One of the major changes introduced by the New Act is a mandatory disclosure regime. This disclosure regime cannot be contracted out of and changes the obligations of sellers when units are sold.
The regime aims to encourage the proper administration of body corporates and provides for a greater degree of transparency.
It is through this transparency that the regime aims to protect purchasers by ensuring that they are more informed about what they are buying in to and are not struck by surprise costs after purchasing a unit. The regime is therefore a form of consumer protection.
Because the regime is focused on protecting consumers, a purchaser is entitled to rely on the information provided to them by the vendor, and the vendor will be responsible for ensuring that the information contained in each disclosure statement is correct.
The New Act envisages that the market will assist in promoting the proper administration of body corporates as it is anticipated that purchasers are likely to place a premium on a properly administered body corporate with healthy accounts and a robust maintenance plan. We will have to wait and see if this is the outcome.
Under the Act, a vendor must provide a number of disclosure statements, all of which must be dated and signed by the vendor, contain the prescribed information and be in the correct form.
Below is a summary of the disclosure statements a vendor will need to provide when selling their unit.
Pre-Contract Disclosure Statement
Before an agreement for sale and purchase is signed, a vendor must provide a pre-contract disclosure statement to any potential purchaser (this may include prospective buyers in an auction scenario).
This disclosure statement defines some of the basic terms that relate to a unit title development, such as body corporate rules and unit title property ownership, and provides general information in relation to the specific unit.
The pre-contract disclosure statement sets out matters including:
the amount of contribution levied by the body corporate in respect of the unit;
an estimate of the next body corporate levy;
details of the maintenance the body corporate intends to carry out over the next 12 months;
the details of all bank accounts held by the body corporate (including the balance of those accounts); and
an estimate of the cost for providing an additional disclosure statement.
This statement must be in the form prescribed in the Unit Titles Regulations 2011.
Pre-Settlement Disclosure Statement
Once a vendor has entered into an agreement for sale and purchase they must provide the purchaser with a pre settlement disclosure statement.
This statement must be given to a purchaser no later than five working days before settlement and must be accompanied by a certificate. This certificate must be signed by a person authorised by the body corporate, such as the Chairperson or property manager, and will certify that the contents of the statement are correct.
This statement includes information such as:
the manner of payment of levies;
whether there are any outstanding levies;
whether there are any legal proceedings pending against the body corporate; and
whether there have been any changes to the body corporate rules since the pre-contract or additional disclosure statements were provided to the purchaser.
Interestingly, the Regulations do not require details of insurance held by the body corporate to be contained in this statement; a matter of high importance to any purchaser in light of the recent string of natural disasters and leaky homes issues.
However, the latest edition of the Auckland District Law Society Agreement for Sale and Purchase does remediate this gap by requiring a vendor to provide a copy of all insurance policies or certificates effect by the body corporate to the purchaser not less than five working days before settlement.
Additional Disclosure Statement
A purchaser can request an additional disclosure statement before the earliest of the fifth working day after signing the agreement for sale and purchase or the tenth working day before settlement.
This statement includes information such as:
details of insurance contracts (the vendor is obliged under the latest edition of the Auckland District Law Society Agreement for Sale and Purchase to provide these details);
regular expenses incurred at least once a year;
the text of motions voted on at the last general meeting; and
whether each motion was passed or not and a summary of the long term maintenance plan.
The vendor must produce this statement no later than five working days after receiving a request but the cost of the preparation of this statement will be payable by the purchaser.
This information will be of value to any purchaser. We would generally recommend that an additional disclosure statement be obtained so that the purchaser is well aware of the costs associated with the unit before settlement.
Consequence of Non-Disclosure
The Act does not impose a penalty for a failure to produce a pre-contract disclosure statement to a purchaser. However, this will not bar the purchaser from seeking relief under alternative claims of action, for example misrepresentation.
If a vendor fails to give the purchaser a pre-settlement or additional disclosure statement within the prescribed time frame a purchaser choose to either:
postpone settlement; or
give 10 days' notice in writing to the vendor to cancel the agreement.
Curiously, the vendor is not given an ability under the Act to remedy their default within this 10 day period.
Also, a purchaser cannot cancel the agreement or postpone settlement if they are simply unhappy with the information contained in any the disclosure statement.
Obtaining the Information
While a vendor is under an obligation to provide these disclosure statements, much of the information contained in them will come from the body corporate.
A vendor must therefore request the information from the body corporate early enough to allow them sufficient time to prepare and deliver these disclosure statements within the prescribed time frames and must be satisfied that the information provided by the body corporate is correct.
Whether a vendor is selling a unit in a multi-storey apartment block or a unit in a small unit title development, the disclosure regime requirements and the potentially serious ramifications of non-compliance are the same. It is therefore important that a vendor looking to sell their unit does seek legal advice to ensure that they provide the correct information to the right people within the time frames to ensure the smooth sale of their unit.