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Duncan Cotterill Associates James Murphy and Nadine Prutton discuss the increasing popularity of Unit Title Developments and options for value-adding.
Unit title developments are becoming increasingly common as cities grow and become more high density. We identify some key areas where real value can be added to both new and existing unit title developments.
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Voting rights
While surveying, planning and fire safety requirements are dealt with during the initial phases of unit title developments, often the distribution of owner voting rights is something that is overlooked.
Structuring considerations become vitally important when developments include carparks or storage units that are contained in their own separate certificates of title. It seems logical to ensure that owners of residential or commercial units in developments have greater rights than someone who only owns, for example, a carpark. However, due to the voting regime under the Act (being 1 vote for each principal unit) active consideration of the structure of unit ownership needs to be given to ensure logic prevails.
Let us use an example to illustrate the impact of structure:
Bill purchases a large unit in a unit title development. This unit has 10 associated carparks. The title to the unit records 1 principal unit and 10 accessory units.
Carol, on the other hand, owns a single carpark. The title to the carpark records one principal unit[i].
Under the Unit Titles Act 2010 (the Act) each principal unit is afforded one vote when matters are to be decided by way of ordinary or special resolution. Therefore, at voting time both Bill and Carol therefore each have one vote resulting in an owner of a carpark having the same voting rights as an owner of a large unit.
To fix this imbalance of power, Bill can request that the vote be taken to a poll which will result in the power of an owner’s vote being determined by their ownership interest value (formally the unit entitlement). In that scenario Bill will undoubtedly have a higher ownership interest and therefore more voting power than Carol.
However, such a request must be made in person so this is not a practical option for out of town owners and to request a poll for every vote is cumbersome.
The voting imbalance in the example is less than ideal and could potentially have an adverse effect on the willingness of purchasers to purchase units as well as the value of the units.
An alternative and more fair structure could be to record all units and carparks in the development as principal units. In that scenario Bill would own 11 principal units and therefore have 11 votes as compared with Carol’s one. This seems a more fair result and does away with the need to request a poll every vote.
Understanding the differences in structure and delivering a correctly structured development that gives owners the voting rights, and therefore control, they would expect can add real value and is a far more attractive investment for a potential purchaser.
Car parking
There is also a trend for both residential and commercial developments to have carparks in a common property area rather than as principal or accessory units. The issue with this is that the exclusive rights protected by owning the title to a carpark are missing. The exclusive use of particular carparks is usually dealt with by way of the body corporate rules which are open to change over time. There are alternative ways of protecting exclusive rights however these are often time restricted.
The carpark ownership structure will need to be dealt with as early as possible in a development to ensure that owners know what they are purchasing from the outset.
Long-term maintenance
Another important consideration, particularly for multi-storey developments, is to have a well-considered long-term maintenance plan. While it is a requirement under the Act for unit title developments to have a long-term maintenance plan, some long-term maintenance plans could do with a review and be more tailored to suit the particular development. This is especially important for any unit title developments that may not have a long-term maintenance plan at all.
For example, a review of the long-term maintenance plan by a suitably qualified person such as a surveyor, engineer, contractor or property manager, or a mixture of these persons, may highlight areas in need of attention and provide potential future purchasers with the comfort that a well thought out and suitable long-term maintenance plan is in place. It will be important for such a plan to be regularly reviewed and adjusted to suit as time goes on.
Equally important is having a long-term maintenance fund that is sufficient to cover future maintenance. Having a long-term maintenance fund that will cover future maintenance will be an important consideration for potential future purchasers looking to purchase in a development. This is especially so for larger and multi-storey developments that require ongoing maintenance of building elements and building services.
Getting these aspects right at the front end of a development will benefit the development in the long term as well as providing value to vendors and purchasers who buy and sell units along the way by ensuring that the development functions in a way that is fair and lasting.
James Murphy is a commercial property lawyer specialising in commercial property acquisitions, property development and sales, and commercial leasing across all sectors of the economy. He has particular expertise in front-end construction projects, construction financing and property development. His clients include individuals and companies with significant real estate portfolios, investors, landlords, tenants, and property owners looking to develop their properties through subdivision and construction work. James’ recent experience includes advising: On a large commercial unit title redevelopment involving acquisition, subdivision, sales, leasing and refinance work; On a number of commercial property insurance settlements and construction contracts covering repair, partial rebuild to full rebuild strategies; Numerous private and commercial property owners in terms of acquisitions by the Crown of land under the Public Works Act; High-profile commercial property acquisitions and disposals; Commercial developers in the construction of motel and hotel developments. Contact James at james.murphy@duncancotterill.com
Nadine Prutton advises on a broad range of property and commercial issues. Her particular areas of focus are commercial leasing and subdivisions. She acts for a wide range of clients including developers, major landlords and tenants, and individuals. The aspect of her work Nadine enjoys most is working collaboratively with clients to find practical solutions. Her recent experience includes advising: National shopping centre owners in relation to leasing matters; Body corporates on post-earthquake and Unit Title Act issues; Developers in relation to subdivisions; Property sellers and buyers; Business sellers and buyers; Clients in relation to Public Works Act land sales to the Ministry of Transport Land owners in relation to land exchanges with the Department of Conservation. Contact Nadine at nadine.prutton@duncancotterill.com
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[i] Section 7 of the Act provides a principal unit can be a place of residence or business or for any other of any nature and can also include a carpark.
