Written by Louise Maginness - Registered Legal Executive (Property)

The Unit Titles Act (the Act) came into force in 2011 and included major provisions for information to be given to prospective buyers of unit title properties. It aims to give transparency to the sale process and encourages appropriate administration of body corporate affairs.

Unit owners are unable to contract out of the disclosure rules in the Act so it is vital that the correct processes and timeframes are followed. The following information must be disclosed by the seller to any buyers:

• A pre-contract disclosure statement must be provided to any prospective buyer before the agreement is signed.
• A  “pre-settlement” disclosure statement has to be provided to the successful buyer before settlement.
• The buyer is also able to request an optional additional disclosure statement prior to settlement.
• A turn-over disclosure statement needs to be provided when the original owner or developer of the units no longer owns at least 75% of the units.

We discuss each type of disclosure statement as follows:

Pre-contract disclosure statement

A buyer must be provided with a pre-contract disclosure statement before the sale and purchase agreement is signed.

When the government was drafting the Act, they realised that unit titles were often not well understood as a form of property ownership. A pre-contract disclosure statement must therefore firstly set out some general background information as to what a unit title is and how a body corporate will operate. The pre-contract disclosure statement must secondly set out information about the specific unit being sold. The form of the pre-contract disclosure statement is prescribed by the Unit Title Regulations 2011 (Regulations) and it must include the following information:

1. The amount currently levied by the body corporate in respect of the unit;
2. The amount the body corporate proposes to levy within the next 12 months;
3. Whether the body corporate intends to carry out any maintenance to the unit development over the next 12 months;
4. Details of any bank accounts held by the body corporate; and
5. How much an additional disclosure statement will cost if the buyer decides to request one.

We stress that it is important that agents obtain the disclosure information directly from the body corporate’s chairperson or manager if possible to ensure the information is as accurate and up-to-date as possible.

Pre-settlement disclosure statement

The pre-settlement disclosure statement and certificate of insurance are to be provided by the vendor (or the vendor’s agent) to the purchaser not less than 5 working days before the settlement date. The agreement can still be unconditional in all other respects when this information is provided.  Failure to provide this information in time allows the buyer to elect to postpone settlement or even cancel the agreement.

The pre-settlement disclosure statement contains the following information:

1. The date to which the unit’s levy is currently paid to;
2. Details of any outstanding levies, metered charges or other costs in relation to the unit;
3. Whether any legal proceedings have been brought against the body corporate; and
4. Whether there have been any changes made to the body corporate’s rules since the pre-contract disclosure (and/or the additional disclosure statement, if requested) was provided to the buyer.

The seller must also forward a copy of the insurance certificate to the buyer, although this requirement is covered by clause 6.2(2)(a) of the sale and purchase agreement, rather than being a requirement of the Act or the Regulations.

It is important to reiterate that the pre-settlement disclosure statement has to be accompanied by a separate certificate from the body corporate chairperson which certifies that the information in the pre-settlement disclosure statement is correct. Sellers will need to factor this into their timeframes and ensure that the chairperson will be available to sign this certificate before settlement.

Agents should also be aware that the deposit is unable to be released until a pre-settlement disclosure statement (and additional disclosure statement, if requested) has been provided to the buyer.

Additional disclosure statement

The buyer, at its own cost, is also able to request an additional disclosure statement from the seller. The request must be made before the earlier of the fifth working day after the agreement is signed or the tenth working day prior to settlement.
The additional disclosure statement sets out the following information:

1. Details of the insurance held by the body corporate;
2. A statement of the balance of any bank accounts held by to the body corporate;
3. Details of regular expenses incurred by the body corporate;
4. Information about any contract or lease that has been entered into by the body corporate;
5. Details of the motions passed at the body corporate’s last AGM; and
6. A summary of the long term maintenance plan and the body corporate’s rules.

Turnover disclosure statement

A turnover disclosure statement has to be provided to the body corporate when the original owner or developer of the unit title development ceases to have ‘control’ over the unit title development i.e. the developer has sold more than 25% of the units.

The turnover disclosure statement has to set out details about any plans, specifications or consents obtained for the constructed units, as well as details of any maintenance or service contracts that the developer may have signed the body corporate up to. The idea of a turn-over disclosure statement is to arm the body corporate with enough information that it can effectively take over the management of the body corporate going forward.

Other comments

The government is reviewing the Act presently and disclosure is one of the matters that will be looked at in that review.  One thing that has become very evident especially in a busy and fast-paced property market is that the prescribed timeframes sometimes don’t fit with the speed of the transaction itself.  We are of the view that to aid this, the more information your vendor can provide at the outset the better.  It will also potentially assist the sale, and could help the transaction settle faster.

Failure to disclose

There is currently no penalty imposed by the Act for a failure to provide a pre-contract disclosure statement to a buyer. This is seen as a failing of the Act, and is likely to be remedied in the future. Depending on the circumstances, the buyer may be able to seek relief through other recourses, such as alleging that the buyer is entitled to damages on the basis of misrepresentation. We therefore consider that it is crucial that a pre-contract disclosure statement is provided to any prospective buyer.

The consequence of failing to provide a pre-settlement disclosure statement is severe. The buyer has the ability to postpone settlement or cancel the agreement if the deadline for disclosure is not met by the seller. This also applies to additional disclosure statements.

It is therefore imperative that real estate agents, lawyers, body corporate managers and clients work together to prove the relevant disclosure information to the buyer within the required timeframes.

If you have any questions or would like more information we would be pleased to provide more detailed advice to you on any property matters.

Written by Lauren Jerard - Solicitor (Property)

As we start to approach the busy season of the year for real estate transactions, it serves as a timely opportunity to review some recent and notable REA disciplinary decisions.

Decision C21141: (currently under appeal) This case involved a complaint that was initiated by the Authority following an anonymous report by another agent.  Amongst other things the complaint involved allegations that the agent in question had altered a sales and purchase agreement after it had been signed.

It transpired the change made to the signed agreement was the addition of the late settlement interest rate, which had previously been left blank.  The agent added a rate of 14% after the fact.  The agent had also drafted a new copy for clarity and had made an error making the deposit in the new copy payable on acceptance rather than on confirmation. The complaints committee considered that any alteration to a completed agreement is a “very serious matter”.  The committee also went on to comment that the agent’s dismissal of the change (in respect of the interest rate) as minor was “most concerning”.

The agent’s conduct was considered as unsatisfactory conduct and a clear breach of rule 5.1 (A licensee must exercise skill, care, competence, and diligence at all times when carrying out real estate agency work).  The agent was censured, fined and required to undertake further training.

The take home in this decision is that no matter how minor a change to an agreement both parties must agree to any changes and must agree in writing. 

Decision C20896: In this case the complaint was that the agent listed and marketed a property for sale without obtaining authority from one of the owners.  During the course of the inquiry it also came to light that the agent had failed to complete a comparative marketing appraisal (CMA) for the property.

The property was owned by a company with 2 shareholders holding 50% of the shares each.  The shareholders were a couple who were going through a separation.  A listing agreement was entered into and only one of the shareholders signed (signing shareholder).  There is no comment who the director of the company was.  Offers were presented and subsequently the other shareholder discovered the property had been listed and complained (complainant) to the agent and to the agency.  Following the complaint the agent advised the complainant that the signing shareholder had advised the agent to continue to sell.

The committee considered the complaint and inquired into the details.  They found on the facts that the agent engaged in unsatisfactory conduct.  The committee noted that the agent was able to make easy inquiries as to the ownership of the property and should’ve done so.  In this case, the agent was censured and fined.

Both of these examples show simple but serious mistakes that ended in a finding of unsatisfactory conduct.  If you have any scenario where you are unsure as to your obligations, we would be more than happy to discuss these with you.

We have had such great feedback regarding our buyer’s and seller’s guides.  Many of you requested hard copies of the guides which we are very happy to send out.  If you would like some guides sent to you or your office, please email courtney.mchugh@cavell.co.nz and we will send them out to you.

Partner - Property

Phone: +64 3 339 5645

Mobile: +64 21 226 2630

Email: mike.parker@cavell.co.nz

Solicitor - Property

Phone: +64 3 339 5662

Email: lauren.jerard@cavell.co.nz

Legal Executive - Property

Phone: +64 3 339 5643

Email: louise.maginness@cavell.co.nz

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