Buying apartments: What are your rights if it goes wrong?

Tuesday, 8 January 2019

The company which built Sydney's cracked Opal Tower is also building The Pacifica in downtown Auckland.

Defects, cracks, leaks, lack of property maintenance. What happens if you are the owner of an apartment that has these problems?

The issue has been highlighted after residents in Sydney's Opal Tower were left living in temporary accommodation when a number of apartments were gutted after cracks were found in the building. Some landlords are still charging rent, and holding tenants to their leases, it's been reported.

In New Zealand issues like these are regulated under the Unit Titles Act, which dates back to the 1970s. A new act came into force in 2010, requiring all unit-titled apartment blocks to have a body corporate that helps to maintain the building, as well as a long-term maintenance plan, and a requirement to have a sinking fund to pay for long-term repairs, unless the body corporate specifically opts out.

Roger Levie, chief executive of the Home Owners and Buyers Association of New Zealand, said the legislation allowed body corporates, without the necessary skills, to write the plans. This has resulted in important structural aspects such as cladding and fire compliance to be ignored.

'And the plans continue to be written,' he said.

**READ MORE:

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* Imperial Gardens dumps body corp

* Government reviews Unit Titles Act to tighten apartment rules**

The apartment sector is worth $50 billion with 145,000 households in unit titles, a figure which is expected to double by 2040.

The apartment sector is worth $50 billion with 145,000 households living in unit title properties, a figure which is expected to double by 2040.

President of the Auckland District Law Society Joanna Pidgeon was part of the Unit Titles Working Group that worked with National MPs to draft new proposed legislation last year.

She said with the intensification of housing and affordability issues impacting on the sector, New Zealand was seeing increased number of people living under body corporates.

So if the Opal Towers incident had taken place in New Zealand, would residents have any more rights?

TENANTS

Pidgeon said that a similar situation in New Zealand wouldn't automatically release a tenant from their lease.

Instead, you would be able to make an application to the Tenancy Tribunal to have your rent and lease cancelled if you were unhappy to be in limbo while repairs are carried out. This is dependent on the extent of the damage, the length of time to do repairs and whether or not suitable accommodation has been provided.

If the premises are so badly damaged as to be uninhabitable the tenant would be able to cancel the tenancy or claim for a refund in rents. Under the Residential Tenancy Act of 1986, tenants are entitled to quiet enjoyment and they would only be required to give two days notice in this circumstance.

OWNERS

As an owner of a unit, you automatically become a member of the body corporate, and are required to pay levies towards maintenance, as outlined above.

Joanna Pidgeon, principal of Pidgeon Law and vice president of the Auckland District Law Society, said that New Zealand is seeing increased number of people living in bodies corporate.

It's important to understand that buying an apartment is different from buying a house in this respect, said Levie.

'There's a lot of liability that one buys … For instance if the exterior of the unit is defined as common property, then the owner buying in picks up a liability of unit interest share of any cost to do repairs on the exterior of the building, irrespective of if they related to their unit.'

In a situation like Opal Tower where the developer may be at fault and you have to move out, then as an owner you and the body corporate can make a claim against the developer and builders, or against the council if they have incorrectly certified the building as being compliant with the building code.

However, it can take a very long time to get a claim heard and an owner may have to cover costs until the claim is resolved.

WHAT YOU NEED TO KNOW BEFORE YOU BUY

Under current legislation, if you were buying a unit, the existing body corporate would not be obliged to disclose any significant structural issues, such as those at Opal Tower. That is unless there had previously been a leaky building claim filed.

Voluntary disclosure: The body corporate could voluntarily advise you of existing structural problems, but 'there is not a legal requirement for this to be done,' Pidgeon said.

Conflicts of interest can occur if owners don't want managers voluntarily disclosing information to prospective buyers when there is no legal obligation to do so.

Managers can find themselves 'caught between wanting to disclose information, and a vendor or body corporate not wanting to disclose. However failure to disclose can be a misrepresentation for vendors'.

Pidgeon said that bodies corporate may see additional positive disclosure obligations imposed by the courts in future, beyond the minimum requirements.

Body Corporate committee minutes: The only other way to know if there are any structural issues would be to request minutes or 'texts of motions' from the body corporate's previous AGMs or EGMs.

This is an area of danger for the purchaser as there is no legal requirement for minutes to be taken. However, if requested they have to be provided, said Pidgeon.

Levie said that this is an area where its common to see a lot of deception due to the liability issues of unit ownership.

The proposed amendment to the Unit Titles Bill is seeking to improve the disclosure regime to prospective buyers.

'If you get a set of financials, after looking to purchase into a body corporate and you get the maintenance plan and the financial accounts, you'll find payments to building consultants for investigation of issues with the building but no mention of it in the minutes. In many cases you see committee members selling up and getting out before it gets any visibility.'

If an Opal Tower-type event should occur, the kind of repairs needed wouldn't be covered by a body corporate maintenance plan anyway.

These repairs require urgent attention by the developer/builder and If they do not engage, the body corporate would need to fund repairs pending a successful claim against the responsible parties.

Ultimately, Pidgeon said, all of those parties have a duty of care to use reasonable skill and care, meeting necessary standards. But, litigation can take a long time and is expensive, and 'sometimes developers liquidate to avoid responsibility to pay for repairs,' said Pidgeon

Levie characterised the situation as a 'real wild west' in both the construction and multi-unit sectors.