Submission of Real Estate Institute of New Zealand Inc

Submission of
   Real Estate Institute of New Zealand Inc

                                   On

     Unit Titles Amendment Bill - Consultation
                           January 2013

              To the Unit Titles Amendment Bill Services Team

Ministry of Business, Innovation and Employment – Building and Housing Group

                       Level 6, 86 Customhouse Quay

                              PO Box 10-729

                            WELLINGTON 6142

Introduction

The Real Estate Institute of New Zealand Inc (REINZ) welcomes the opportunity to present this
submission to the Ministry of Business, Innovation and Employment (‘MBIE’) on its consultation
paper for the Unit Titles Amendment Bill.

REINZ is a membership organisation representing an industry of real estate professionals for over
one hundred years. REINZ has over 11,000 members specialising in all facets of the real estate arena.

The objectives and purpose of REINZ are to:

    (a) Promote and facilitate the quality, expertise and integrity of REINZ members in relation to
        the principles and practice of real estate;

    (b) Support, protect, represent, and promote the general interests of REINZ members in their
        real estate activities;

    (c) Consider, and represent REINZ members on all matters affecting the interests of REINZ
        members particularly the effects of legislation, regulations, rules of government,
        government agencies including crown entities, and local authorities;

    (d) Enhance the public awareness and reputation of REINZ members;

    (e) Undertake such commercial activities of benefit, interest and advantage for REINZ and its
        members; and

    (f) Manage and invest all the monies, property and assets of REINZ in a manner that is of
        benefit, interest and advantage for REINZ and its members.

There are ten different categories of membership to REINZ including Property Management Agency
member, Salesperson member and Associate member and the membership is further divided into
different groups according to their practice area and location. Three different sector groups of
Residential Property Management, Business Brokers, Auctioneers are each represented by their
Sector Group leaders and members are also represented by their District Forum Members and
Regional Directors within their region.

REINZ continues to represent a substantial majority of real estate professionals throughout the
country.

General Comment

As part of preparing the Unit Titles Amendment Bill, MBIE wishes to consult on its proposed
amendments to the Unit Titles Act 2010 which are aimed at dealing with minor and technical issues.
REINZ notes that proposed amendments which are not minor and technical are outside the scope of
the Unit Titles Amendment Bill as a full evaluation of the Act and its regulations will take place later
in the year to deal with more substantial amendments.

REINZ is generally in support of the amendments proposed in the MBIE’s consultation paper and its
consistent approach taken to provide better practical solutions to some of the technical problems
that unit title owners and their representatives are currently faced with under the Unit Titles Act
2010 (‘the Act’).

To date, the most common practical problems experienced by real estate agents with unit title
developments arise when dealing with a small complex with only a few unit owners without a
functioning body corporate. Reluctance to comply with the Act is evident in those cases due to the
associated compliance costs. This problem has become exacerbated since the Act came into force as
an increasing number of unit owners feel that it has now become more difficult to comply with the
Act and such reluctance to comply makes their property more unattractive for investment.

This submission will only deal with the areas that are anticipated to have direct impact on the real
estate professionals and their obligations to comply with the Real Estate Agents Act 2008 and the
related regulations.

1. Recording of layered unit title developments

Paragraph 6 of the consultation paper suggests that the supplementary record sheet for a unit title
development in a layered unit title development be required only to show the subsidiary unit title
developments immediately below it in the layered structure.

Although we can see that this amendment will not result in any loss of information as the structure
of the layered unit title development could still be ascertained by following the titles through the
layers, we are concerned that many can overlook the need to undertake further searches to obtain a
complete copy of the supplementary record to a certificate of unit title.

From the real estate point of view, this creates an increased risk for real estate agents to
unintentionally mislead purchasers by supplying incomplete copies of titles that do not show all of
the developments in a layered structure.

2. Insuring stand-alone units

This part of the consultation paper discusses the situations where the units in the development are
stand-alone units and the body corporate requires each unit owner to separately insure the
improvements within their own unit.

In addition to the proposal already made in the consultation paper, REINZ submits that the
amendment should go further to make it mandatory for such information to be included in the pre-
contract disclosure statement so that potential buyers of unit title properties can expect to have
their own insurance arranged at their own costs. REINZ considers that it is important for buyers to
be equipped with such knowledge before they enter into an agreement to purchase the unit.

3. Disclosure statements

MBIE proposes to introduce a contracting-out provision for pre-settlement and additional disclosure
statements so that parties can use this as an option where there is a short settlement period.

Whilst such amendment to the Act may provide some relief to the parties where a short-settlement
period interferes with complying with the current disclosure requirements, REINZ is concerned that
this option will be misused.

REINZ proposes that a better alternative is for the Act to require vendors to provide all the necessary
information at a pre-contract stage instead. This suggested method is justified considering that
buyers currently do not have any remedies prescribed under the Act if they are not happy with any
of the items contained in the disclosure statements.

REINZ believes that the best timing to equip buyers with the necessary knowledge about the unit is
before they enter into an agreement to purchase, not after.

Another question that arises from the MBIE’s proposal to allow contracting out is whether real
estate agents will then be expected to provide buyers with the information that would normally
have been provided under the current disclosure requirements.

Under the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2009, real estate
licensees are required not to withhold information that should in fairness be provided to a buyer.
After contracting-out, buyers can still choose to hold real estate agents liable for withholding
information that would normally be contained in a mandatory pre-settlement disclosure and this will
place agents in a difficult position.

The legislative intent with the Act was to provide a comprehensive disclosure regime for buyers, not
to diminish its effect. Therefore it is submitted that the timing of the provision of disclosure be
brought forward to a pre-contract stage rather than allowing sellers and buyers to agree not to
provide.

In respect of the MBIE’s proposed amendments to s205 of the Act, REINZ submits that there needs
to be a better clarity in the Act as to the service method required for providing pre-contract
disclosure statements. At an auction, for example, it is often not possible to individually serve the
statements on potential bidders especially when the auction is already underway. This is especially
so when the auction is undertaken outdoors on site and there are a lot more attendees at auction
than first expected by vendors and their agents. The Act needs to allow a practical method for
provision of these statements in such case and REINZ supports that one of the ways to achieve this
result is the current proposed amendment to s144.

4. Forms

REINZ submits that some amendments are also necessary to the Unit Titles Regulations 2011 which
prescribe the information that need to be contained in the disclosure statements.

In our opinion, the pre-contract disclosure statement does not currently provide adequate
information that the purchaser of a unit needs before committing to a purchase. In practice, real
estate agents often find that there is information known to the Body Corporate which is material to
the purchase but not disclosed in the disclosure statement because they fall outside the prescribed
list under the Regulations.

For example, restrictions or conditions imposed on the maximum term of occupancy of a unit in a
complex are not required to be noted in the disclosure statements. Often this is the information
that is not recorded on the certificates of title or LIM reports, making it difficult for buyers and
agents to discover it unless such knowledge is voluntarily shared by the Body Corporate or the unit
owners themselves.

Another common example is where the Body Corporate had entered into contracts with certain
entities and service providers which is an arrangement that a purchaser should, in fairness, know
about before committing to a purchase but is not required to be disclosed under the current regime.

A copy of the current Body Corporate rules should also be required to be attached to the pre-
contract disclosure statement.

Mandatory inclusion of the past Body Corporate minutes at a pre-contract stage would assist buyers
and agents to better identify any weathertightness issues that are existent or likely in the future.

REINZ submits that these amendments to the regulations are necessary even in absence of
any amendments to the corresponding part in the Act.

This submission has been prepared by REINZ’s Advisory Services. If you have any queries
regarding this submission please contact Nicole Song, the Advisory Services Manager, by
telephone (09) 356 1760 or email (nsong@reinz.co.nz).