Category: Property

Introduction and summary

In Easy Park Limited v Commissioner of Inland Revenue [2018] NZCA 296, the Court of Appeal has affirmed that a lease surrender payment to a professional landlord is a revenue receipt under the Income Tax Act 2007 (“ITA”).

The case concerned a commercial landlord who received a payment from a tenant to allow an early termination of a lease.  The Court affirmed an earlier High Court ruling that, as the landlord was in the business of leasing property, the receipt arose from the landlord’s ordinary business activities and was therefore a revenue receipt subject to tax.

The decision provides assistance in distinguishing between capital and revenue receipts.

Background

Easy Park Limited (“the Landlord”) leased part of its building at 312 Lambton Quay, Wellington to Whitcoulls Group Limited, originally, and then to Whitcoulls 2011 Limited (“the Tenant”) by assignment.

In June 2011, the Landlord and Tenant agreed to an early termination of the lease on the basis that the Tenant would pay the Landlord $1.1 million (being approximately a third of the remaining rent).

When the Landlord filed its tax return for the 2012 financial year, it treated the payment as a capital receipt not subject to income tax.  The Commissioner of Inland Revenue (“the Commissioner”) assessed that the payment was revenue, that the Landlord had taken an unacceptable tax position, and that, accordingly, a shortfall penalty was payable in respect of the tax.

In the High Court, Ellis J upheld the Commissioner’s classification of the payment as revenue, primarily because it was received in the course of the Landlord’s ordinary business.  The payment could not be treated as capital as, from the Landord’s perspective, the reversion of the lease was temporary and did not create an asset or enduring benefit.  The Judge observed that the reversion of a lease may create such an asset or benefit in two scenarios (which did not arise here):

• Firstly, where a lease is surrendered near the beginning of a very long term;  and
• Secondly, where the interest returned to a landlord is so damaged or different from the original leasehold interest that had been granted, that a new lease could not easily be entered on broadly similar terms.

Ellis J quashed the Commissioner’s imposition of a shortfall penalty, finding that the tax position was not “unacceptable” under the ITA.

Appeal decision

The Court canvassed the general principles relating to the distinction between capital and revenue payments and receipts, and in largely following the reasoning of the High Court, disagreed with the Landlord’s appeal submissions.

Primarily, the Landlord argued that as consideration for the lease was factored into the Landlord’s original purchase of the building, the lease and the building constituted one identifiable capital asset in accordance with the “identifiable asset” test established in Regent Oil Co Ltd v Strick (Inspector of Taxes) [1966] AC 295 (“Regent Oil”).

The Court rejected that argument, as:

• Regent Oil concerned the tax treatment of a payment made by a tenant from the perspective of that tenant.  The lease was considered a capital asset for the tenant as it was part of their underlying profit-making structure.  But in the case of a landlord engaged exclusively in the business of commercial leasing, a lease would be held on revenue account; and
• On a more technical point, the Landlord’s underlying legal arrangement to purchase the building had only provided for the purchase of the fee simple interest.

The question of the shortfall penalty did not arise on appeal.

Conclusion

This case provides a reminder that a lease surrender payment to a landlord will generally be treated as revenue, not capital.

If you would like further information please contact Dale Thomas on 07 958 7428.

On 1 October 2015, the Bright Line Test was introduced by IRD.  This Test required tax to be paid on any profits made from the sale of a residential property where that property was bought and sold within two years, with some exceptions.  The key exceptions to the rule were if the property was used as your main home, the property was transferred upon death, or the property was transferred under a relationship property agreement.

The enforcement of this rule meant that the frequent transfer of properties by investors with the aim of making monetary gain would now be monitored, and in some cases, taxed.  The Government hoped this would aid the housing crisis by deterring investors from “flipping” houses regularly for a profit.

Under a new Labour-led Government, the Test was extended to five years from 29 March 2018.  The extension means that residential property purchased on or after 29 March 2018 may be taxed on sale if the property is sold within five years.  The same rules and exceptions continue to apply.  Any property that was purchased prior to 29 March 2018 will still be subject to the two year rule.

What you need to know:

• IRD defines the “purchase” date as the date of settlement (i.e. the date your name was registered on the title to the property).
• IRD defines the “sale” date as the date of the written agreement to sell the property.
• Properties purchased between 1 October 2015 and (including) 28 March 2018 will be subject to the two year rule.
• Properties purchased on or after 29 March 2018 will be subject to the five year rule.
• Common exceptions to both rules are:
  • Properties used as your main home (note you can only use this exemption for one property at a time, and this exemption may only be used twice in a five year period).
  • Properties transferred upon the death of the owner.
  • Properties transferred under a relationship property agreement.
• Trusts may receive an exemption at IRD’s discretion.
• Companies cannot receive an exemption.
• Offshore persons cannot receive an exemption.
• IRD calculates the tax amount based on any profits earned on sale, not the overall sale price.

If you are thinking of selling a property that may fall under the Bright Line Test, please contact us before you sign the agreement – we can work together with your accountant to ensure the best outcome for your sale.

Aliesha is a Legal Executive in our Property Team and can be contacted on 07 958 7442.

The Resource Legislation Amendment Act 2017 (RLAA) has made important changes to the Resource Management Act 1991 (RMA) and four other Acts across a range of areas. Many of these changes are contentious and there has been a clash of views over whether the RMA is fine as it stands, needs wholesale reform, or whether “tinkering” is the right approach.

This article identifies seven things that you should know about the RLAA.

The RLAA enables central government to provide more direction to Councils

• In particular:
  • Section 11 of the RMA will be amended from 18 October 2017 to provide that subdivision is permitted unless expressly restricted by rules in a district plan or a national environmental standard. This reverses the current statutory presumption and is intended to help increase the supply of land for housing.
  • Changes have been made to the scope and process for developing National Environmental Standards and National Policy Standards.
  • The types of regulations that can be made under the RMA have been expanded.  For example, a new section 360D has been inserted in the RMA to enable regulations to be made that prohibit or remove rules that duplicate or overlap with other legislation.
  • New sections 58B to 58J have been inserted in the RMA to require the creation of National Planning Standards.  The first set of National Planning Standards must be in place by 18 April 2019.
  • A new section 18A has been inserted in the RMA to require decision-makers to follow procedural principles that are intended to increase efficiency.
  • Section 6 of the RMA has been amended to include “the management of significant risks from natural hazards”.
  • Sections 30 and 31 of the RMA have been amended to expand the functions of councils and territorial authorities under the RMA to include the establishment, implementation, and review of objectives, policies and methods to ensure that there is sufficient residential and business development capacity to meet expected demand.
• The division of power and responsibility between central government and local government is a key clash of recent times.  These new provisions place more power with more central government, but more responsibility with local government.  Issues of centralisation and devolution remain contentious, and will continue to be a matter for debate.

The RLAA has made changes to the plan-making process under the RMA to provide more flexibility in the plan-making process, and to enhance Māori participation

• Changes have been made to the standard process for making and changing plans and regional policy statements under Part 1 of Schedule 1 of the RMA: for example, Councils now have the option to limit notification for plan changes, if all directly affected parties can be identified.  Schedule 1 has also been amended so that it is clear that designations and heritage orders can be included in partial district plan reviews.
• In addition to the standard planning track, there is now:
  • An optional streamlined planning process which, if adopted, will provide flexibility in the planning process and timeframes to suit the specific issues and circumstances; and
  • An optional collaborative planning process which, if adopted, will provide a process for community participation at the front end of the planning process.
• Changes have been made to enhance Māori participation and Mana Whakahono a Rohe: Iwi participation agreements have been introduced.

The RLAA has made changes to the RMA consenting process

• These changes are designed to increase time and cost efficiencies, and to seek to give applicants more certainty about whether an application will be notified.  For example, with effect from 18 October 2017:
  • A new section 87BA will come into force, to require Councils to treat boundary activities as permitted if written approval for the activity is given by each owner of an allotment with an infringed boundary.
  • A new section 87BB will come into force, which will enable Councils to decide that an activity is permitted if the rule breaches are “marginal or temporary”, and the criteria in the new section provision are met.
  • A new fast track process for resource consents will be introduced. The time limit for public notification or limited notification for fast track applications will be 10 working days.  The time limit for all other applications will remain at 20 working days.
  • A new step by step process for determining whether to notify resource consents will apply (see new sections 95A and 95B).  Under the new process, applications for certain activities cannot be notified (e.g. a restricted discretionary activity or discretionary activity cannot be notified if the activity is a subdivision of land or a residential activity).
  • A new section 360H will enable regulations to be made which to limit who may be considered an affected person.
  • Section 220(d) is amended to broaden the range of natural hazards in respect of which a condition on a subdivision consent can be imposed.
• Notification is less a political football than a reform boomerang.  Some see notification as critical, while many planners advertise and promote their non-notification records.  These reforms – which of course follow others (see the Streamlining and Simplifying Bill of 2009) – highlight the clash between private and public interests which remains a critical topic of RMA debate.

The RLAA repeals the provisions in the RMA relating to financial contributions

• Councils will not be able to require a financial contribution as a resource consent condition after 18 April 2022.
• Funding for new infrastructure will need to be through other methods, such as:
  • Development Contributions under the Local Government Act 2002.
  • Resource consent conditions to require the construction of infrastructure.
  • Council construction of infrastructure, with targeted rates on users of the new development to repay the investment.
  • Alternative funding sources (e.g. Housing Infrastructure Fund).
• Simplifying this regime by removing financial contributions will strike some as beneficial;  others would like more attention to local government funding options (for example: see Local Government New Zealand’s discussion paper on the funding of local government in New Zealand).

The RLAA makes changes to Environment Court processes

• These seek to improve the Environment Court process:
  • Section 85 of the RMA has been amended to enable the Environment Court to direct councils to acquire land, as an alternative to modifying, deleting or replacing the provision in the plan which renders the land incapable of reasonable use.
  • A new section 357AB has been inserted, to enable an applicant who has objected to a resource consent decision to require their objection to be heard by a hearings commissioner, if their objection relates to a decision described in subsections 357A(2) to (5).
  • Section 120(1) of the RMA has been amended to provide that there is no right of appeal to the Environment Court against a decision of a consent authority in respect boundary activities, subdivisions and residential activities, unless those activities are a non-complying activity.
  • The RMA has been amended to encourage judicial conferences and alternative dispute resolution.
  • Sections 279 and 280 of the RMA have also been amended to increase the range of orders that Environment Court Judges and Environment Commissioners can make when sitting alone.

In addition to the changes to the RMA, the RLAA has made changes to four other Acts

• For example:
  • Changes have been made to the land acquisition process under the Public Works Act 1981 to enable additional compensation to be paid.
  • The Conservation Act 1987 has been amended to align the application process for concessions and access arrangements with resource consents under the RMA.
  • The Reserves Act 1977 and the RMA have been amended to enable a joint process to be used for exchanges of reserves and resource consent applications and/or plan change requests.
  • The Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2012 (EEZ Act) has been amended to require publicly notified marine consent applications for activities restricted under section 20 of the EEZ Act to be processed using a board of inquiry process which is similar to the process used under the RMA.

There has been a clash of views over the RMA reforms

• In one corner, you have experienced RMA practitioners who argue against the changes, putting forward the view that the RMA is a fundamentally sound piece of legislation.  In the other corner, you have policy bodies such as the New Zealand Productivity Commission calling for more reform.  Across a range of issues – the role of central government vs. local government, public participation vs. private property rights, enabling development vs. protecting the environment – there is a clash of views.
• Labour, the Greens, New Zealand First, Act and United Future all voted against the RLAA.  The politics and disparity of views on RMA reform were in evidence in the lead up to the election.

More change is likely. In the meantime, you should be aware of the above changes as they will have a number of practical implications.

If you would like further information please contact Dale Thomas on 07 958 7428.

In this article, we provide an overview of the amendments to the land acquisition process under the Public Works Act 1981 (“the Act”) which has been amended as part of the Resource Legislation Amendment Act 2017.

What is the Public Works Act?

The Act gives power to the Crown to acquire land for public works, and sets out the payments that may be made to the former owners of the land as compensation. The Crown may take land for a wide variety of purposes, such as the building of new roads, schools or parks.

Land Information New Zealand (“LINZ”) is responsible for administering the Act on behalf of the Crown. A number of organisations are able to apply for land under the Act. Usually these designating authorities will be State Owned Enterprises or territorial authorities such as your local or regional councils.

What are the reforms to the Resource Management Act?

While there have been a number of amendments to the Resource Management Act since its inception 26 years ago, this is certainly the most comprehensive package of reforms to date.

There are almost 40 amendments included along with changes to 5 other Acts. The changes seek to create a resource management system that achieves the sustainable management of natural and physical resources in an efficient and equitable way.

As expected, there has been a great deal of interest on the amendments from a raft of stakeholders, including district councils, corporations, iwi, professional associations and organisations, community groups, and individuals.  There have been a number of concerns raised by stakeholders, however the issues raised are primarily concerned with the resource consent and plan making process and there were no major issues raised on the amendments to the land acquisition process.

The amendments

The changes are summarised below:

• Additional compensation for land which includes the owners’ home:  The Act now provides for compensation of up to $50,000 (previously only $2,000) to be provided to the owners of notified land if the land contains a dwelling that is used as the land owners’ principal place of residence. An agreement for vacant possession of the land must be agreed within 6 months for the maximum compensation to be available.
• Additional compensation for land which doesn’t include the owners’ home:  The Act also provides for compensation of up to $25,000 to be provided to owners of notified land if the land does not contain a dwelling that was used as the land owners’ principal place of residence. The level of compensation for this type of land depends on the value of the land.
• Changing compensation limits payable:  Previously the compensation limits set out above could not be changed without amending the Act. To allow the limits to be updated as required more efficiently, the amendments allow the Governor General to increase the limits by Order in Council on the recommendation of the Minister.
• Delegating the function of issuing ‘notices of desire’:  The Minister of Land Information can now delegate the power to issue a notice of desire to acquire land to LINZ.
• Evidence from previous RMA cases for hearings:  The Environment Court may now accept evidence that was presented at a related RMA hearing, inquiry or appeal and direct how evidence is to be given to the Court. A separate presentation of such evidence was previously required which was costly and inefficient.

Conclusion

The amendments to the Act are in general support of the government’s intention to better align and integrate the resource management system, and ensure the land acquisition processes are fair and efficient.

Over the last few years the Waikato landscape has undergone some significant changes with more such changes to come.  The Act provides for the land needed for these projects to be accumulated and set aside.  It is important to consider the implications of the Act if you become involved in an acquisition and to stay informed about public works, in particular if you are purchasing or selling property.

If you are looking to purchase a property and are unsure about how these projects may affect your new property, it is advisable to do your research.  Websites such as Land Information New Zealand and New Zealand Transport Agency both provide up to date information and plans for these projects. A Land Information Memorandum (LIM) may also list any proposed or existing transport network projects in the local area.

Amanda is an Associate in our Property Team and can be contacted on 07 958 7451.

Introduction

The Regulatory Systems (Building and Housing) Amendment Act 2017 and the Unit Titles Amendment Regulations 2017 each came into force on 30 May 2017.  Many of the changes are cosmetic or technical, and much of the legislation remains untouched, but there are some substantial changes that need attention.

Definitions and format

A number of definitions in sections 5-7 of the Act have been tidied up.  Most notably:

• The definition of body corporate operational rules has been amended to clarify that operational rules may be lodged when the unit plan is deposited, or after that.
• A principal unit may now be more than one car park: the difficulty of only a single car park (rather than multiple parks) being able to be a principal unit has now been overcome.

Ownership and utility interests

Deemed utility interests for future development units (FDUs) have been clarified.

The revised section 41(1) records that ownership interests or utility interests may be reassessed by special resolution at a general meeting.  The revised section 41(3) states that a reassessment may be made only if 36 months have passed since the deposit of the unit plan or the last reassessment (if any), or the reassessment is for the purposes of a redevelopment.  This is a useful addition, as reassessments may arise in situations such as cancellation outside the timeframes otherwise permitted by section 41.

A reassessment of ownership interests must be made on a valuer’s assessment of relative value, while a reassessment of utility interests may be made on a fair and equitable basis, having regard to relevant benefits and costs.  However, any reassessment of utility interest not based on relative value must have the methodology approved by special resolution.  This highlights that determining a utility interest that is different from ownership interest is a difficult exercise.

Proceeds from common property

Section 56(7) has been amended to clarify that where proceeds are to be distributed following a sale, lease, or licence of common property, the distribution is to take place as at the date that payment fell due.  This useful change allows for periodic payments to be paid out to owners.

Easements and covenants

Changes to sections 62 and 63 clarify that an easement in gross may be granted over common property and/or a unit, which will be particularly useful to utility providers.  The amendments also allow for covenants in gross, when these are enabled by Land Transfer Act reforms.

Redevelopments

Changes to section 65 mean that ‘minor’ redevelopment must not:  ‘affect the common property’ (previously, this was ‘materially affect’); ‘materially affect’ the use, enjoyment or ownership interest of another unit (no change); nor ‘change the number of units’ (entirely new).  The scope of a minor redevelopment has therefore been restricted.

EGM

The new section 89A usefully clarifies that an EGM must be held if a notice requesting an EGM, proposing resolutions, and signed by 25% or more of unit owners (presumably based on numbers) is received by the chairperson.

The EGM ‘must be called by the chairperson’ where required by section 89A.  The new section 90(3) sets out that an EGM ‘may be called at any other time by the chairperson or the body corporate committee in accordance with the regulations’.

Cancellation

The cancellation provisions of section 177 have been amended.  Importantly, section 177(3) now provides that if there is a special resolution to cancel the unit plan, then either:

• The ownership interests may be reassessed by a registered valuer; or
• The body corporate may decide by special resolution not to reassess ownership interests, as long as reasons are stated.

This is an important and useful change, as reassessments on cancellation have proved problematic and often unnecessary.

In the case of cancellation by court order, the application to the Registrar under section 189 must now include a certificate that all conditions and directions of the High Court have been complied with.

Designated resolution

There are now two additional circumstances under which a designated resolution may arise: a variation of lease under section 167, and a decision not to reassess ownership interests on cancellation under section 167.

Regulations – EGM

The Unit Titles Amendment Regulations 2017 amend the existing 2011 regulations, largely for consistency with the amending legislation described above.  There are also some amendments to the forms.

Conclusion

As noted from the outset, much of the legislation remains untouched.  There are substantive issues needing urgent attention: not just those in the Discussion Document released in December 2016, but a host of other technical and policy issues.  Further reform of the law relating to unit titles is needed.

If you would like further information please contact Dale Thomas on 07 958 7428.

In this article, we provide an update on the development of new standards for the testing and treatment of properties contaminated by methamphetamine (“meth”).

With the number of houses contaminated by meth reported to be on the rise both in Waikato and throughout New Zealand, the public awareness and demand for meth testing is also increasing steadily.

The production of meth creates a toxic by-product; the residue of which, once absorbed into a property’s surfaces, carries a range of health risks.  Carcinogenic to all who inhale it, these residues have been shown to be particularly dangerous to young children.  Besides the negative health effects, the owner of a contaminated house can also face a decrease in property value, loss of rental income during the process of decontamination, and in extreme cases, the costs of significant renovation or even demolition.

To avoid the risk of purchasing a meth-contaminated property, prospective purchasers should consider including a specific meth testing condition in their agreement for sale and purchase.  Landlords should also be aware that they could be failing their obligations under the Residential Tenancies Act 1986 to provide a “reasonable state of cleanliness” if they knowingly rent out a contaminated property.  Landlords should consider testing their rental property for meth contamination between tenancies.  There are a growing number of New Zealand businesses that provide meth testing and decontamination services.

The Ministry of Health in 2010 published the Guidelines for the Remediation of Clandestine Methamphetamine Laboratory Sites.  This set out a number of relevant points in regards to meth testing.  Notably:

• Any room occupied by a child under the age of 16 should be sampled;
• No fewer than five samples should be taken inside the building;
• The acceptable level of meth to occupy a property is 0.5micrograms/100cm2; and
• Professional testers must operate independently of commercial clean-up companies, and should use the recognised standard NIOSH 9111 sampling method.

Standards New Zealand is currently engaged in creating the new standard NZS 8510: Testing and decontamination of methamphetamine-contaminated properties.  This is expected to be published late in June 2017, and should provide a consistent and effective approach to managing the testing and decontamination of affected properties and the treatment of their contents.

The proposed new standard will be particularly relevant for meth testing and decontamination companies, laboratories, and health and safety regulators as it will set out a clear framework for the procedures for decontamination and remediation of properties, methods of disposal of materials and for assessing risks to health and safety.  It will also be of interest to property owners as the standard should support and encourage auditing processes.  Ultimately, compliance with the proposed new standard should promote confidence in the effectiveness of meth testing, decontamination and remediation measures.

If you would like further information please contact Dale Thomas on 07 958 7428.

You may be aware of the new statutory regime for construction contract retentions which comes into force at the end of this month.  Essentially the new law imposes a trust regime around retention funds.  We highlight some key information on the law change below.

The Construction Contracts Amendment Act 2015 (“CCAA”) introduces amendments to the Construction Contracts Act 2002, with effect from 31 March 2017.  The retention money requirements only apply to commercial construction contracts entered into, or renewed, on or after 31 March 2017.

The new retentions regime applies to all retention funds held in relation to head contractors and sub-contractors (at this stage MBIE does not propose to set a de minimis threshold for the level of retention).  So a contractor will benefit from the protections of the new regime where it is a head contractor, but it will also be subject to the new regime in relation to how it deals with sub-contractor retentions.  It is not permitted to contract out of the new regime.

Central to the new retentions regime is the concept of a “trust” arrangement:

• Retention money is to be held on trust by Party A (the principal, or contractor in a subcontracting arrangement) for the benefit of Party B (the contractor or subcontractor), and may only be held in the form of cash or other liquid assets that are readily converted into cash.
• Retention money is not available for the payment of debts of Party A (other than Party B).  In the event of a retention holder’s insolvency, retention money will be protected.
• Retention money does not need to be held in a separate trust account and may be commingled with other moneys (although establishing a separate trust account would be best practice).
• A party holding retention funds must keep proper accounting records of all retention funds (we comment on this further below) and make those records available for inspection at reasonable times and without charge.
• Retention money may only be used to remedy default in the performance of Party B’s obligations under the contract.

The CCAA has rules around investment of retention money and accounting for interest.  Any investments must be subject to the Trustee Act 1956.  Any interest earned on invested retention money belongs to the retention holder, to offset the administration costs of the new regime.  Interest must be paid on late payments of retentions at the rate agreed under the contract.  If a rate has not been agreed, the default rate of interest specified in regulations will apply (currently the regulations have not been developed).

A retention holder must account for any difference between retention money withheld and paid out.  Contracts should outline the procedures for the retention holder to lawfully use/deduct (or “appropriate” – the language used in the CCAA) the retention money.

Retention holders assume all the statutory and implied duties, obligations and liabilities of a trustee, including those under the Trustee Act 1956, in accounting for and managing retention money – including director liabilities.  At its most extreme, a breach of trust may be a criminal offence.

The parties to a construction contract are prohibited from:

• Making the payment of retention money conditional on anything other than the performance of Party B’s obligations under the contract – an extension to the existing Construction Contracts Act rules prohibiting “pay when paid” (conditional payment) clauses.  Party B’s obligations may be pre-practical completion obligations (such as the payment of liquidated damages) and post-practical completion obligations (such as the rectification of defects during the defects notification period);
• Making the date of payment of retention moneys later than the date on which Party B has completed all of its obligations under the contract; and
• Requiring Party B to pay any fees or costs for the administering of a trust holding such retention funds.

The methods of accounting for retention money are set out in the CCAA.  The government has taken a reasonably light touch approach;  the CCAA requires the holder of retention funds to keep “proper accounting records” of all retention money held that:

• Correctly record all dealings and transactions in relation to the money;
• Comply with generally accepted accounting principles; and
• Are readily and property auditable.

The feedback from MBIE is that it expects industry participants to “develop reporting methods that best suit the accounting systems they have in place” – so the government is not being overly prescriptive as to how compliance should be achieved.

If you would like further information please contact Daniel Shore on 07 958 7477.

The Unit Titles Act 2010 (“the Act”) sets out three different statements a seller must provide to a buyer at different stages in the sale and purchase transaction.  The first disclosure statement is called a “pre-contract disclosure statement”.

Pre-contract disclosure statement

As the name suggests, this disclosure statement must be provided to a prospective buyer before they sign an agreement for sale and purchase.  If you are selling your property through an auction process, you should ensure that the pre-contract disclosure statement is attached to the auction terms and conditions that are provided to prospective buyers.

The agreement for sale and purchase includes an acknowledgment that the buyer has received the pre-contract disclosure statement from the seller.  It is very important, as a seller, that you provide this statement to the buyer as soon as possible.  If it is not provided to the buyer before the agreement is signed, the buyer could seek to cancel the agreement.

If you are a buyer, it is important that you obtain the disclosure statement; when acting for buyers, we recommend that we review the pre-contract disclosure statement to see if the statement raises any alarm bells.  If there is any particular cause for concern, further questions may need to be asked of the seller and the body corporate.

The onus in providing the disclosure statement falls on the seller even though most sellers will rely on the body corporate manager or chairperson to provide the required information.  The statement must be signed by the seller or an authorised representative.

The Unit Titles Regulations 2011 (“the Regulations”) set out the prescribed information that the statement must contain.  The disclosure statements can be somewhat unclear in terms of what the seller should be disclosing to the buyer.  Some owners have the view that they will give the prospective buyer everything they have about the unit and body corporate; in contrast, other owners will provide as little information as possible, without actually under-disclosing.

Regulation 33 sets out the information that must be disclosed.  This includes:

• A description of unit title property ownership, unit plans, ownership and utility interests, body corporate operational rules, computer registers, easements and covenants, Land Information Memorandums and information about what is required in a pre-settlement disclosure statement and an additional disclosure statement;
• The amount of the contribution levied by the body corporate for the particular unit being sold;
• The details of maintenance that the body corporate proposes to carry out on the unit within the next year and how the maintenance costs will be met;
• The balance of every fund or bank account looked after by the body corporate; and
• Whether the unit or the common property is or has been the subject of a weathertightness home claim.

The pre-contract disclosure statement allows the buyer to obtain initial information about the unit and describes certain terminology associated with unit title properties.  It can be useful for the seller to have a solicitor look over the statement to ensure the correct information is being provided to the buyer (and the sellers are not over- or under-disclosing).

Additional disclosure statement

Once the agreement has been signed, a buyer may, within five working days of signing the agreement but no later than 10 working days before the settlement date, request an additional disclosure statement from the seller.

We always recommend obtaining this statement however, it may depend on the information already provided to you as a buyer as to whether you request this.  We see a number of sellers providing most of the information in the pre-contract disclosure stage, removing the need for an additional disclosure statement.

Also there is no requirement under the Act for a buyer to approve or agree to the content of a disclosure statement.  When acting for a buyer we therefore recommend that a condition is included in the agreement that allows you to approve the contents of the additional disclosure statement and various other body corporate matters.  Please note that this would not be applicable if you were purchasing the property at an auction.

The statement provides important information such as:

• Summaries of the long term maintenance plan;
• Text of motions voted on at the last general meeting and whether each motion was passed or not;
• Details of regular expenses that are incurred at least once a year;
• Amounts owed to the body corporate at the date the additional disclosure statement is requested; and
• Details of every current contract entered into by the body corporate.

The pre-contract disclosure statement sets out how much an additional disclosure statement will cost.  Although it is the seller’s responsibility to provide an additional disclosure statement, the cost of this must be met by the buyer.

Again, for the seller, most of the information will need to come from the body corporate chairperson or manager.  However, the onus falls on the seller to provide the statement to the buyer and, crucially, the seller is responsible for the content of the statement.

Pre-settlement disclosure statement

This is the final statement that makes up the trio of disclosure statements to be provided to the buyer.  The seller must provide this statement no later than the fifth working day before the settlement date.

The information required to be disclosed in this statement is very important for a buyer.  Yet, there is no ability for the buyer to “approve” the information contained within statement.  If there was information that the buyer was unaware of or did not agree with, the buyer may be unable to cancel the agreement.

The statement is mainly concerned with what levies have been raised by the body corporate, and whether there are any unpaid levies by the unit owner and unpaid costs relating to repairs of building elements or infrastructure.  This information is important to ensure the buyer is not taking on any outstanding debt by the seller and also to highlight the amounts payable by the buyer from the settlement date onwards.

Again, the statement must be provided by the seller and the onus falls on him or her to provide it.   Unlike the previous statements, a  pre-settlement disclosure statement requires a certificate to be signed by the body corporate stating that the information contained in the statement is correct.  Therefore it is vital that the information in the statements is up to date and accurate.

There are also serious consequences if the buyer does not receive the statements within the specified timeframes set out in the Act, or if the seller does not provide the statements at all.  In those cases, the buyer could delay the settlement date or cancel the agreement altogether.

The disclosure requirements under the Act have caused some headaches due to the unclear wording of the Act and Regulations, the double-up of information required to be disclosed, the overtly complicated structure that could easily be simplified and the serious implications of not getting the disclosure requirements right.

If you are in doubt about the disclosure requirements, either as a seller or buyer, ensure you obtain legal advice to avoid any costly mistakes.

If you would like further information please contact Dale Thomas on 07 958 7428.