Ahead of the Subdivisions: Developments and Potential Pitfalls webinar next month, Catherine Green, Director at The ADR Centre joined us for an exclusive Q&A session to discuss the evolving landscape of subdivision projects in New Zealand, the significance of alternative dispute resolution in preventing and addressing conflicts, and insights into future trends shaping the industry.
How would you briefly describe the current state of the subdivision landscape in New Zealand?
In these challenging times, developers are finding it increasingly difficult to secure finance and pre-sales due to higher interest rates and reduced land values.
Although subdivisions are slower to start, bigger players in the market are still completing existing projects.
Economic pressures on buyers are also evident, with some struggling to obtain finance for settlement.
With all parties facing increasing pressure, it is crucial to know how to prevent conflicts and misunderstandings from escalating into disputes. Equally important is finding the best approach to managing disputes in a sensible and proportionate manner if they do occur.
Are there any roles of alternative dispute resolution management that you think are sometimes misunderstood or overlooked by those involved in subdivisions?
To effectively manage disputes, it is best to handle them early and informally. Ignoring them can lead to deteriorating relationships and further escalation of the issue over time. While Tenancy Tribunal or Courts are commonly used for disputes related to Unit Title subdivisions, there are alternative dispute resolution processes available that can be quicker and more proportionate.
Arbitration clauses are common in cross-leases, and ADR clauses are now included in easements and covenants. However, it is important to carefully consider which dispute resolution process to adopt, in case of any future issues. Even something as simple as a reference to arbitration can lead to prolonged and expensive processes if your agreement to arbitrate does not allow the parties to promptly access a proportionate response.
NZDRC specialises in designing and delivering proportionate ADR processes, such as mediation and arbitration. To learn more about our process options, I recommend contacting our Registry team and utilising the NZDRC Guide to Model Clauses to ensure any dispute resolution clause in your next contract will effectively serve all parties involved.
What’s a common mistake you see those undertaking subdivision matters make?
It’s important to consider small details when planning a subdivision to avoid potential conflicts in the future. For example, a terraced house subdivision may neglect to include an easement for all letterboxes to be installed on the front person’s fence, not plan for rubbish bin placement, or properly manage parking (including EV charging). These oversights can lead to disputes among residents that are difficult to resolve.
Fee-simple terraced townhouses can also present issues, as there is no ability to undertake a group repair or reclad like in unit title developments. Additionally, each property may have different insurers, which complicates matters if a fire in one unit affects others. To avoid these problems, it’s important to align insurers at the outset by drafting requirements into the covenants and ensuring they can be enforced.
Overall, it’s crucial for stakeholders to communicate and identify potential issues early on to prevent them from escalating into larger problems down the line.
What role should alternative dispute resolution services play in running an effective subdivision?
Alternative dispute resolution services are flexible and can be of use throughout any project.
It is common to believe that dispute resolution services are only necessary once a dispute has already occurred and the parties involved are unable to reach a resolution. However, subdivision projects, like any other long-term project, can benefit from the use of facilitative or determinative ADR processes throughout the project’s duration. This can help ensure the project runs smoothly and address any small conflicts or disagreements early on.
If a dispute does arise, parties can turn to arbitration for an independent decision from an arbitrator. However, it is still possible for parties to engage in direct negotiation or mediation alongside the arbitration proceeding. Often, arbitrators are faced with a binary decision when a more creative outcome could better meet everyone’s needs. The arbitration process can also serve as a mechanism to bring relevant parties to the bargaining table.
What are some dispute resolution models available in subdivision matters, and what are some of the pros of cons of using such a structure?
When disputes arise, there are several methods of resolution available to parties. The traditional approaches include direct negotiation, mediation, arbitration, and litigation. However, there is a new process called contractual adjudication, which is now being offered as an option by NZDRC.
Negotiation
If parties are able to negotiate a resolution, then this is typically the best outcome. It is time and cost-effective and the parties retain control of any outcomes. A conversation over coffee early and with a view to engaging in a constructive dialogue to find a solution with mutual gain is often the best solution when issues do arise.
Mediation
Sometimes, having a mediator present can help parties find a satisfactory solution. Mediation involves a neutral third party who facilitates a conversation between the parties to help them develop solutions for mutual gain. Mediation has a timetable and structure that simple negotiation lacks. It is also a relatively time and cost-effective option for dispute resolution processes.
Arbitration
Arbitration is a dispute resolution process where parties present their arguments and evidence to a neutral third party, who then makes a binding decision. This process can provide a more proportionate alternative to litigation through the courts.
Litigation
Litigation is the process of resolving legal disputes through the court system. It involves formal legal proceedings and established legal procedures. Parties should carefully consider the time and cost involved in this process before proceeding.
Contractual Adjudication
NZDRC has recently launched a new contractual adjudication process, modelled on the statutory adjudication process available under the Construction Contracts Act. It provides parties to a dispute with a cost-effective but robust dispute resolution process that results in a determination being made by an independent Adjudicator, typically within 35 working days. The decision is binding in the interim, allowing the parties to move forward with their project.
In our experience, having administered more than 1,500 statutory adjudication cases, parties will almost always abide by the decision of the adjudicator. To our knowledge, less than 1% of all determinations issued by our adjudicators have been challenged in the courts or by arbitration, and the vast majority of those with no appreciably different outcome.
How can dysfunctionality arise in a subdivision matter and what’s one tip to prevent or deal with such dysfunction?
Dysfunctionality arises when people fail to communicate well.
It is common for parties in cross-lease disputes to overlook their obligations and misunderstand their title. Structural alterations require the consent of neighbours, but some people disregard the rules and fail to obtain the necessary consents or to update title plans to record agreements that are reached.
It’s essential to remember that with rights come responsibilities, such as not blocking a neighbour’s right-of-way with parked cars. When developing properties, it’s important to think ahead and invest in long-term liveability instead of just focusing on cost reduction. If seeking a neighbour’s consent for renovation, make sure to present fully developed plans and, so far as it is practicable, minimise or avoid blocking views or light. It’s worth noting that under cross leases or unit titles, homeowners don’t have the right to demolish and rebuild as they please.
Open, early, and respectful communication can help avoid problems. It’s crucial to consider the issue from everyone’s perspective and find a solution that meets everyone’s needs.
What are some of the trends and developments you see ahead in the area of subdivisions?
In the future, cross-lease development may experience a comeback. Although it was previously thought that cross-leases were on the decline, with new intensification rules, the covenants on structural works can serve to protect views, sunlight and general amenity, and in that way they are beneficial. With the rules moving toward permitting higher intensification, Councils can’t be relied on to protect these amenities in the same way as previously. Cross-leases could once again be an answer to creating effective residential subdivisions.
Recent events have highlighted the need for more consideration in terms of stormwater issues and the potential impact of climate change on properties. It’s important to look at what can be done in terms of land assessment and subdivision design to mitigate these potential problems. This is a crucial question that needs to be addressed.
Car parking requirements are also an area to watch. Where Councils once insisted on minimum numbers of car parking spaces we are now looking at maximum numbers per unit or complex to try and get people to use public transport. Some developments have no parking for owners (or visitors) at all, and parking spaces in such developments are only provided for delivery vehicles.
Higher-density developments are becoming more common, which increases the importance of managing conflicts and disputes effectively. The closer people live to each other, the greater the chance of issues arising.
