Do you have an informal licence over a portion of common property located in a unit title development? Have you ever wondered if that licence is compliant with the requirements of the Unit Titles Act 2010 ("the Act")?
Licence situations often arise where somebody wishes to use a portion of common property for a particular purpose (eg to place a storage locker on).
The trouble is there are various requirements of the Act that need to be complied with in order to ensure that a licence is legally binding on existing, and future, owners of the principal units contained within the unit title development.
This article summarises the licence process under the Act, and highlights the risks of having a licence that doesn't comply with the provisions of the Act. This article is not to be construed as legal advice. If you would like to discuss the licence procedure in more detail please contact us.
1. There are two things to bear in mind at the outset:
- Firstly, all owners of the principal units in a unit title development together comprise the body corporate, and the body corporate owns, and is responsible for, any common property that forms part of a unit title development.
- Secondly, the binding nature of informal licences (ie those that are not entered into in accordance with the provisions of the Act) is questionable. It is impossible to provide a blanket statement as to the general binding nature of informal licences (primarily because almost every informal licence will be entered into on different terms) but it is safe to say that the majority of informal licences, if entered into without legal advice, are unlikely to comply with the legal requirements of the Act. If this is the case such licences are unlikely to bind existing members of the body corporate, and even more unlikely to bind future purchasers.
2. Before a licence can be granted pursuant to the terms of the Act, the body corporate must go through the process of formally approving the licence. This approval process is undertaken, primarily, in accordance with Section 56 of the Act. There is often a misunderstanding as to the "level" of approval that is required (some clients believe there is only 75% approval required; others believe 100% approval is required). The approval process can be summarised as follows:
- The body corporate must pass a special resolution (75%) approving the granting of a licence over the common property. This resolution is also deemed to be a designated resolution pursuant to the terms of the Act. The way the resolution is worded is critical (poorly worded resolutions can be deemed invalid even if technically passed) and the resolution should be accompanied by a proposed contract or agreement (this can be prepared by the members of the body corporate or the body corporate manager, but legal advice is always recommended).
- Please note that if there is the existence of a subsidiary body corporate then it too must go through a specific special resolution process (this is not spelled out in this article; if you have a subsidiary body corporate or believe you may have a subsidiary body corporate then please contact us to discuss the relevant approval process).
- Once the special resolution has been passed, the body corporate must, in order to comply with the designated resolution procedure, serve a written notice on every unit owner and on every party that has a registered interest in any unit (this includes all of the unit owners, any mortgagees, and any other person with a claim, caveat or interest registered over any of the titles for the unit/s). In order to be considered validly served, the serving must be undertaken strictly in accordance with the requirements of the Act.
- All parties have 28 days from the date of being served to give written notice, in the prescribed form, objecting to the resolution.
- A party is deemed to have accepted the resolution if they do not object within the 28 day time frame.
- If an objection is made, the appropriate decision maker must hear the objection and make an order. The appropriate decision maker as determined by the Act means the Tribunal or the Court if the matter is a dispute under the disputes, cancellation and conversion provisions in Part 4 of the Act. The Tenancy Tribunal can hear and determine disputes arising between a range of people including unit owners and body corporates. Raising a claim with the Tenancy Tribunal does not prevent the claimant making a claim in the District Court or High Court depending on the circumstances. Under the Act, the decision maker can make any order it thinks appropriate, including confirming the resolution, overturning the resolution, requiring compensation to be paid, or granting an injunction. These orders can be subject to any terms or conditions the decision maker thinks fit.
- If no objection is made, or after hearing an objection, the resolution is confirmed, the body corporate is then required to lodge a certificate confirming the same with Land Information New Zealand (this will be lodged together with the relevant licence documentation). This results in the licence and designated resolution certificate being registered on the supplementary record sheet of the body corporate (and this registration results in the terms of the licence being legally binding on the body corporate).
3. There are a couple of other important issues to consider:
- Unless a body corporate resolves otherwise, any proceeds obtained as a result of a licence, must be distributed to the unit owners proportional to their ownership interest at the time the licence was entered into. We note the body corporate has the power under the Act to offset these funds against an owners current or future levies payable in respect of their principal unit, if the relevant owner agrees to the same.
- If for any reason, in order to achieve the practical result of a licence, part of the common property is required to be transferred (ie sold) to a unit owner (or any third party) then the licence process outlined in this article would not apply; you would be looking at a different process altogether. We are happy to discuss this process with you and advise in this regard.
- Legal costs: It is very difficult to provide an estimate as to the legal costs involved, primarily because they can differ tremendously depending on the number of units in the unit title development, the number of parties that are required to be served, whether any objections are made, and the process required to hear any such objections. We appreciate this is frustrating, and what might be considered to be a typical lawyers response, but rest assured we discuss the legal costs with each client on a case by case basis
Please kindly direct any enquiries to Brandon Cullen on (09) 966 3609 (email@example.com)
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© McVeagh Fleming 2014
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.