long-term financial and maintenance regime. On one occasion the Chief Executive has even gone so far as declining to exercise those powers when called upon by HOBANZ to do so on behalf of some members. Suggested solutions; • In consultation with suitably experienced registered building surveyors MBIE must develop a proper template and exemplar for LTMP’s. • A registry of Bodies Corporate must be established and administered along similar lines to the Charities Register whereby Bodies Corporate must file their Long Term Maintenance Plans with the “Registrar” within a specific time frame. It would then be subject to a review by appropriately qualified MBIE personnel or contractors and rejected if it does not conform in any respect to the standard established above. • LTMP’s updated 3 yearly must also be filed with the registrar and subject to the same review. • A filing fee would be appropriate including any re-filing subsequent to a plan being rejected. • Penalties must be established for a body corporate failing to lodge their LTMP and any subsequent updates within the required timeframes. 13. LTMP’s are being prepared by individuals and companies that do not have the qualifications or competencies to be doing such work. In some cases the plans have been prepared by the body corporate Manager or members of the Committee. For reference some examples of LTMP’s are appended to this paper and a brief analysis of each is as follows; 13.1. EXAMPLE LTMP 01 This plan is the by far the best that HOBANZ has seen and comes very close to conforming to the requirements of the UTA & UTR. However, according to experts we that have reviewed it, the plan was still lacking in that there was; • No full assessment of the current condition of the building elements and infrastructure. • One of the major omissions was the failure to identify the cladding type and allow for its replacement at the 25 to 30 year mark. The replacement was estimated by the experts to cost somewhere between $3m and $5m. Page 7 of 16 • Other critical omissions was the failure to identify the need to carry our regular maintenance and repairs to the ventilation fans in the basement carpark that are required to exhaust the methane gas that accumulates because the complex is built on an old land-fill and presented an explosion risk. The other very important piece of infrastructure that was not captured in this plan was the underground storm water filtration unit installed as a condition of the resource consent to ensure that all storm water being released into the wetlands and flowing to the inner harbour was adequately filtered and would not cause environmental damage. 13.2. EXAMPLE LTMP 02 This LTMP has been prepared without a full assessment and the company that prepared the plan has contracted out of reporting on weathertightness defects even though this is an imperative in so far as the scope of work and costs that will be incurred over the coming years. When you compare this plan to EXAMPLE LTMP 01, you should be able to draw your own conclusions regarding the shortcomings of this report in respect to its failure to conform to the requirements of the UTA & UTR. If you refer to the picture on page 10 (page number at top right) of the report you will note a red arrow which the author of this paper has inserted; it points to a temporary balustrade comprised of a sheet of painted plywood. In assisting several owner’s that have recently bought into this complex we know for a fact that this unit and the units either side of it are suffering from external moisture ingress and severe damage has occurred as a result. No mention of the temporary balustrade or the large number of cut outs to the cladding was made in the report. Furthermore, on the corner of another block in the complex there is a large patch over the area of cladding that was cut out to revel the severe damage to the structural framing timber – in this case a boundary joist which also extends to provide the cantilever support to the adjacent balcony deck. Below is a picture of the extensive decay to the boundary joist and to the left in the picture is the balcony deck. The owner of this unit has also sought our assistance because she has also just recently purchased her unit. Page 8 of 16 Early indications are that due to the extent of the damage these units may well be uneconomic to simply re-clad as it may well be cheaper to partially or fully demolish and rebuild. Not only will it potentially be a cheaper option, but it will definitely be a higher quality repair solution and give greater certainty in the long term about the value of the units concerned. It is worrisome that more units in this particular complex are up for sale and even if they were to obtain a copy of the LTMP they would not be alerted to the significant defects and damage that exist in a large number of units, and given their similarity of design and materials the same problems are likely to exist in all of the units of this body corporate. All of these units are outside of the 10 year limitation period so the owners will not be able to pursue a claim against the Council, developer, builder and others, and their only hope is to consider their legal remedies against the body corporate, the elected officers of the body corporate and the body corporate Manager. What is even more disturbing about this particular complex is that the Building Surveyor HOBANZ recommended to its members in need of an inspection and detailed report on their units, informed the owners that he personally did a report on this complex approximately 9 years ago when he was working for another firm. His report apparently informed the body corporate that the complex had defects of design and construction that had, at that time, already caused moisture ingress and damage. The body corporate appears to have simply ignored these issues and kept that report and the defects and damage a secret as there was no record of them in the minutes. Page 9 of 16 Suggested solutions; • This will at least in part be remedied if the suggested solutions to the matters raised in section 12 above are adopted. • A substantial amendment to the UTA and UTR is also required to ensure that the creation of a LTMP and any 3 yearly reviews must be off the back of a full assessment of the current condition of the complex; and that the initial assessment for the creation of the LTMP must include a detailed review of the weathertightness, fire protection and structural integrity of the complex. • The Act must also make it mandatory for the LTMP’s to be prepared by a registered building surveyor. This particular issue is well illustrated in the example LTMP 03 and LTMP 04 where the plans were all prepared by the Body Corporate Managers (Secretary). 13.3. EXAMPLE LTMP 05 This LTMP has been prepared by the Body Corporate Manager with the introduction by the Chairperson. The report does not in the slightest reflect the requirements of the UTA or UTR and has been prepared by an individual that, to the best of HOBANZ’s knowledge, does not have any relevant qualifications or experience to do so. It has also been prepared without a full assessment of the condition of the complex. It is clear from the minutes of the general meetings of this body corporate that they have been grappling with defects for quite some time, but have avoided properly recording the issues in the minutes and until recently had not engaged appropriately qualified experts to assess the building. The body corporate concerned has now engaged experts and the owners are facing losses pertaining to the repairs estimated to be around $15m. Many owners bought into this complex after the time at which the LTMP regime was introduced. They should have been afforded the protection of there being a compliant LTMP based on a full assessment of the complex and the findings were properly recorded in the minutes, and that; the minutes, along with the LTMP would have been required to be furnished to prospective purchasers as part of the documentation supplied with the Pre-Contract Disclosure Statement. Suggested solutions; • This will at least in part be remedied if the suggested solutions to the matters raised in sections 12 and 13 above are adopted. • The Act ought to be amended to ensure that there is an express duty imposed on a body corporate to accurately and honestly record all matters discussed in the general meetings of the body corporate and the body corporate Committee. This Page 10 of 16 requirement must also be supported by severe penalties to be imposed on the body corporate and elected officers for failing to comply with this requirement. • The Pre-Contract Disclosure requirements must be amended to include the disclosure of; The current Long Term Maintenance Plan Notices of general meetings and agendas, including all supporting documentation supplied to owners going back seven years. Financial Statements and audit reports (or a statement that an audit for a particular year has not been carried out) going back seven years. The budget for the current year. Current insurance policies and claims record going back seven years. 14. Those bodies corporate with more comprehensive plans have ignored the need to raise levies in advance in order to build up the funds held in their Long Term Maintenance Fund so that the maintenance programme is fully funded when the time comes to execute the work. In the absence of a fund that is built to a level whereby the maintenance plan is fully funded, the body corporate will face significant shortfalls to cover the maintenance requirements at the time they fall due and will have to raise large levies at the time which can be financially crippling for some owners. In many cases this will also have a “domino effect” because the owners, by the very nature of ownership in a complex governed under the Unit Titles Act, are joint and severally liable for the debts incurred by the body corporate. Therefore if a large number of owners cannot pay their levies then the body corporate has no choice to not only pursue the defaulting owners, but to also issue further levies until sufficient funds are raised to pay for the maintenance and repair work required. This commonly puts other owners, who have managed to pay their share of the levies in the first round, under serious financial pressure and many cannot access funds to pay any further levies that are struck. HOBANZ is also seeing many bodies corporate that have consciously decided to defer maintenance and have not provided for that in their budget at all by way of accumulating funds relative to that maintenance which has been deferred. Many more have exercised their current right to pass a special resolution to not establish a Long Term Maintenance Fund at all, or a fund is established but the body corporate has elected to not fully fund the maintenance plan. In both of these cases the contingent liability that accrues is never reflected in their financial statements. Example LTMP 01 is an excellent illustration of a plan that has, with the exception of the omissions noted above, covered off the maintenance and repair requirements for a 30 year period. The plan has calculated that the fully funded balance as at the time the plan was produced would ideally be approximately $790,000 but that the body Page 11 of 16 corporate only had $100,000 in the fund. At the end of 2015 the ideal fully funded balance was $2.17m and yet the body corporate has not increased its fund much above the original $100K target established when the plan was first drawn up. So every year that goes by this body corporate, and many others like them, are getting further and further into the red, and the hapless owners who are unfortunate enough to still own in the complex when the crunch comes will have to come up with the funds to pay the massive levies that will have to be struck. Whilst those owners who have sold before the crunch get off scot free as they have not had to contribute to the fund during their tenure. The 10 year period stipulated in the UTA for the term of the LTMP’s also masks the significant costs that will be incurred well down track when major components of the buildings such as roofs, exterior cladding and joinery need to be replaced at the 25 to 30 year mark. If it is not captured in a report such as it has been in Example LTMP 01, then the contingent liability cannot be determined and the owners, and any new owners buying in, are exposed to significant financial risk. Unfortunately the decisions being made by bodies corporate when considering the quality of the reporting and the term for the LTMP are generally being driven by costs. This is understandable when one considers the cost incurred by the body corporate that procured Example LTMP 01 which was approximately $10,000 + GST, but the firm that produced Example LTMP 02 only charges around $2,500 + GST. Whilst the firm that produced Example LTMP 01 is able to develop vastly superior pans, most bodies corporate are opting for the cheapest possible plans, but in doing so are accepting significant risks that are not evident to them at the time. The cost based focus in terms of saving, let’s say, $6,000 by procuring a much cheaper, but inferior quality plan is very short sighted when considering the millions of dollars that are at stake as a result of their buildings being poorly maintained or serious defects or damage going undetected for years. Suggested solutions; • The UTA to be amended to make LTMP’s cover a minimum 30 year period. • The establishment of a Long Term Maintenance Fund should be made mandatory and the legacy complexes should be required to achieve a fully funded state within 15 years, and that the shortfall in funding must be reflected in the Financial Statements of the body corporate as a contingent liability. • An amendment to section 132 of the UTA and regulation 32 must be amended in order to ensure that modern accounting practices are adopted by bodies corporate that are in line with what publicly listed companies are required to do, and that; the Financial Statements must also record the contingent liability related to any deferred maintenance and the shortfall in the current balance of the Long Term Maintenance Fund and the sum required to fully fund the LTMP. Page 12 of 16 • Pre-Contract Disclosure Statements must contain express details of the contingent liabilities in respect to the shortfall on the fully funded target set down in the LTMP (as reviewed and amended) and any deferred maintenance. This should be expressed as a sum that would be attributable to the unit that is for sale based on ownership interest, with the global sums being reflected in the Financial Statements of the body corporate. New Build Complexes 15. HOBANZ has reviewed the document packages provided to many of our members considering purchasing units off the plans or during construction. These purchases were therefore being considered prior to the commencement or prior to the end of the “Control Period” (as defined under section 6 of the UTA) and prior to the “turn-over” by the original owners (the developers). The disclosure obligations related to sales in the period prior to the “turn-over” are not set down in the UTA and this leaves the prospective purchasers open to being deceived, or at the very least, completely unaware of the true long term cost of ownership of their unit in any particular complex. Most developers are providing the selling agents with what appears to be comprehensive draft annual budgets and they generally provide for the expenditure related to the procurement of a LTMP once the body corporate is constituted after the turn-over by the developer. If the suggested changes to the UTA and UTR discussed in relation to the legacy complexes above are implemented the issues pertaining to the quality and comprehensiveness of LTMP’s and the financial reporting regarding the long term maintenance funds going forward will be solved. However, they will not deal with the lack of transparency and disclosure of the real cost of ownership to those buying off the plans or during construction prior to the turn-over and it will come as a shock when it is properly established sometime after they have purchased. This is especially so when the draft budgets provided by selling agents do not make provision for the accumulation of adequate funds to fully fund the LTMP’s from day one. This sets the scene for under investment in building a fully funded Long Term Maintenance Fund and the body corporate creating an asset that would otherwise offset the erosion of the capital value of the complex relative to maintenance cost burden. The turn-over disclosure information prescribed in regulation 36 requires the developer to provide, amongst other things; 32(f) details of any recommended maintenance schedules for construction materials and infrastructure in relation to the unit title development; Page 13 of 16 32(h) details of any warranties and guarantees for products used in the construction of the unit title development The developers are under no obligation to provide a LTMP as such and certainly not required to cost out the maintenance that might be prescribed in the maintenance schedules or warranties. In fact there is no incentive for a developer to do so as in many cases the developers seem to believe that to set down a LTMP and have the targeted funding requirements established in the plan will, because of the cost burden to owners, make their complexes less affordable and therefore less attractive, and ultimately more difficult to sell. HOBANZ is aware of some developers who would certainly like to be more transparent in this regard, but they have told us that it would then make them uncompetitive when there is no such requirement imposed on competing developers. The same developers also see it as a positive to ensure that their developments will endure because they will be well maintained and ultimately be a good investment for owners. However, despite having to assemble the documentation to fulfil their obligations under the turn-over disclosure regime, and therefore having a considerable amount of supporting information at their fingertips that would enable them to do so, the developers do not prepare a LTMP that would properly establish the funding requirements for owners. HOBANZ believes that, by omission, the prospective purchasers are being deceived, and given that the cost of ownership is a key component of affordability it will, if remaining unchanged, cause many first home or entry level buyers, or those on fixed incomes, to suffer in the future when the true costs become apparent and they are levied to make payments to the body corporate to fund repairs and maintenance. As it currently stands, this regime is also a perverse incentive to quality, sustainability and maintainability with respect to the design and selection of materials for the construction of the complexes. Suggested solutions; • A Pre-Contract Disclosure regime must be established for sales off the plan and for those units being sold prior to turn-over. • The developers must be required to prepare a LTMP that fully complies with the requirements established by changes suggested under section 12 above, and that; the draft budgets must reflect the establishment of a Long Term Maintenance Fund and the contingent liability that exists from day one in relation to the targeted fully funded balance that the body corporate will be required to achieve in order to avoid any “levy shock” for owners in the future. • Whilst not specifically on topic; the disclosure regime should also require the developer to prepare an elemental reinstatement estimate prepared by a Quantity Page 14 of 16 Surveyor for the purpose of properly establishing the sum insured. All of the bodies corporate we have had direct dealing with have adopted the insurance valuation model for determining the sum insured, but in almost all cases this method has been found to have underestimated the cost of reinstatement by upwards of 30%. Draft budgets for new complexes have set the starting point for the sum insured because setting down the true cost of reinstatement would see a significantly larger provision for insurance premiums having to be entered into the draft budgets and therefore an increased cost of ownership. Once again the developer has access to all of the elemental quantities that would make it a relatively easy exercise. Summary HOBANZ strongly asserts that need for significant changes to be made to the Unit Titles Act and Unit Titles Regulations so that the level of protection that should be afforded owners is achieved. In closing it is useful to reflect on the content of various Social Services Select Committee reports prepared in respect to the proposed amendments to the 1972 Act which were reflected in the new Act. (Emphasis Added) • ensure bodies corporate can maintain and repair developments using sound management practices with a holistic focus. • provide a robust disclosure regime so unit owners, bodies corporate and prospective purchasers can make informed and confident decisions. • Overall, the proposals in the Bill are expected to have a small impact on compliance costs for existing unit title developments. These are expected to be off-set by long-term savings in respect of preserving capital value of developments and the benefits in creating a more sophisticated and robust unit title market with wellinformed, confident market participants. • The regime is intended to promote best practice to avoid the current situation, where the body corporate is not required to (and often does not) plan in advance for repairs and maintenance to parts of the development like the roof or cladding. If the body corporate is required to undertake repairs or maintenance a special levy is imposed on unit owners to cover the expenditure. This means unit owners can be confronted with large, one-off levies which some unit owners struggle to pay, or refuse to pay, resulting in delays in doing repairs or maintenance. Based on the evidence HOBANZ has seen it is clear that the ideals expressed in the reports have simply not been achieved in practice. Accordingly a further 7 years of under investment in maintenance to body corporate complexes has slipped by with no significant change to the behaviour in the market place. As a result, many buildings manifesting serious problems and the contingent liability continues to mount at an inexorable rate. Page 15 of 16 This requires decisive action on the part of the government to ensure that the issues pertaining to maintenance and other aspects of the UTA and UTR that are causing owners to suffer loss are properly dealt with in order to not only protect the owners, but to ensure that this sector of our housing stock remains safe and healthy for all those who occupy units in stratum estates. Page 16 of 16 LTMP EXAMPLE 01 PAGE 1 Reserve Study for Body Corporate Apartments Auckland Annual Report Including Sinking Fund Projections For 30 Year Period Report Period: 01.10.2010 – 01.10.2011 Report No. 0023710-1 LTMP EXAMPLE 01 Table of Contents Introduction What is a reserve study? Why should we have a reserve plan? 1. Executive Summary 1.1 Component inventory – Table 1 2. Objectives & Methodology 2.1 Generating the component inventory 2.2 Quantifying the component inventory 2.3 Determining the expected life of components 2.4 Determining the estimated cost of components 2.5 Determining the required amount of funds 2.6 Creating a funding goal 3. Site Inspection 4. Projected Expenses 4.1 Annual reserve expenses – Figure 1 5. Reserve Fund Status 5.1 Fully Funded Balance – Table 2 6. Recommended Funding Plan 6.1 Annual Reserve Contributions – Figure 2 6.2 Annual Cash Flow (Period) – Figure 3 6.3 Percentage Funded – Figure 4 7. Reserve Plan Summary – Table 3 8. Reserve Plan Detail – Table 4 9. Disclosures, Accuracy & Limitations 10. Appendix 2 PAGE 2 LTMP EXAMPLE 01 PAGE 3 Introduction What is a reserve study? Essentially, a Reserve Study is a review of the assets that are owned by a Body Corporate. It provides Body Corporate members, owners and prospective owners with a means of anticipating upcoming major expenses, and allows them to ensure that Reserve Accounts (Sinking Funds) are adequately funded to meet such expenses. The Reserve Study consists of two parts, a Physical Analysis and a Financial Analysis. The Physical Analysis is the process of compiling an accurate inventory of the common area components. Determining their useful life, remaining useful life and the inflated cost to repair and or replace the components in future years as required. The Financial Analysis contains the organizations current Reserve Funding information, including current Reserve Fund (Sinking Fund) Balance and Annual Contributions. Once the physical and financial information has been accurately collected we then assess the organizations financial situation and structure a New Recommended Funding Plan. Why should we have a reserve plan? An organization's Body Corporate has responsibility for a range of management, financial and administrative matters relating to the common property and to the building as a whole. However the primary financial responsibility of the Body Corporate is to maintain the value of property and its respective assets. ‘For most New Zealanders the single biggest investment we will make is the purchase of a property’. Therefore as Body Corporate members and property owners we should have in place a detailed Reserve Plan to maintain and increase the value of our investment. The benefits of a Reserve Plan: • • • • • • It will help maintain the value of your investment It allows you as a property owner to budget appropriately It ensures maintenance is undertaken in a methodical, planned way It ensures that costs are distributed fairly among owners It avoids large unexpected costs and ‘special assessments’ It can help a Body Corporate meet its legal obligations Current legislation At present the Unit Titles Act 1972 is under review. The new Unit Tittles Act 2010 received its Royal Assent on the 19th April 2010. Currently regulations are being drafted and are expected to be released later this year. One of the aims of the amended Act will be to: “Encourage sound property management practices that will protect the long-term value of Investments by introducing requirements for long-term maintenance plans and long-term maintenance funds by the body corporate; and by broadening the role of the body corporate in relation to maintaining and managing the building as a whole”. So having a professional Reserve Study in place is not only fiscally responsible, it is legally wise! 3 LTMP EXAMPLE 01 1. PAGE 4 Executive Summary Body Corporate Apartments Auckland Report period: 1 October 2010 through 1 October 2011. The overall result of our recent visit to and Reserve Study computation shows Body Corporate Apartments to have a weak funded status at 13%. The results of the study are as follows: Projected Starting Reserve Balance Current Annual Reserve Contribution Fully Funded Balance (Ideal Reserves) Percent Funded Recommended Reserve Contribution for 2010 Recommended Special Assessments $100,000 $60,000 $789,275 13% $240,000 $0 Economic Factors Net Annual Interest Rate Annual Inflation Rate 3.50% 2.50% Based on this financial information and the site inspection on the recommendation is to collect a reserve contribution this year of $240,000 , our We also recommend an increase in your annual reserve contribution of 3% per annum. This will allow you to build up your reserve fund at a steady rate and achieve our funding goal of 100% funded within the study period. What will this equate to for Body Corporate Apartments Owners? The annual contributions are divided among owners by their respective unit entitlement as shown below. 4 '8 I I 3 glidg??fqu? amp! m?zizzmn: mummnu Hum: 33: --. --. .0- '1 -0. . i" LTMP EXAMPLE 01 2. PAGE 10 Objectives and Methodology The objective of our Reserve Study is to assess the strength of the organizations Reserve Fund (Sinking Fund) and to put in place an adequate Long-Term Funding Plan to assure the financial stability of this fund against all future expenditure. As explained earlier there are two parts to the Reserve Study, the Physical Analysis and the Financial Analysis. The first step in our Reserve Study is to perform the Physical Analysis and create our Component Inventory. Generating the component inventory. To enable us to create an accurate Reserve Plan we need to have a clear outline of exactly what constitutes the Common Areas of the property. The Body Corporate should have detailed documentation of all common areas and their specific assets. The next step is to decide what components represent the major predictable expenses that will be included in our Reserve Plan. Generally speaking the main criteria for such inclusion are cost and frequency of replacement. Any components with a Useful Life of one year or less should probably be included in the operating budget. At the other extreme, components that do not require repair or replacement within the next 30 years should be excluded, as it would be premature to begin saving for that purpose. In addition, components whose cost is below a certain threshold (such as $1000) might be better suited for the operating budget. Quantifying the component inventory Once the specific components have been added to the inventory, the actual size and number of each component is quantified. For most components this will simply be a case of counting the number of each specific sized component, such as streetlights. For other components such as roads, curbing and roofing etc it will mean measuring and calculating the area as meters squared or lineal meters. Often development plans can be helpful for this process but when an initial Reserve Study is conducted for the property, it is essential that each component be visually inspected. This inspection will also reveal the quality of the component. Determining the expected life of components The useful life of a component is defined as the approximate time it is designed to serve its intended purpose. All components within this Reserve Study were professionally analysed and surveyed throughout New Zealand using industry references from a range of major suppliers. Then an average of best and worst case was given to each component. Although this plays a major role within our Reserve Plan we are more interested in the Remaining Useful Life of the components. Generally the Remaining Useful Life of a component is equal to the overall life less its age (time spent in service). However this is not always the case, as other factors must be taken into consideration. Such factors may include components quality, exposure to the weather and the rate of wear and tear it is subjected to. Bearing in mind these factors our experienced and knowledgeable Reserve Analyst’s should be able to accurately estimate the Remaining Useful Life of each component. Also as poor maintenance plays a big role in components lives reducing faster than expected. It should be noted that where components are ageing faster than expected due to poor maintenance that the Body Corporate take immediate action to rectify this process. 10 LTMP EXAMPLE 01 PAGE 11 Determining the estimated cost of components There are several ways to determine replacement costs. The most accurate method is the actual cost to repair or replace the component. These repair and replacement costs will often be documented within the organizations accounts (or may be available from similar organizations). However as a platform we continually update our database from manufacturers, costing manuals, local vendors and developers. If an accurate figure cannot be placed on a component an average of the best and worst case scenario is used. For components where a specific expertise is required such as lift repair a qualified technician will be employed to assess the required repair costs and remaining useful life. Determining the required amount of funds Although it is possible to view the balance of your Reserve Fund (Sinking Fund) as a dollar value, the only real measure of a Reserve Balance is as a percentage. Therefore your Reserve Fund is measured as ‘Percent Funded’. Your Percentage Funded is calculated by dividing your Reserve Fund Balance by your ‘Fully Funded Balance’ (FFB). Your Fully Funded Balance or FFB is the total accrued balance of the deteriorated portion of all the common area components. (See table ‘Fully Funded Balance breakdown for current year’). Creating a funding goal There are three basic funding goals that we can choose from: - Full Funding - Baseline Funding - Threshold Funding Full Funding is when the property owners aim to become Fully Funded within the study period (Reserve Balance equals Fully Funded Balance) or more quickly if cash flow permits. When corporate bodies become Fully Funded (at or near 100%) they are essentially taking responsibility to replace the deteriorated portion of all components as they accrue. As we believe Full Funding to be the fiscally responsible choice, we advise all clients to aim towards eventually becoming Fully Funded. Baseline Funding is essentially having the bear minimum in reserve. Although this method budgets to replace all components as necessary, without the Reserve Balance becoming completely depleted, it leaves absolutely no room for error. Corporate Bodies choosing this method must understand that even minor reductions in a components remaining life or a slight over spend will result in a cash deficit and or special assessment. Threshold Funding is based on the Baseline-Funding concept, however a predetermined cash amount or funding percentage is chosen. Threshold funding allows corporate bodies to customize there funding goals to suit. For example we may aim to have a Reserve Balance minimum of $10,000 at all times. No matter which funding goal we eventually choose we still need to establish how our annual contributions to the Reserve Fund will occur. Ultimately we need to have sufficient reserves in place to carry out maintenance as required. From experience we know that fiscally responsible corporate bodies will aim at becoming Fully Funded over the study period. Set a stable contribution rate and try to avoid unplanned special assessments where possible. 11 LTMP EXAMPLE 01 3. PAGE 12 Site inspection Date of inspection: 24th August 2010 Weather Conditions: Sunny and Dry Surveyed by: Brief Description Completed in 2007, Apartments comprise 142 residential units within three buildings. The buildings are between five and six storey high and are arranged in a crescent form. Vehicle parking is located under the building in the basement and is accessed from Drive. A recreation area is located within the crescent which includes a swimming pool, changing room & toilets, amenities building and a petanque piste. Construction of the blocks comprises 200mm thick insitu concrete sheer walls to the ends of each building with pre cast concrete walls in non load bearing positions. The main accommodation blocks, amenities buildings and rubbish collection building have low pitched roofs covered with hot dipped alu/zinc steel sheet and the stairwells are provided with flat roofs with a single ply covering. Anodised aluminium framed single glazed windows and doors are provided to apartments and main building access routes. Floors to the apartments are generally 300mm thick pre-stressed hollow core units topped with a reinforced topping over. Internal walls are generally 65mm metal studwork lined with standard GIB board. 12 LTMP EXAMPLE 01 PAGE 13 Three Otis passenger lifts are provided to the building which are located within stairwells A, D and C. Carpeted stairs are also provided within these locations with the addition of stairwell B located at the North end of Block C. Maintenance of the lifts was carried out by Otis prior to the contract being cancelled. It is unclear if there is a current maintenance contract held with any other company. The building has a fire alarm system to Type 5 Standard within apartments and common areas with a Type 3 system to the basement car park. A stairwell pressurization unit is provided to stairwell B only and is activated via heat detectors in the car park or by multi – criteria detectors in one of the adjoining apartments. Condition Summary Apart from the Long Term Maintenance Plan, some further issues were noted and are as follows: • A defective gutter lining was noted to Block A. The Nuraply lining has started delaminating from the timber support causing rippling of the membrane. This item is currently under warranty and therefore should be reported to the Renew Waterproofing Ltd for repair. This repair has not been included in the long-term maintenance plan. See photograph A • The Nuraply membrane to Stairwell C has cracked. It appears that a temporary repair has been carried out previously to this membrane. This membrane is also covered by a current warranty and therefore should be reported to for replacement. This repair has not been included in the long-term maintenance plan. See photograph B • At the time of our survey, we were made aware of a leak into the car park from the recreation/ crescent area by Block A. The leak corresponds with the position of the seismic joint and therefore is suspected to be leaking. It is unclear if there is a current warranty covering this item and therefore a one off cost has been included in the maintenance plan for investigation and remedial works. See Photograph C • There is currently an issue with a hopper and downpipe on Stairwell C. At the time of our survey, water had been overflowing the hopper at roof level and the downpipe discharges onto a lower cover roof, causing splash back that has caused some green algae growth on the wall surface. This item needs to be re-designed to discharge directly to ground level. See Photograph D • We were informed by the Building Manager that some earth had become dislodged from the bank to the North of the site at basement level. We suggest that further investigation is carried out by a suitably qualified engineer and therefore a one off cost for investigation and subsequent stabilisation works has been included in within the maintenance plan. 13 5'5 o. .5 0.0. 0?1606:. .0. o. ?6 8.06 0' .. .31llvv? -000 0 .0. 0? .ll .09LTMP EXAMPLE 01 PAGE 15 Projected Expenses The figure below shows the projected Annual Reserve Expenses for your organization. The expenses have been projected into the future using the current inflation rate shown in the executive summary. As with all projections this is an estimate of your annual expenses, as some projects may not take place as anticipated. Note the large expense for exterior painting, balconies, aluminium joinery repair and tiling in 2027. In 2032 roof replacement, fire protection system and passenger lifts. In 2037 the interior lighting, access control, carpet replacement and painting. Figure 1 A detailed breakdown of these expenses is shown in Table 4. 5. Reserve Fund Status The results of our financial analysis show your projected Reserve Fund Balance at the start of the fiscal year to be $100,000. Your Fully Funded ideal Reserve Balance for the year is calculated at $789,275. This represents the deteriorated portion of the value of your components. In comparing the projected Reserve Fund Balance to your Fully Funded Balance, we calculate the body corporate Reserve Fund to be 13% funded. The Table below shows a detailed breakdown of your Fully Funded Balance for 2010. 15 3 1>00.0.- 3' :1 plodllvolI'll .- I 0.- :2 2 5%3'3: 33!! I :31! 5! magnum?; mu: ma; PAGE 17 LTMP EXAMPLE 01 ?ll i I .zmmn uh: mm?: hm. -9 LTMP EXAMPLE 01 6. PAGE 18 Recommended funding plan In order to establish our recommended funding plan the following criteria were evaluated and various contribution rates were tested. These criteria included setting an equitable spread of the contribution load over current and future owners, with the view of ultimately becoming Fully Funded within the study period. As a result, given your annual cash flow requirements and your current percent funded, we are recommending a Reserve contribution of $240,000.00 this fiscal year. This represents the initial contribution of your multi year funding plan and nominal increases of 3% should be added annually to account for our inflationary environment. Our recommended multi-year Funding Plan is shown below. Note the annual increase of 3% per annum to contributions. Figure 2 18 LTMP EXAMPLE 01 PAGE 19 Annual Cash Flow (Period) Shown below is the projected effect of our proposed funding plan. It compares your Annual Cash Flow Balance to your required Fully Funded Balance. As this projection accounts for an inflation factor approaching years may seem high, however it clearly shows your Reserve Fund progressively drawing closer to your Fully Funded Balance over the study period. Figure 3 19 LTMP EXAMPLE 01 PAGE 20 Percentage Funded As mentioned earlier, the only real measure of your Reserve Balance is expressed as a percentage. Shown below is your projected Reserve Balance compared to your ideal Fully Funded Balance of 100%. This demonstrates how your Reserve Fund gradually achieves your funding goal within the period. Figure 4 20 FN m00.-. It. 00.. In: a .?It Iii! I I 0 ?ol?Ill .. ti f! i? i [Illa LTMP EXAMPLE 01 PAGE 23 0?d- 00? On- in?. .0 ?0-0 h. u. .- ?ll-0-.- ginIll? I?ll] a. "o a; 35 334.5 LTMP EXAMPLE 01 PAGE 25 a .3 .0. 0" h. GUI4h?? *h .- 0 .0 5.Olnllo LTMP EXAMPLE 01 PAGE 27 0?d- a- ?an. .0- 4-. .0 .- 0 5.2% 0025me 3 or!" I: 7? I30. I l- 0? 01.. 0O. Cos" .g i ?g inn: 2 I 3 Mm LTMP EXAMPLE 01 PAGE 29 N. .6. ?ll. Oil-C?. N- -C 0 h-wh-?u- o- w- 0 O. .- 0025me 3 _u>LTMP EXAMPLE a1 31 O.- .0- ?a 00'. .0 O.- .- b. O- 00-- ma 1.9mm 9-- 'lin! 9..- 55 I a I LTMP EXAMPLE 01 PAGE 34 DISCLOSURES, ACCURACY & LIMITATIONS Reserve Studies prepared by (“the Company” and “we”) are prepared with the greatest of care utilising the information you have given to the company and utilising a wealth of experience and up to date formulae and known issues and developments within the industry. We do not however have any control over future events and cannot therefore fully predict that all the events we anticipate will occur as planned or that events that are not anticipated will not occur. We have endeavoured to take into account future economic possibilities and where relevant have made reasonable estimates for them rather than ignore them. For example we anticipate that inflationary trends will continue and that financial institutions will provide interest earnings on funds on deposit. What we can control are measurements and we have attempted to establish them within 5% accuracy. We have relied on figures that you have given us such as your Reserve Balance (or projected Reserve Balance) and current Reserve interest as being accurate without independent research. We have assumed in our predictions a stable economic environment without terrorist or civil disturbance or natural disasters. Due to the increasing possibilities of inaccuracy of predictions which are given too far into the future due to changes such as changes in the legislative and regulatory environment, changes in the economic environment in the wider community, changes in the physical and financial status of the Body Corporate, changes in expectations of the owners and occupiers, the Reserve Study is essentially a “one year” document which should be updated annually as part of an ongoing Reserve Study Update programme. Given the relatively long anticipated life of the building and the anticipated useful life of component parts of the building the Reserve Study will however indicate long term anticipated expenses over the ensuing 30 years but we fully expect that such long term anticipated expenses will require a number of adjustments in the intervening years as to both the actual cost and the timing of such expenditure. It is the recommendation of the Company and relevant industry professionals (Body Corporate Administrators, Chartered Accountants and Actuaries) that your Reserve Study be updated annually. The Company and its employees are independent of the client and other than this Reserve Study engagement has no ownership, management or other business relationship with you, the Client. There are no material issues known to the Company that have not been disclosed to you which would affect the decision of the Body Corporate to engage the Company The Company has relied on your providing us with you current or projected Reserve Balance, the estimated net-after-tax current rate of interest earnings and to indicate if those earnings accrue to the Reserve Fund and has considered such representations by you to be accurate and reliable. Where you have made any physical assessments in relation to the property and attended to your own measurements and supplied us with such information we have relied upon such physical assessments and measurements supplied by you as being accurate. We also have considered that representations made by vendors and suppliers of goods and services to be accurate and reliable. We refer you not only to the body of the report but also to any “Site Inspection Notes” for comments. No destructive or intrusive testing at the site has been done and no aspect of the Reserve Study Report should be taken as a building report, valuation report or anything other than reflecting a site inspection for budget preparation purposes. 17 September 2010 34 LTMP EXAMPLE 01 PAGE 35 Forward Ma ntenance Pla Sep ember 2010 Priority 1 Urgent. Works needed as a result of current or predicted failure, or to ensure the health & safety of building occupants and users - including work to prevent serious disruption of building activities. 2 Routine Maintenance. Works required to ensure effective operation of the asset. Normally affect the operational capacity of the building, are likely to lead to serious deterioration and higher future costs of repair if deferred. 3 Cosmetic. Works that could arise and are subject to standard of maintenance. Works can be deferred without seriously disrupting the function of the building and are desirable to maintain the environmental quality of the asset and its surroundings. Item 1 1.1 1.1.1 1.1.2 1.1.3 1.1.4 1.2 1.2.1 1.2.2 1.2.3 ID Element / Location Electric Car Park Access Gate Currently in Serviceable Condition and Fence. Timber Hoarding In Car Park Currently in Serviceable Condition (by retaining wall) Car Park Fencing (Under Currently in Serviceable Condition Building) Contractors Overheads & Profit and Project Management Perimeter Fence Electric Car Park Access Gate Car Park - Lighting 1.5 1.5.1 Car Park - Lighting 1.6 1.6.1 Car Park - Structure 1.7 1.7.1 1.7.2 Roading - Tarmac 1.8 1.8.1 Floor Tiling 1.9 1.9.1 Paths 1.10 1.10.1 Drainage 1.11 1.11.1 External Lighting 1.12 1.12.1 External Lighting 1.13 1.13.1 Irrigation 1.14 1.14.1 Retaining Walls - Inspection Segregation Between Parking Spaces Luminaires Including emergency Wiring - Including Emergency Proprietary Fencing System Gate Control Gear (Mech & Elec) including access controls Expected Life Remaining Life Priority H&S Item (X) Compliance (C) Unit Cost Current Cost (Ex GST) 1 Item 3 25 22 2 $73,483 $73,483 no. 3 25 22 2 $40,000 $40,000 Replace at the end of Serviceable Life 25 m2 3 25 22 2 $170 $4,250 Replace at the end of Serviceable Life 55 lm 3 25 22 2 $200 $11,000 33 % 33% $18,233 1 250 1 Item lm no $79,800 $200 $10,000 $79,800 $50,000 $10,000 33 % 33% $19,800 1 1680 Item lm 9 9 10 10 1 1 2 2 $10,920 $7 $10,920 $10,920 Item no 3 3 15 15 12 12 2 2 $16,750 $250 $16,750 $16,750 Replace at end of Serviceable Life. Replace at end of Serviceable Life. Floor Ti ing to Recreation Area 3 3 3 15 15 15 12 12 12 2 2 2 A low to replace lining. ( Only 3 years old but to achieve 10 year cycle - aged at 9) Currently in Serviceable Condition Replace at the end of serviceable life 1 67 Currently in Serviceable Condition. Replace at the end of serviceable life 1 1000 Item lm 3 3 30 30 27 27 2 2 $35,000 $35 $35,000 $35 000 1 1 Item no. 30 30 30 30 0 0 1 1 $10,000 $10,000 $10,000 $10,000 1 1000 33 Item 3 3 30 30 27 27 2 2 $66,500 $50 33% $66,500 $50,000 $16,500 1 150 Item 3 3 15 15 12 12 2 2 $30,000 $200 $30,000 $30,000 1 225 Item 3 3 3 3 0 0 3 3 $9,000 $40 $9,000 $9,000 Tar macadam Surface Currently in Serviceable Condition Contractors Overheads & Profit and Project Management Currently in Serviceable Condition Pumice Pathways to Recreation Currently Causing Damage To Carpets Area A low to remove joint cover/ inspect and carry out remedial sealing works. Only 3 years old and one off) Replace at the end of serviceable life. Replace at the end of serviceable life Remove pumice and replace with pea shingle or similar. m2 % m2 m2 1 100 Item lm 3 40 37 2 $35,000 $35,000 Replace at the end of serviceable life. 3 40 37 2 $350 $35,000 Currently in Serviceable Condition Replace at the end of serviceable life 1 33 Item no. 3 3 15 15 12 12 2 2 $9,900 $300 $9,900 $9,900 Currently in Serviceable Condition Replace at the end of serviceable life. 1 1 Item no. 3 3 30 30 27 27 2 2 $50,000 $50,000 $50,000 $50,000 Irrigation System to Recreation Currently In Serviceable Condition Area Replace at the end of serviceable life. 1 200 Item lm 2 2 30 30 28 28 2 2 $25,000 $125 $25,000 $25,000 1 1 Item no. 3 3 3 3 0 0 1 1 $12,000 $2,000 $12,000 $2,000 1 no. 3 3 0 1 $10,000 $10,000 1 1 Item no 3 3 25 25 22 22 2 2 $25,000 $25,000 $25,000 $25,000 1 1 Item no 3 3 5 5 2 2 2 2 $1,200 $1,200 $1,200 $1,200 Replace at the end of serviceable life 1 2 60 Item no lm 3 3 3 15 15 15 12 12 12 2 2 2 $17,000 $2,500 $200 $17,000 $5,000 $12,000 Replace at the end of serviceable life 1 60 Item Currently Exhib ting Defects Including Splintering. Informed by Building Manager. m2 12 12 15 15 3 3 2 2 $37,200 $120 $37,200 $7,200 Currently in Serviceable Condition A low for refurbishment at the end of serviceable life. 1 2 Item no 3 3 25 25 22 22 2 2 $30,000 $15,000 $30,000 $30,000 Currently in Serviceable Condition Replace at the end of serviceable life. 1 1 Item no. 3 3 25 25 22 22 2 2 $20,000 $20,000 $20,000 $20,000 Remove and replace at end of serviceable life 1 100 Item Currently in Serviceable Condition 3 3 30 30 27 27 3 3 $4,000 $40 $4,000 $4,000 1 2032 Item m2 3 3 25 25 22 22 2 2 $621,370 $180 $621,370 $365,760 84 lm 3 25 22 2 $100 $8,400 84 lm 3 25 22 2 $140 $11,760 260 lm 3 25 22 2 $120 $31,200 450 lm 3 25 22 2 $80 $36,000 104 m2 3 25 22 2 $180 $18,720 33 % 33% $149,530 1 1 1 1 1 Item no no no no $35,000 $10,000 $10,000 $10,000 $5,000 $35,000 $10,000 $10,000 $10,000 $5,000 Drainage to Recreation Area External Luminaires External Wiring Retaining Wall To North Elevation. (Anzac Street) Retaining Wall To North Elevation. (Anzac Street) Currently in Serviceable Condition Currently exhibiting defects. Including insecure material. A low for Specialist Inspection. A lowance for Remedial work Following Inspection. Recreation Swimming Pool 2.2 2.2.1 Swimming Pool - Pump 2.3 2.3.1 2.3.2 Swimming Pool - Misc. 2.4 2.4.1 Swimming Pool - Decking 2.5 2.5.1 Changing Rooms 2.6 2.6.1 Amenities Building 2.7 2.7.1 Petanque Piste Pool Lining Pump Pool Filters Fencing - Mild steel and Aluminium Timber Decking To let, Shower and Changing Facilities Kitchen Facilities Including Furn ture etc. Gravel to Petanque Piste Currently in Serviceable Condition Replace at the end of serviceable life Currently in Serviceable Condition Wi l require replacement at end of serviceable life. Currently in Serviceable Condition Currently in Serviceable Condition m2 Building Exterior 3.1 3.1.1 Roof - Replacement Profiled Metal Sheeting Accommodation Blocks Currently in Serviceable Condition 3.1.2 Parapet Flashing Currently in Serviceable Condition 3.1.3 Nuralite Lined Gutters Currently in Serviceable Condition 3.1.4 Eaves Gutters Currently in Serviceable Condition 3.1.5 Downpipes Currently in Serviceable Condition 3.1.6 Profiled Metal Sheeting to Currently in Serviceable Condition Amenities Blocks and Rubbish store Contractors Overheads & Profit and Project Management 3.2 3.2.1 3,2,2 3.2.3 3.2.4 Element Age Currently in Poor Condition Currently has leak through from Leaking from Seismic movement Joint recreation area 2.1 2.1.1 3.1.7 Unit 1 Contractors Overheads & Profit and Project Management 1.4 1.4.1 3 Qty Replace at the end of serviceable life. Fences and Gates Car Park - White Lining 2 Action required Fences and Gates 1.3 1.3.1 1.14.2 Inspection comments Grounds Roof - Repairs Profiled Metal Sheeting Parapet Flashing Eaves Gutters Profiled Metal Sheeting to Amenities Blocks and Rubbish store Accommodation Blocks Currently in Serviceable Condition Currently in Serviceable Condition Currently in Serviceable Condition Currently in Serviceable Condition Replace at the end of their serviceable life Replace at the end of their serviceable life Membrane will deteriorate over time replace at the end of serviceable life Metal w ll degrade over time - replace at the end of serviceable life. Wi l deteriorate over time - Replace at the end of serviceable life. Currently in Serviceable Cond tion Carry out Repairs as Carry out Repairs as Carry out Repairs as Carry out Repairs as required required required required 3 3 3 3 3 12 12 12 12 12 9 9 9 9 9 2 2 2 2 2 LTMP EXAMPLE 01 PAGE 36 Forward Ma ntenance Pla Qty Unit Element Age Expected Life Remaining Life Priority Unit Cost Current Cost (Ex GST) 1 1 Item no 25 25 25 25 0 0 1 1 $2,000 $2,000 $2,000 $2,000 1 170 75 15 120 4 Item Replace at the end of serviceable life Replace at the end of serviceable life Replace at the end of serviceable life Replace at the end of serviceable life Replace at the end of serviceable life 3 3 3 3 3 3 25 25 25 25 25 25 22 22 22 22 22 22 2 2 2 2 2 2 $48,700 $140 $100 $120 $80 $1,500 $48,700 $23,800 $7,500 $1,800 $9,600 $6,000 1 170 75 15 120 Item Carry out Repairs as Carry out Repairs as Carry out Repairs as Carry out Repairs as 3 3 3 3 3 12 12 12 12 12 9 9 9 9 9 2 2 2 2 2 $15,000 $3,000 $10,000 $1,000 $1,000 $15,000 $3,000 $10,000 $1,000 $1,000 1 1321 Item 3 3 50 50 47 47 2 2 $439,233 $250 $439,233 $330,250 Item ID Element / Location Inspection comments 3.3 3.3.1 Roof - Repairs Accommodation Blocks Downpipe on Block C currently overflowing at roof level. Further investigation required into cause Replace f necessary. 3.4 3.4.1 3.4.2 3.4.3 3.4.4 3.4.5 Roof - Replacement Stairs Currently in Serviceable Condition Currently in Serviceable Condition Currently in Serviceable Condition Currently in Serviceable Condition Currently in Serviceable Condition 3.5 3.5.1 3.5.2 3.5.3 3.5.4 Roof - Repairs Stairs Currently in Serviceable Condition Currently in Serviceable Condition Currently in Serviceable Condition Currently in Serviceable Condition 3.6 3.6.1 Cladding - Replacement 3.6.2 Downpipes Nuralite Membrane Parapet Flashing Eaves Gutters Downpipes Access Hatch Nuralite Membrane Parapet Flashing Eaves Gutters Downpipes Cladding System Cladding - Repairs 3.7 Cladding - Repairs Mastic Joints to Concrete Walls Currently in Serviceable Condition Joints to Cladding Panels Currently in Serviceable Condition Contractors Overheads & Profit and Project Management Blown Concrete Cover 3.8.2 3.90 3.9.1 3.9.2 3.9.3 3.10 3.10.1 3.10.2 3.10.3 3.10.4 Currently requires investigation Aluminium and mild steel Currently in serviceable condition handrails/ balustrades to balconies and entrances Contractors Overheads & Profit and Project Management Anodised Aluminium Single Glazed Doors Anodised Aluminium Single Glazed Windows Contractors Overheads & Profit and Project Management Anodised Aluminium Single Glazed Doors Anodised Aluminium Single Glazed Windows Anodised Aluminium Louvers Aluminium single glazed units Aluminium single glazed units Aluminium louvers Replace doorsets complete at the end of serviceable life Replace windows complete at the end of serviceable life Replace Louvers complete at ether end of serviceable life. External wall surfaces Handrails, balustrades Contractors Overheads & Profit and Project Management Tiled Finish to Balconies and Currently in serviceable condition External Elevated Entrances Contractors Overheads & Profit and Project Management Access Control 3.14 3.14.1 Life Safety System - Roof Access control into car park L fe safety system and abseil points Tiling will require replacement at end of serviceable life. Currently in serviceable condition System will require replacement at the end of serviceable life. Currently in serviceable condition System will require replacement at the end of serviceable life. (Original Cost) Currently in Serviceable Condition System will require replacement at the end of serviceable life. System will require replacement at the end of serviceable life. System will require replacement at the end of serviceable life. m2 lm lm lm no m2 lm lm lm m2 H&S Item (X) Compliance (C) 33 % 33% $108,983 1 150 1000 33 Item lm lm % 3 3 3 12 12 12 7 7 7 2 2 2 $94,763 $75 $60 33% $94,763 $11,250 $60,000 $23,513 1 1 Item no 3 3 12 12 7 7 2 2 $2,000 $2,000 $2,000 $2,000 1 422 Item lm 3 3 20 20 17 17 2 2 $196,441 $350 $196,441 $147,700 33 % 33% $48,741 1 175 Item no 3 3 20 20 17 17 2 2 $218,453 $250 $218,453 $43,750 482 no 3 20 17 2 $250 $120,500 33 % 33% $54,203 1 175 Item no 3 3 40 40 37 37 2 2 $1,480,091 $3,500 $1,480,091 $612,500 614 m2 3 40 37 2 $650 $399,100 135 m2 3 40 37 2 $750 $101,250 33 % 33% $367,241 1 990 663 33 Item 2 2 2 $68,129 $35 $25 33% $68,129 $34,650 $16,575 $16,904 1 1527 Item 33 % 1 1 Item no 3 3 30 30 1 1 Item no. 3 3 1 1 Item no. 3 3 m2 m2 % m2 3 3 3 10 10 10 7 7 7 3 3 20 20 17 17 2 2 $406,182 $200 $406,182 $305,400 2 33% $100,782 27 27 2 2 $20,000 $20,000 $20,000 $20,000 20 20 17 17 2 2 $25,000 $25,000 $25,000 $25,000 25 25 22 22 2 2 $333,032 $150,000 $333,032 $150,000 Building Interior Fire Protection System Fire Alarm System 4.1.2 Stairwe l Pressurisation system Currently in Serviceable Condition 4.1.3 Fire Hose Reels 4.1.4 Contractors Overheads & Profit and Project Management Currently in Serviceable Condition 4.2 4.2.1 Passenger Lifts - Repairs 4.3 4.3.1 Passenger Lifts - Refurbishment 4.4 4.4.1 Ventilation System 4.5 4.5.1 Interior Painting Otis Passenger Lifts Otis Passenger Lifts Mechanical ventilation system Internal Decoration Currently Experiencing Issues 1 no. 3 25 22 2 $50,000 $50,000 42 no. 3 25 22 2 $1,200 $50,400 33 % 2 33% $82,632 1 1 Item no. 25 25 25 25 0 0 1 1 $5,000 $5,000 $5,000 $5,000 3 3 Item no. 3 3 25 25 22 22 2 2 $150,000 $150,000 $450,000 $450,000 1 3 Item no. 3 3 25 25 22 22 2 2 $15,000 $5,000 $15,000 $15,000 1 3400 Item 3 3 10 10 7 7 3 3 $90,440 $20 $90,440 $68,000 33 % 33% $22,440 1 1009 33 Item Carpet will deteriorate over time. 1 500 33 Item Tiles will deteriorate over time. 1 264 164 1950 Item no no lm 33 % Investigation and repair required Currently in Serviceable Condition Lifts will require refurbishment at end of serviceable life Currently in Serviceable Condition Replace at the end of Serviceable life Currently in Serviceable Condition Decoration will fade over time. Allow to redecorate Contractors Overheads & Profit and Project Management 4.6 4.6.1 4.6.2 Capet 4.7 4.7.1 4.7.2 Tiling 4.8 4.8.1 4.8.2 4.8.3 Interior Lighting Carpet to Circulation Areas Currently in Serviceable Condition Contractors Overheads & Profit and Project Management Tiles to Circulation Areas Currently in Serviceable Condition Contractors Overheads & Profit and Project Management Internal Lighting Currently In Serviceable condition Emergency Lighting Currently In Serviceable condition Internal Wiring Including Currently In Serviceable condition Emergency Contractors Overheads & Profit and Project Management 4.9 4.9.1 Surveillance Equipment 4.10 4.10.1 Access Control 4.10.2 A low to replace at end of serviceable l fe. Contractors Overheads & Profit and Project Management 3.13 3.13.1 4.8.4 Further investigation and localised repairs Aluminium Joinery - Replacement Balconies and External Entrances/walkway 4.5.2 Carry out repairs as necessary Carry out repairs as necessary Aluminium single glazed units currently in Seals will deteriorate over time. serviceable condition Aluminium single glazed units currently in Seals will deteriorate over time. serviceable condition 3.12 3.12.1 4.1 4.1.1 A low to replace at end of serviceable l fe. Aluminium Joinery - Repairs Exterior Painting 4 required required required required Handrails 3.11 3.11.1 3.11.2 3.11.3 3.12.2 Action required Contractors Overheads & Profit and Project Management 3.7 3.7.1 3.7.2 3.7.3 3.8 3.8.1 Cladding is currently in serviceable condition Sep ember 2010 Digital High Definition CCTV equipt Access, Door Entry System Contractors Overheads & Profit and Project Management Replace at end of Serviceable Life. Replace at end of Serviceable Life. Replace at end of Serviceable Life. m2 m2 % m2 % 3 3 10 10 7 7 3 3 $107,358 $80 33% $107,358 $80,720 $26,638 3 3 20 20 17 17 3 3 $133,000 $200 33% $133,000 $100,000 $33,000 3 3 3 3 30 30 30 30 27 27 27 27 2 2 2 2 $287,746 $200 $700 $25 $287,746 $52,800 $114,800 $48,750 33% $71,396 Currently in Serviceable Condition Replace at end of serviceable life 1 1 Item no. 3 3 15 15 12 12 2 2 $7,500 $7,500 $7,500 $7,500 Currently in Serviceable Condition. Includes panel in each Apartment. Replace at end of serviceable life 1 142 Item no 3 3 30 30 27 27 2 2 $188,860 $1,000 $188,860 $142,000 33 % 33% $46,860 LTMP EXAMPLE 01 PAGE 37 Forward Ma ntenance Pla Action required Qty Unit Element Age Expected Life Remaining Life Priority Unit Cost Current Cost (Ex GST) Currently in Serviceable Condition Currently in Serviceable Condition Replace at end of serviceable life Replace at end of serviceable life 1 57 114 Item no no 3 3 3 25 25 25 22 22 22 2 2 2 $39,900 $600 $50 $39,900 $34,200 $5,700 Currently in Serviceable Condition 3 3 10 10 7 7 3 3 $4,000 $2,000 $4,000 $4,000 General Signage Currently in Serviceable Condition Appearance will fade over time and will require replacement Appearance will fade over time and will require replacement 1 2 Item Signage to Entrances 3 10 7 3 $1,000 $1,000 Item ID Element / Location 4.11 4.11.1 4.11.2 Hardware 4.12 4.12.1 Signage 4.12.2 Door Closers Door Push Plates etc. 4.13 4.13.1 Letter Boxes 4.14 4.14.1 Storage Lockers 4.14.2 September 2010 Inspection comments 1 H&S Item (X) Compliance (C) Currently in Serviceable Condition Replace at end of serviceable life 1 142 Item no 3 3 25 25 22 22 3 3 $18,460 $130 $18,460 $18,460 Proprietary Metal Storage Currently in Serviceable Condition lockers Contractors Overheads & Profit and Project Management Replace at end of serviceable life. 1 142 Item no 3 3 30 30 27 27 3 3 $63,900 $450 $63,900 $63,900 33 % 33% $21,087 Letter Box Banks within Lobby Total $6,014,307.45 LTMP EXAMPLE 02 PAGE 1 (?urpuralv \ukud LTMP EXAMPLE 02 Long Term Maintenance Plan (LTMP) 2016 - 2030 Prepared By Reviewed By Approved for Release By PAGE 2 LTMP EXAMPLE 02 PAGE 3 . ?aim? 0.00? i I 5 0 mmwot. 5-0. tau-dwa- MM Wh?nw ?db-ocha. Hubbub ~H~0~~bb :zttbaxtzl LTMP EXAMPLE 02 PAGE 4 1 Executive Summary This summary provides a brief overview of the property condition outlining major risks and urgent requirements for maintenance. Additional information is contained within the main report. At the time of inspection no access was afforded to the roof and the condition was assessed from ‘The Boardwalk’. Observing from the upper walkway provided a general indication of the roof condition. The buildings appeared to be in a satisfactory condition with a small number of issues which were known to the body corporate. At the time of the inspection the exterior cladding of was being refinished. There were some repairs being carried out on one of the units at for the purpose of this plan we have assumed that this work is completed. Major Risks to Health & Safety or Property Condition: No issues observed. 1-45996 30 November 2015 on 1.90m I'll?; {Ii'o'il?ltt I?tglt" i0 LTMP EXAMPLE 02 PAGE 6 3 Contingencies: There is no allowance within the plan for contingencies which would cover items that are not able to be predicted using component life cycles - such as leaking pipe work. We would strongly recommend that a contingency fund as defined by the Unit Titles Act 2010 be established and suggest that the Body Corporate annually contribute around $3,600 per annum with a view of a maximum target of $54,000 being accrued over time. 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 7 4 1 Introduction 1.1 General Information on the Unit Titles Act 2010: Unit Titles are the most widely used form of multi-unit property ownership. New Zealand has over 18,000 unit title developments of which approximately 12,650 of these are residential developments, comprising more than 90,000 units in total. Unit title developments are typically apartment blocks, commercial units, townhouse developments, office blocks and industrial or retail complexes. Within a unit title development, the owners own a defined part of the building, such as an apartment or a unit. They may also have shared ownerships in common areas such as lifts, lobbies or driveways. Collectively, all the unit owners in a unit title development make up the Body Corporate. The Body Corporate is responsible for a range of management, financial and administrative matters relating to the common property and to the building as a whole. The Unit Titles Act 2010, was enacted on 1 April 2010, and supersedes the 1972 Act which until that point had been the law governing unit title developments. Since 1972, when the original Unit Titles Act first came into force, there have been major changes in the number, scale and nature of property developments in New Zealand and as such the new Unit Titles Act 2010 was required to provide a sound basis for the creation and sustainable management of intensive, multi-unit developments. Under The Unit Titles Act 2010, the Body Corporate is required to declare the provision of a Long Term Maintenance Fund and the annual sum of money inserted into the same. A vehicle for making this declaration is included below for completion and signature. In order to achieve full benefit from the prepared LTMP and to comply with the UTA 2010 it is recommended that an update exercise be carried out every two or three years. Providing the information on works done since the LTMP was prepared is provided can do the initial update as a desktop exercise for minimal cost. 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 8 5 1.2 Property Information Property Address: Legal Description: Function and Use: Residential Townhouses Year of Construction: Circa 2003 Planning Issues: None known or advised. Approximate Land Area: 2,870 m2 Description The property was constructed circa 2003 and consists of 6 multi-storey townhouse blocks. 1.3 Long Term Maintenance Plan have been appointed to produce a Long Term Maintenance Plan by order for satisfy the requirements of the Unit Titles Act 2010. 1-45996 30 November 2015 ., in LTMP EXAMPLE 02 PAGE 9 6 2 Methodology The property was inspected by on 9 November 2015 and took into account external areas only. The information included with this maintenance plan is based upon this visual survey. It should be considered that items which constitute operational maintenance items and costs are not included within the scope of this plan as per the Unit Titles Act 2010, Regulations 30. 1. (e) as these costs should already be identified separately within the Body Corporate Annual Budget. An example of such items is the routine replacement of lighting lamps. This plan does include allowance for the replacement of such light fittings and systems as they reach the end of their expected life and provides budget information and a guideline to the future maintenance requirements of the property. The maintenance requirements are based on provision of ‘like with like’. The budgetary financial information pertaining to costing and unit rates is taken from the latest edition of Rawlinson’s New Zealand Construction Handbook (Currently Twenty Eighth Edition 2013/14) and excludes GST and Inflation. We will provide the ability to enter an inflation figure via an optional data function which can be inserted by the Body Corporate as required. All standard rates used have been reviewed by an independent Quantity Surveyor in July 2015 All building, construction terminology, site terms and abbreviations used within our reports are taken from the Standards New Zealand Miscellaneous Publication NZMP 4212 Glossary of building terminology revised and republished in June 1998. This report does not purport to be a full Building Survey or Health and Safety Inspection of the Building and Property and therefore matters such as ‘Leaky Buildings’ Syndrome and Asbestos have not been commented upon other than to advise the Body Corporate to seek further advice from a suitably trained and qualified practitioner / consultant in these specialist areas. 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 10 7 3 Property Description & Condition 3.1 Grounds 3.1.1 Services 3.2 Exterior 3.2.1 Roofing The visual inspection from ‘The Boardwalk’ showed that the profile metal roofing appeared to be in satisfactory condition. We were unable to view the roof of all the properties, however we have assumed these to be in a similar condition to those that were observed. We have allowed $273,000 to replace the metal roof, downpipes and gutters in 2030. This should be reviewed as the date approaches. 3.2.2 Cladding The cladding to most of the buildings is fibre panels and metal cladding with timber weatherboards to . We have allowed $45,000 for the metal cladding replacement in 2033 and $420,000 for the remaining cladding to be replaced in 2053. We would expect that consideration be given to replacing the cladding and joinery at the same time and therefore the timing of both should be reviewed as the replacement date approaches. 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 11 8 3.2.3 Painting In general the paintwork is in satisfactory condition the exception being the timber where the finish is failing. We have allowed for the building to painted under a programmed maintenance regime. 3.2.4 Joinery The window and door joinery is aluminium framed and where they could be closely observed these components appeared to be in a satisfactory condition. We have allowed $1,090,000 for their replacement in 2053 this date falling outside the period of this plan. The condition and replacement should be periodically reviewed. 3.2.5 Carpark Doors We have allowed for the carpark doors to be replaced in 2017.. Interior 3.2.6 Carpentry We have made no allowance for carpentry items as these are already covered under general maintenance. 3.2.7 Interior Painting The paintwork to the buildings internal areas is in good condition and therefore we have allowed for the building to be repainted in 2021. 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 12 9 3.2.8 Floor Coverings We have made no allowance for the staircase carpets as these are already covered under general maintenance. 3.2.9 Fire Protection The fire protection system installed within the building comprises of smoke detectors, manual call points and heat detectors. As these separate systems contribute to the system as a whole we have taken into account the lifecycles of the component and allowed for replacement of these systems as required within this plan. To ensure the continued operation of all systems we have also estimated to replace the components within each of the apartments. The first item to be replaced is the smoke detectors in 2024. 3.2.10 Electrical As part of the inspection no specific invasive survey was undertaken in respect of the installed electrical cabling. It is considered that at the time of installation during construction of the building, the cables would have been installed to the prevailing applicable standards. Consequently we have not included for any work to be undertaken on the cables within the period of this plan. We have allowed for the replacement of the distribution and meter panels in 2043 at a cost of $13,500. We have not allowed for the switchboards within the individual apartments as these are considered the responsibility of the individual owners. As both good practice and to maintain safety within the building we would recommend that all switchboards are scanned with a thermal imager annually to detect loose connections which are a significant cause of electrical fires. 3.2.11 Plumbing As part of the inspection no specific invasive survey was undertaken in respect of the installed plumbing and drainage systems. It is considered that at the time of installation during construction of the building that these systems would have been installed to the prevailing applicable standards. 3.2.12 Ventilation We have allowed $9,200 for the replacement of the fans in the carpark in 2033 and $28,000 to replace the ducts in 2043. We could not observe any carbon monoxide sensors and therefore assume that the fans run on some timing operation. 3.2.13 Security The doors are secured via swipe card locks and pin pads. This system has been included in the plan, and we have allowed for replacement in 2021. 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 13 10 4 Conclusions / Recommendations 4.1 Routine Maintenance We advise that the recommendation of paint and roofing manufacturers with regard to washing exterior surfaces should be followed. Generally an annual wash is the minimum required. We have not included the cost of this washing within the proposed long term maintenance fund as it is a recurring expenditure that should be budgeted for annually. 4.2 Maintenance Costs The plan identifies that the average annual cost for the long term maintenance of the building over the next 15 years is approximately $79,300. The costs have been calculated on current rates in year 2015 dollars. Adjustment has been made for inflation at 3% per annum and all cost estimates are inclusive of GST. We have allowed for maintaining the building replacing elements on a like for like basis. Life expectancies are based upon product and manufacturer’s data. Where data is unavailable regarding the remaining life of the elements, these have been based upon the survey team’s experience. If appropriate and regular maintenance is carried out on the elements and equipment integral to the building, the life expectancy should be met. We have not allowed for any modernisation that may be desired by the owners in the future. The graph included within the Executive Summary of this plan depicts the long term maintenance costs over the forthcoming 15-year period. We have included a ‘proposed Long Term Maintenance Fund’ figure in the summary as a guide only, however the agreed sum provided, if any, is for the Body Corporate to agree upon. Regulation 30 (2) UTA2010 states ‘A Body Corporate must carry out a review of its plan at least once every 3 years.’ If the work record sheet included within the spreadsheets is updated regularly, and there are no significant changes to the building, the plan can be updated as a paper exercise for minimal cost. 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 14 11 Appendix A – Document Exclusions Asbestos As does not undertake consultancy works involving Asbestos, the survey/inspection does not purport to constitute a dedicated Asbestos Survey and does not meet the Asbestos Identification, Assessment and Control of Asbestos in Buildings guidance as identified within Section 5 of the New Zealand Guidelines for the Management and Removal of Asbestos, 3rd Edition. It is deemed that the Client has or will obtain the necessary specialist advice from a competent Asbestos Consultant in this regard. Consequently advice concerning Asbestos is expressly excluded from the report. Should suspect the presence of Asbestos Containing Materials (ACM’s) then this may be communicated to the Client as part of the inspection. does not accept any liability for Asbestos that is not identified during the course of this Survey. Weathertightness does not undertake consultancy works involving the determination of and/or the provision of advice in relation to ‘Leaky Buildings’. It is deemed that the client has or will obtain the necessary specialist advice from a competent ‘Leaky Building’ expert in this regard. may advise the Client if they identify any visible damp ingress issues as part of the inspection. does not accept any liability for ‘Leaky Building’ issues that could not be identified during the course of this survey/inspection. Seismic Performance As part of this inspection and report, no allowance has been made to review documentation or to assess on-site the building or any associated structures in respect of Seismic Performance. It is deemed that the client has or will obtain the necessary specialist advice from a competent Structural Engineer in this regard. Consequently advice concerning Seismic Performance is expressly excluded from the report. Extent of Inspection • • • • • • Concealed services, such as plumbing, electrical installations, specialist data cabling, underground drainage systems, channels, pipes or cables will not be tested or inspected. Incidence or monitoring of any landfill gas or ground water deviation is expressly excluded. No allowance has been made for excavation of any type for potential viewing of subterranean piles, foundations or any other subsurface structural elements. Exposed water catchment tanks will be identified and surveyed where safe means of access is made available. There will be no intrusive investigation of areas of the structure and woodwork etc. which are covered, enclosed or inaccessible and will be assumed to be in sound and good repair. It is a visual inspection only. No allowance has been made for provision of any additional access equipment to allow the survey of any inaccessible roofing platforms or any other restrictive areas. As defined in the Unit Titles Act 2010, Regulations, clause 30.1.(e) no determination or inclusion of any items and costs deemed to be ‘Operational’ costs i.e. costs attributable to routine 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 15 12 • • • maintenance tasks which would be carried out under contract on an annual (or shorter timeframe) basis have been made. No provision has been made for the use or local installation of any monitoring equipment during any part of our survey or reporting. No preparation of any drawings in respect of the survey / inspection or Report, have been allowed. Unless otherwise expressly stated within the report, the following assumptions are made: » » » • No deleterious or hazardous materials are present or techniques have been used. The property is not subject to any unusual or especially onerous restrictions, encumbrances, or outgoings. The inspection of those parts which have not been able to be inspected at the time of Survey would neither reveal material defects, nor cause the competent person to alter their opinion with regard to the integrity of the property as inspected. We have not carried out any investigation into past or present uses, either of the property or of any neighbouring land, to establish whether there is any potential for contamination, and have therefore assumed that none exists. However, should it be established subsequently that contamination exists at the property or on any neighbouring land, or that the premises have been or are being put to a contaminative use, this may affect the advice given within this report. Whilst undertaking the work were not actively seeking out faults and defects as these items are outside the scope of planned maintenance. Where noted during the course of the work defects and the like are brought to the attention of the Body Corporate. 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 16 13 Appendix B - Operator ‘Quick Start’ Instructions The Long Term Maintenance Plan (LTMP) has been designed and prepared in order to allow the Operator to locally make changes and manage updates. To keep things simple and prevent data and formula corruption, changes can only be made in cells coloured grey. All other cells within the plan are locked and protected via password. The LTMP is provided as a datum copy via CD. We would recommend that the Operator develop a protocol (based on preference) whereby the LTMP is copied as a dated working copy which is backed up at regular intervals and saved as a final ‘Year End’ copy at the end of each financial period. This allows the recording of the financial position at each year end regardless of any subsequent changes which may be made. Accumulated Funds The existing accumulated funds are often client confidential and not generally identified to during the plan preparation. However, it is important that existing accumulated funds are identified and incorporated within the plan as follows; 1. Go to ‘Summary’ sheet. 2. Enter existing fund amounts within the grey cell indicated by the RED Circle below. This will introduce the chosen amount into the plan and initiate changes in the ‘Accumulated Provision’ row of the ‘Summary’ and the ‘Cash Flow’ chart. 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 17 14 Proposed Provision for Maintenance In preparing the plan, calculates the overall total of the anticipated expenditure over the 15 years of the plan and proposes a provisional amount for maintenance based on 1/15th of this total. The Operator may have a valid reason to vary this i.e. to manage cash flows. To change ‘Proposed provision for Maintenance’ as follows; 1. Go to ‘Summary’ sheet. 2. Enter the revised provisional amount within the corresponding grey cell indicated by the RED circle below. This will then update the cells across the row and recalculate and change the figures within the ‘Accumulated Provision’ row - and these altered amounts initiate corresponding revisions in the ‘Cash Flow’ chart Alternatively to allow for a general increase in provision each year the user can enter a different amount across the row. NOTE this action will cause the formula that updates the row to be overwritten and changed in each cell. All future revisions will need to be entered manually. Goods and Services Tax (GST) All cost within the plan are GST exclusive, not all Body Corporates are registered for GST and therefore to adjust the plan to include GST; 1. Go to the ‘GST’ cell indicated by the BLUE Circle above. 2. Insert the current rate of GST. This will adjust all sums across the whole work sheet to be GST inclusive. 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 18 15 Inflation The plan is calculated upon unitary figures based on prices determined at the year which the survey is undertaken and the LTMP is created minus any inflation factor. The Body Corporate may wish to include a nominated factor for inflation and the LTMP provides a function to allow this. The inflation factor can be changed in two ways: Option 1 - Fixed Inflation As a single inflation percentage amount applied consistently throughout each year of the LTMP – as follows; 1. Go to sheet ‘Summary’ sheet. 2. Go to the general inflation cell indicated by the RED Circle below. 3. Enter the inflation figure within the grey cell. This will enter the inflation figure across each cell of the row and adjust the figures in the ‘Survey Data’ sheet. These changes will then flow through the whole spread sheet. Option 2 - Variable inflation As inflation amount variable on a year by year basis. For example, Operator may anticipate that inflation is likely to be high for a number of years and forecast a subsequent drop off beyond that point; 1. Go to sheet ‘Summary’ sheet. 2. Go to ‘Inflation Provision’ row indicated by the BLUE Circle above. 3. Enter the inflation figure into each year at the appropriate rate. 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 19 16 This will adjust the figures in the ‘Survey Data’ sheet which will then flow through the whole spread sheet. Planned Work in a Specific Year To find the planned work schedule for the current / next year: 1. Go to ‘Survey Data’ sheet. 2. Go to Row A and find the column labelled ‘1st Replace’ (Column S). 3. Use the filter tab to highlight the year you want. Only the work scheduled for that year will then be visible. Planned Work over the Next Few Years Operator may wish to view work forecast and adjust the schedule to include works to items in different years to correspond with existing or planned project requirements 1. Go to ‘Survey Data’ sheet. 2. Go to Row A and find the column labelled ‘1st Replace’ (Column S). 3. User the filter tab to highlight ‘Custom. 4. Select ‘is greater than’ then enter the year previous to the required year. 5. Select ‘and’ 6. Select ‘is less than’ then enter last required year. 7. Select ‘OK’. 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 20 17 Changing a Date That an Item of Work Occurs LTMP is prepared on the basis of the assessed condition of each item at point of survey to determine a ‘1st Replace’ year. The Operator may wish to alter and vary the planned ‘1st Replace’ year in order to pre-empt or postpone to take into account uncharacteristic deterioration rates or to include an asset item into a planned project. Changes to the planned ‘1st Replace’ year can be altered as follows; 1. Go to sheet ‘Survey Data’. 2. Go to Row A and fine the column labelled ‘1st Replace’ (Column S). 3. Identify the item in question. 4. Revise the ‘1st Replace’ cell (S xxx) to the required year. This action will update all occurrences of this item throughout the whole spreadsheet. Accumulated Funds Please Note LTMP has been developed to allow Operator to manage and adjust figures and dates of actions as a desktop exercise on an ongoing basis. However, it is our recommendation that the plan should be subject of physical review and update by every 3-5 years. This resurvey should be carried out to ensure that the components are performing as anticipated during the original survey and reflect any changes in asset condition or revisions to the building layout. This also allows the adjustment of those component prices which alter outside of nominal changes in accordance with the rate of inflation. Work Sheet Record 1. A Work Record Sheet has been provided within the Excel spread sheet file provided with the plan. This lists the items identified with the first five years, the estimated cost. 2. Provision has been made to enter the actual cost and date work completed. We have also provided space at the bottom to enter any addition works carried out. If this sheet is kept up to date it should satisfy the requirements of The Unit Titles Act 2010 Reg 35 k (ii). 1-45996 30 November 2015 LTMP EXAMPLE 02 PAGE 21 BODY CORPORATE NO. LONG TERM MAINTENANCE PLAN PREPARED BY - LTMP EXAMPLE 03 ANNUAL AMOUNT TO BE APPLIED TO MAINTAIN THE LTM FUND - $10,000.00 PERIOD COVERED BY THIS PLAN - YEARS 2012 TO 2050 LIFE EXPECTANCY FROM 2012 (YRS) N/A N/A N/A PAGE 1 EST AGE AT 2012 (YRS) N/A N/A N/A REVIEW DATES - BY END 2015, 2018, 2021 & EACH 3RD YEAR THEREAFTER N/A N/A N/A EST COST AT TIME OF WORK DONE Replacement of Roofs N/A N/A EST FREQUENCY REQUIRED (YRS) 1 Replacement of Exterior & Interior Walls N/A N/A ITEMS TO BE MAINTAINED DURING LIFETIME OF THIS PLAN 2 Replacement of Infrastructure Services N/A ITEMS NOT TO BE MAINTAINED DURING LIFETIME OF THIS PLAN 3 N/A >$80,000 N/A 10 >$5,000 Replacement of Driveways & Fences 44 10 >$5,000 4 6 44 10 >$5,000 N/A Repaint Roofs & Exterior Walls 6 44 10 >$5,000 N/A 6 Repair Roofs & Exterior Walls 6 44 10 N/A 7 Repair/Maintain Infrastructure Services 6 44 N/A 8 Repair/Maintain Driveways & Fences 6 Total Replacement of Landscaping Items 9 Partial Replacement of Landscaping Items 5 10 on 1.90m 'Iil-" Oi'ltl Olnr? . to t! t?v?suiv C. I I Cl {It'll} 4' o. itiIol'll?l a; ilitlrl? 0' PAGE 2 LTMP EXAMPLE 04 LTMP Speadsheet - . MAINTENANCE .. . Flinn? 2014' 2015' 2016' 2017 2018 2019 2020 2021 2022 12023 2024 Bafance brought forward 25750 29750 36250 48750 56350 68850 73250 85550 98050 1 13050 45150 Annual Sinking Fund Levy 100001 100013 125001 12500 12500 15000] 15000: 15000[ 15000] 20000 15000 152500 00001010 BUILDING 7000 55000 ChemlWaterbiasting 1 500 1 500 1600 1700 1700 ROOF ZSYEAR LIFE 1500 1500 1500 Signage 2000 Forecourt 8: parking 2000 700 800 Access System 6,000 cow 1200 1200 1200 Grounds including pipes" LESS ACCUMULATED EXPENSE 6000] 3500 0: 4900 0] 10500; 27001 2500 0 37900] 1500] 119000 Total Spend 6000 3500 0 4900 0 10600 2700 - 2500 0 37900 1500 119600 SINKING FUND BALANCE 20750 30250 40750 55350. 50350 73250 5350 90050 113050] 45150 58650 1 2014 19!03l2014 Agenda Page 19 of 30 LTMP EXAMPLE 05 PAGE 1 LTMP EXAMPLE 05 PAGE 3 O- - i at! ?1 n? t' .i ouhh?a?-?uuo -n LTMP EXAMPLE 05 PAGE 4 0025me cm w>0m {iigiil? ii"" 0"?0?3131 :0 1" lgo'i"; toll i'gi?lilil' II {"ii?ti' .II :golU?C?Qil 'iol?di' ?-iio Ili'l'lil ll -3?ioi'12t [{O?iigti i