Big changes for body corporate management and governance

As high-density housing and apartment living becomes increasingly relevant in New Zealand, and many commercial buildings and developments are unit titled, there has been a growing need for good governance of unit titled buildings and regulation of body corporate managers.

The Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Act 2020 (the ‘Amendment Act’) responds to these needs and makes significant other changes to the Unit Titles Act 2010 (the ‘Act’).  The Amendment Act was passed into law on 9 May 2022 (to take effect on a date yet to be set).

This article discusses the strengthening of body corporate committee governance and the newly introduced regulation of body corporate managers.

Body corporate committee governance

In 2017, the Institute of Directors submitted on the Bill that became the Amendment Act. The Institute expressed support for the following provisions in respect of the governance obligations of body corporate committees:

• a duty for committee members to act in good faith and in the best interests of the body corporate
• no pecuniary penalties for committee members who may breach the Act because it would deter people from serving on committees
• a requirement for committees to record meeting minutes and to provide them to the body corporate
• a duty for committee members to disclose conflicts of interest – a point that was not raised in the original Bill.

All of the above have been included in the Amendment Act passed by Parliament.

With the need to disclose conflicts, a need to maintain an up-to-date interest register is also introduced. The interest register must be available to be inspected by members of the committee and, subject to the body corporate operational rules, by any member of the body corporate. A failure to disclose, however, does not affect the validity of a decision made by the committee.

A committee member who is interested in a matter must not vote or take part in decision-making relating to the matter. The member may take part in committee discussions and be present when a decision is made. However, the member cannot sign any document relating to the transaction or the initiation of the matter.

The Amendment Act also introduces a code of conduct for committee members to comply with. The code includes the following requirements for good governance:

• a duty to act honestly and fairly in performing the member’s duties as a committee member
• a duty for committee members to disclose a conflict of interest in relation to any matter that comes before the committee
• a requirement for members to have a commitment to acquiring an understanding of anything in the Act and the regulations, including the code of conduct, that is relevant to the members’ role on the committee
• a duty not to unfairly or unreasonably disclose information held by the body corporate, including information about an owner of a unit, unless authorised or required to do so by law.

The most practical impact of the new regime is the requirement to keep meeting minutes and promptly provide them to the body corporate no later than one month after the meeting takes place. In practice, there may be a blurred line between a ‘meeting’ and informal discussions or email chains. Best practice would be to appoint one committee member as minute-taker, who can then record decisions from all formal meetings, informal discussions and emails alike.

Body corporate management regulation

Previously unregulated, body corporate managers and the standard of their services are a key feature of the Amendment Act.

‘Large unit developments’ with over 10 units will be required to engage a body corporate manager, unless they opt out by special resolution. This may see a large uptake in the work of managers across New Zealand.

The engagement of body corporate managers will need to be recorded in a written agreement and the agreement must include certain provisions, such as:

• reporting requirements
• performance targets and reviews
• grounds for termination.

Despite these terms being canvassed, there is no rigidity as to the content of these terms. For instance, the performance targets could be quite strict or quite soft depending on the drafting of the agreement. It is recommended that bodies corporate seek legal advice before entering into a management agreement to ensure that it complies with the new regulations.

Managers will also be subject to a code of conduct. The code requires managers to perform their services:

• professionally and with honesty, fairness, and confidentiality
• in the body corporate's best interests
• having disclosed any conflict of interest
• openly informing the body corporate of any significant development or issue
• at competitive prices.

Under the Amendment Act, body corporate managers may be subject to pecuniary penalties for a breach of the Act. A fine of up to $5,000 may be imposed by the Tenancy Tribunal. MBIE will also have the power to issue improvement notices requiring breaches (or likely breaches) to be remedied.

Conclusion

The Amendment Act heralds a higher standard of professionalism and good governance in the hands of body corporate committees and body corporate managers. The changes should not cause concern for existing committee members as they will not be subject to penalties under the Act. However, body corporate managers will need to ensure a high level of professionalism and good management to comply with the requirements of the Act and its regulations.