Operation of a body corporate and corporate secretary

If you are looking at buying a unit title or developing a subdivision involving unit titles, you will need to deal with the body corporate that will manage your property.  This article by Owen Culliney, a solicitor with Harkness Henry, offers some guidance on how a body corporate operates.  It also outlines the duties of the body corporate secretary, who carries out the day-to-day operations of the body corporate.

What is a body corporate?

A body corporate (BC) is a legal entity comprising all the unit owners (called proprietors) of a multi-owner development.  The BC automatically comes into existence when the documents relating to a unit title arrangement are deposited at the land registry office.

The functions of a BC are set out in the Unit Titles Act 1972.  These functions include requirements to:

• insure all the buildings in its name for full replacement value;
• control, manage and administer the common property, and keep it in a state of good repair; and
• do whatever is reasonably necessary to enforce the rules.

The BC elects a secretary, who acts on behalf of all of the proprietors.  Many of the functions of the BC are delegated to the secretary.

The body corporate secretary

The role of the BC secretary often includes:

• convening annual general meetings and recording minutes;
• maintaining a register of proprietors;
• making sure that the BC has all the necessary insurances and valuations;
• managing a fund for repairs, maintenance and ongoing costs;
• keeping proper books of account for the BC, and preparing an annual statement of financial position; and
• liaising with local councils as appropriate. 

In accordance with section 36 of the Unit Titles Act a BC must upon application by the proprietor or the purchaser of a unit issue a Certificate of Proprietor's Liability.  This certificate reveals whether or not the current proprietor owes the BC any money, or if any other issues exist such as whether or not any legal proceedings have been brought (by anyone) or are pending against the BC.  Often, the body corporate will delegate the authority to sign this certificate to the secretary.

Rules of the body corporate

As mentioned above, one of the functions of the BC is to enforce the rules of the BC.  These rules are registered on the title of each unit, and you should read and understand them before you buy a unit title.  The operation of the BC, and indeed the use of the property itself, is governed by these rules.

The starting point for BC rules is schedules 2 and 3 of the Act.  The standard rules of the BC contained in schedule 2 (‘Rules that may be amended by unanimous resolution') set out the duties of proprietors; the powers and duties of the BC; the constitution of the committee of a BC; general meetings of the BC; and other miscellaneous provisions.

The key provisions of these standard rules are as follows.

1. You must allow the BC to enter your unit to maintain or repair the unit and/or the common property (among other things).
2. You must repair and maintain your unit and must not make additions or structural alterations to the unit without consent.
3. The BC must maintain the common property as well as all the pipes, wires, cables, ducts and so on that are necessary for you to use the unit.
4. The BC must insure the property and be able to produce the insurance policies on request.
5. The BC may borrow any money necessary to perform its duties or invest any money it holds in any of the modes of investment that are authorised by law for the investment of trust funds.
6. Where there are three or more proprietor's units, the BC is required to form a committee of at least three members.
7. The BC must hold an annual general meeting once every calendar year, not more than 15 months after the previous annual general meeting.  You should read the rules about the conduct and voting of and by proprietors at annual general meetings before you invest in a unit title.
8. The secretary of the BC must keep proper books of account and prepare a statement of financial position each year showing the BC's financial dealings.  The BC secretary also carries out other functions delegated to them by the BC (as outlined earlier).
9. Further rules are outlined in schedule 3 (‘Rules that may be amended by resolution of body corporate').  Under these rules, you may not:

          - use the unit for any illegal purpose;
          - make undue noise;
          - keep an animal on the property without the consent of the body corporate committee;
          - use the common property in a way that unreasonably interferes with other proprietors' use and enjoyment of it; or
          - use your unit in a way that causes a nuisance or disturbance to anyone in any other unit.

The BC may customise these rules.  Those in schedule 3 may be amended by ordinary resolution (50%), but those in schedule 2 require a unanimous resolution.  In a commercial operation involving many units, the developer (being initially the proprietor of all the units) will often amend the rules before any of the units are sold, unhindered by having to collect signatures from other proprietors.

In some cases, the functions of a BC and the BC secretary are managed by an outside management firm.  Such a firm will manage the day-to-day operations and ensure that the BC complies with the Act by calling meetings as required and managing the common property (among other things).

The rules of the BC and the operation of the Act are important, as they dictate how proprietors or developers may deal with the property.  Before you begin the process of either buying a unit title or planning a development involving unit titles, consult your local Lawlink lawyer.

© Harkness Henry
Email: owen.culliney@harkness.co.nz
Website: www.harkness.co.nz

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