Regulatory Systems (Building and Housing) Amendment Bill

I want to talk about some issues in relation to the Unit Titles Act, which is the subject of Part 2. There were some really interesting debates at the Local Government and Environment Committee about the Tenancy Tribunal and whether or not the tribunal is the appropriate device for resolving conflicts under the Unit Titles Act. It is true, I think, that although we are seeing a big increase in the building of multi-dwelling buildings—apartment buildings and flats—the Unit Titles Act has been under quite a lot of pressure because of increased demand and perceived inadequacies in that Act to do with governance and the regulation of bodies corporate. We are going to be touching on a number of those issues as they pertain to Part 2 of the bill.

The issue of the Tenancy Tribunal and its role is very relevant here. There was quite a lot of discussion at the select committee about whether or not the current provision of a four-step dispute resolution system under the Unit Titles Act, basically, consisting of self-resolution and mediation provided by the Ministry of Business, Innovation and Employment (MBIE), and also adjudication at the tribunal itself, and, ultimately, access to the courts—about how well that is working and whether it needs review and possible change.

Under the current system, the tribunal has jurisdiction to hear and determine disputes between the owners and former owners of units, a future development unit owner, a body corporate itself, the administrator of the body corporate, a registered valuer, an occupier of one of the units, a contractor who is providing services to the residents, original owners, a lessor, and even the chief executive of MBIE. The tribunal has quite an array of powers to order resolution of disputes, to order parties to do anything, to remedy breaches, and so on.

But there are currently limitations under the Unit Titles Act. The tribunal cannot order a body or a person to pay any more than $50,000, so that is a pretty significant limit. It is unable to hear a dispute in relation to insurance money or anything to do with land titles. Really, the committee was considering, in relation to Part 2, the best approach to deal with dispute resolution in this sense. The officials came back with a number of proposals and, effectively, I think, kicked for touch on most of the matters of substance, and really pointed to the wider review of the Unit Titles Act that is being done.

There was a question that was also discussed in relation to filing fees, which are basically set down under the regulations that come out of the Unit Titles Act. But basically the officials advised the committee that it does not consider that establishing any kind of alternative regime is worthwhile or proportionate to the perceived problems in relation to the current policy settings in the Unit Titles Act. There is a proposal to lower the fee settings of the tribunal and introduce a reduced fee for mediation, but, essentially, the officials advised that the $50,000 threshold should basically be considered as part of the wider review of the Unit Titles Act. That will include things like requirements for properly funded repair and maintenance plans for bodies corporate and various other governance regulations to do with bodies corporate.

That is just by way of an opening contribution. There is plenty more to say about Part 2. We will be coming back with a number of contributions.

I just want to take a short call and ask questions of the Minister, with particular reference to clause 20 in Part 2 dealing with reassessing of ownership and utility interests in unit plans. One submission from the New Zealand Law Society, for example, submitted that this clause is inconsistent with other similar provisions. To the credit of the select committee, that submission was noted and those changes subsequently amended.

But there is a question I would just put to the Minister for consideration. The Government currently has the Ministry of Business, Innovation and Employment (MBIE) working on a wider review of the Unit Titles Act. We are making amendments here, and some of them are quite detailed. I will not necessarily go into the breadth and depth of those changes but they are there, as everyone will rise to address them in later submissions, I presume. I want to bring to the Minister’s attention the fact that MBIE intends to propose new regulations to address time frames and notices for extended extraordinary general meetings, for example. I just put it to him that there might be some inconsistencies with what is being laid out in clauses 20, 32, 33, and 48.

Again, like I say, this is just a short call asking for some reassurance and guidance on the potential clashes there. That is all I had to ask with regard to this part of the legislation.

Part 2 of the Regulatory Systems (Building and Housing) Amendment Bill makes a number of changes to the Unit Titles Act. In many cases, they are more than simply cross-referencing changes, which we have seen a lot of in this legislation. In many cases, they are quite substantive changes.

I particularly want to look at clause 16, which amends section 38 of the Unit Titles Act. This relates to ownership interest. Just reading the original wording of section 38, which is being amended here, clause 16 replaces section 38(1) and (2). It relates to a unit plan being deposited under sections 17(1), 21(1), and 24(2)(a). None of those cross-references are changed as a result of the amendments made in this legislation, but it does change the wording of section 38. Under the current wording, before a unit plan is deposited under those sections: “(a) every principal unit and every accessory unit must be assigned an ownership interest; and (b) every proposed principal unit and every proposed accessory unit must be assigned a proposed ownership interest.” That is being amended under this legislation, so before a unit plan is deposited under those sections, the registered proprietor or owner, as the case may be, must assign: “(a) an ownership interest to every principal unit and every accessory unit; and (b) a proposed ownership interest to every proposed principal unit and every proposed accessory unit.”

Superficially, that appears to be a fairly minor change—to require the registered proprietor or owner to assign the ownership interest, rather than saying that the ownership interest must be assigned. It is shifting the language to more active language, saying the proprietor or owner “must assign” rather than “it must be assigned”. Again, as a layperson, I am trying to figure out whether this is now placing a responsibility on the proprietor or owner that did not exist, or clarifying that there is a responsibility on the proprietor or owner that did not previously exist, or whether it is reducing the number of people who are able to assign that ownership—exactly what is the improvement to the functioning of the legislation that is achieved by shifting that language? It is not entirely clear what benefit has been gained by making that change.

The second change that is made by clause 16 is in relation to section 38(2) of the principal Act. That relates to the ownership interest or proposed interest and how that is fixed. In section 38(2) of the Unit Titles Act 2010, it is currently fixed “by a registered valuer on the basis of the relative value of the unit in relation to each of the other units and shown on any documentation required to be lodged with the unit plan: (b) in the case of a stage unit plan or complete unit plan deposited under section 24(2), the ownership interest is that fixed by a registered valuer on the basis of the relative value of the unit in relation to each of the other units and shown on any documentation required to be lodged with the proposed unit development plan.”

Now, the wording in this bill changes that to: “(2) The ownership interest or proposed ownership interest assigned to a unit is that assessed by a registered valuer on the basis of the value of the unit relative to each other unit and shown on the documentation required to be lodged—(a) with the unit plan … or (b) with the proposed unit development plan (in the case of a stage unit plan or complete unit plan deposited under section 24(2)).”

I just want to refer to the amendment to section 15 of the Unit Titles Act in clause 14 “Section 15 amended (Relationship with Public Works Act 1981)”, specifically the replacement of section 15(3) of the Act in clause 14(2) that states, in new section 15(3)(a), “an estate or interest in land in a unit title development is acquired under the Public Works Act”, because there is a question that I want answered, I guess, in relation to the requirement in the original section 15(3) of the Unit Titles Act 2010 for “a new unit plan, or an amendment to a unit plan, to be deposited.”, or, in the original section 15(4), “If the body corporate requests in writing, the authority undertaking the public work must, at its own expense, prepare the new unit plan or amendment …”.

I want to ask how this would impact in the case that occurred in Christchurch where property was compulsorily acquired, in a sense, because of rezoning due to the earthquake, and how, for example, it would impact the ability for a body corporate to actually put in place a new unit plan—because the interest in that property is now at some debate. As happened in Christchurch, you may have rezoning or property damage to a particular extent or another assessed by engineers, and you could have a multi-unit property with many different owners and with each property having a different designation in terms of whether it was going to be repaired and to what standard, or rebuilt to a particular code or standard. The application of the building code depended on whether the property was able to have its repairs consented or not, whether the building consent process applied.

I would like to know from the Minister in the chair, the Hon Mark Mitchell, when you are in a situation where you have these extraordinary situations apply—you have unit dwellings for which different codes may then apply—how you would then under the Public Works Act make a differentiation between how one particular unit is treated versus another particular unit, and where does the responsibility for the development of that unit plan then sit. Is it with the owners, is it with the body corporate, or is it with the authority that made the determination on that particular dwelling or those dwellings? It is something that would be very pertinent to those people in Christchurch, particularly the many property owners who are in multi-unit dwellings for whom we are still waiting for some resolution. There are many arguments yet to be had because of the different ownership models and the different insurance requirements on each of those individual units. I would welcome the opportunity to hear the Minister clarify that particular point. Thank you.

My comments on Part 2 relate to clause 25, with regard to the changes around easements, and with regard to the submission that was given by Watercare Services. Clause 25(1) makes the change of replacing section 62(1) with: “The body corporate may, after a special resolution to do so, grant an easement or enter into a covenant over the whole or any part of the common property.” Just to put this into some context around the body corporate and the size of the sector that we are dealing with, I note that the residential apartment sector is growing, it is growing quite fast, and it is obviously going to continue to grow. It is now worth something like $40 billion in New Zealand. These improvements that are being suggested in this bill are welcome, but it seems as though—and this is another submission that I am going to be talking about that is making a sensible suggestion, but which seems to be described as being out of scope, and it sort of begs the question as to what is the point of this legislation if it is not dealing with some of the issues that are really quite pressing right now.

The bill extends the power of a body corporate in respect of easements and covenants over the common property. In particular, the body corporate is given power “after a special resolution to do so, [to] grant an easement or enter into a covenant over the whole or any part of the common property.” So, at the present time the owner of a unit, with the consent of the body corporate, may grant an easement or enter into a covenant over their own unit, but is limited to easements and covenants for the benefit of other land. They can grant an easement over their unit, but it cannot be extended out. So what this clause means is that it can happen after a special resolution.

Watercare Services, in its submission on the bill, supported the bill and, in particular, the changes made in respect of easements and covenants—clauses 25 and 26—which “will enable [it] to acquire sufficient rights … for construction, operation and maintenance of its water and wastewater pipelines.” So, when you think about it, that is quite important—Watercare Services being able to make changes without going through a huge rigmarole is actually quite important. It also asked for an additional change to ensure that when a unit plan is cancelled, any easements in gross granted over units—these are the wider easements and covenants over one unit—are not also cancelled.

I think that is actually quite a reasonable request, and I ask the Minister in the chair, the Hon Michael Woodhouse, to give a response as to why the officials said that it was out of scope. What the officials said was that “The additional change proposed is not within the scope of this Bill and should not be included. It is not minor and technical in nature but a larger policy change. This change would fall more within the scope of the wider review.”, and the officials invited Watercare Services to make a submission on the wider review. I am not sure why it is such a big deal to include that in the bill, and why it is considered to be so fundamental and a policy issue. Does it come down to some sort of property rights issue that we are not aware of? Can I ask the Minister to give some explanation to the Committee as to why that particular request by Watercare Services is out of scope?

Tēnā koe, Mr Chair. I am happy to take another call on Part 2, “Unit Titles Act 2010”. Just to take us back in terms of what we are discussing in Part 2 of this bill, it is an attempt to reduce the unnecessary compliance burdens and clarify a number of provisions. I just thought it might be easy to indicate or go over the provisions that this particular part, Part 2 of this bill, is trying to do in terms of unit plans, body corporate operational rules, reassessment of ownership and utility interests, registration of easements and covenants, leases and licences of common property, and extraordinary general meetings.

I want to just raise clauses 17 and 18 and specifically refer to the New Zealand Law Society’s submission, where it indicates that utility interests do not work for many bodies corporate. In its submission it told the Local Government and Environment Committee that it supports the changes in clauses 17 and 18 as an attempt to, I guess, remove any ambiguity or misunderstanding of what is meant by that—by giving terminology and methodology of creating and explaining what utility interests are. However, in its submission to the select committee it also raised that one of the issues with this is that by creating this interest or clarity, there is also a risk in terms of making the Act less flexible. So it did indicate that it had an issue with that as well.

It definitely recommended that we do a total rethink on the forthcoming review, and said by way of the wording that it provided to the select committee, in terms of clause 17, the words “unless section 39(2A) applies” should be added to the end of the proposed new section 39(2), and the words “that different utility interest” should be added to the beginning of new section 39(2A)(b). In terms of clause 18, again the attempt is to make it much clearer in terms of what we mean by utility interests. The Law Society’s advice was “the words ‘as a place of residence or business or otherwise’ can be removed: they are both redundant, and inconsistent with the proposed new section 7(1) (clause 12).”

The officials’ response to those suggestions by the New Zealand Law Society, particularly in terms of clause 17—they pointed out that they believed that the existing clause was already clear. I note in the Ministry of Business, Innovation and Employment report to the select committee that in terms of the second point, in terms of the words already in the—they have written “chapeau”, but I think they mean “chapter”. So in terms of the suggestion from the Law Society in relation to clause 17 to make it really clear what we mean by “utility interests”, it is interesting, and maybe the Minister can shed some light on why they felt that the existing terminology and the words in that clause were adequate to meet the concerns that the Law Society raised.

In clause 18, again, officials believed that the word is consistent with the other sections of the Unit Titles Act. Therefore, there was a recommendation of no changes to the drafting.

I am just really interested in the Minister in the chair—whether he could please take a call and explain to the Committee why the suggestions of the New Zealand Law Society to make it really ultra-clear on utility interests have not been taken up, and shed some light on that. Thank you.

I just want to take a very brief call to address the questions raised by Ms Curran and others about, effectively, that which is not in the scope of the bill and the questions that have been raised both to officials and to the Committee of the whole House about why that might be the case. I intend, if it is helpful and efficient, just to make some general comments about the regulatory systems bills—plural—the omnibus bills that we will be considering over the next period of time.

It is simply this: the short answer is that the point of this legislation is to make technical amendments and to clarify provisions as we will get to in terms of, for example, the Employment Relations Act; not to make substantive policy changes or to amend the balance of the rights and obligations that parties have under this legislation. It is bit more than a statutes amendment bill, but to go any further than that would require a much broader submissions process by the stakeholders who would be affected by that.

So they are fair questions. It is a scope question that I believe the committee—that particular committee, the Local Government and Environment Committee, and the Transport and Industrial Relations Committee, in the areas that are within my responsibility—has considered, but these are relatively minor and technical amendments.

I would like to talk about clauses 32 and 33. This is about who may call general meetings for bodies corporate. First of all—in this bill, initially—these were set down in the bill itself, but the Local Government and Environment Committee received a recommendation that this is best done through regulation. So the clause has been taken out of the bill and put into regulations. I am a little bit baffled as to why this would be done, because if I look at the original wording that was in clause 32, inserting new section 89A of the bill, it makes it very clear. I understand what regulations do and I understand the value of regulations, but sometimes I think that it is just easy to actually have it in the bill itself, unless you are thinking there is going to be a lot of change.

I would like to ask the Minister in the chair, the Hon Michael Woodhouse—there are a number of terms and requirements for calling an extraordinary general meeting, but the interesting thing is that it says a request by “unit owners of not less than 25% of principal units.” Twenty-five percent is hardly a majority. In fact, it is not even close to a majority at all, and I cannot think of any other decision that would be made with only 25 percent. This could get to a situation where—well, people know that if an apartment block, for example, is in different unit titles, then there has to be a body corporate. If there is an apartment block of four units, then, in fact, one person could call an extraordinary meeting—

💬 Peeni Henare: It’s called a failed democracy.

Yes. One person could call an extraordinary meeting and could actually arrange it where they could sort of queer the pitch in a way that allowed them to push their views through without having a majority at all.

The interesting thing about this, if we go on to clause 34, is that what happens is that the body corporate operational rules are binding on basically everyone. So they are binding on the body corporate, they are binding on the owners of principal units, they are binding on any person who occupies a principal unit, and they are also binding on any mortgagee who is in possession of a principal unit—so, basically, an owner, a renter, a flatter, etc. So I can just see a way here where if a unit holder or a couple of unit holders, or certainly fewer than 50 percent of unit holders, wanted to be mischievous because they wanted to get something through the body corporate that they knew would be binding on 100 percent of the owners or the occupiers of these unit titles, they actually could. I wonder why this does not say “not less than 50.1 percent”, for example, which I would have thought would put checks and balances in place that made sure that a non-democratic process could not, in fact, force an outcome on every single owner.

I suppose what you could get in the worst-case scenario is you could get 25 percent organising this year, so what you would end up with is an extraordinary meeting here and then it gets pushed through and then it comes to here and it gets pushed through, and it could get very, very messy indeed. This is why Winston Churchill, for example, said that democracy is the worst form of government except every other.

But I do acknowledge that there may be a very good reason why this 25 percent is codified in legislation, and I am suggesting that it is possibly based on experience, because I have no doubt the officials said, or the lawyers said, or the Property Council said: “Hey, look. In most of the situations all we need is 25 percent, because that is a significant portion. It is not a majority but it is a significant proportion, and we believe that if 25 percent of a concern that is salient enough to actually call an extraordinary meeting”—

💬 Hon Member: There could be reasons.

Yes, and, of course, it has to be acknowledged. So the chairperson has to go out and, of course, notify all the unit owners that an extraordinary meeting is taking place, but 25 percent is enough to trigger an extraordinary meeting because this is just what history tells us needs to be done. I could be wrong, because just reading the bill like this, it is a little bit concerning, I must admit.

It also says, in clause 33(3): “An extraordinary general meeting of a body corporate may be called at any other time by the chairperson or the body corporate committee”—and this is where I am a little concerned that it is in regulations and not in the Act—“in accordance with the regulations.” If I was a body corporate member and I wanted to know what was going on, I would go and look at the piece of legislation that governed it, then I would have to go and find the regulations. It just would have been tidier if it had been all encompassed within the bill. Again, I know the committee got advice on that—

I move, That the question be now put.