Unit title developers, owners and body corporate managers in the ACT face new compliance obligations following recent changes to the territory's Unit Titles Act. The amending legislation, which was passed by the Legislative Assembly on 26 August, intends to address a number of issues in relation to the purchase of home units as well as provide further protection for consumers.
Key legislative changes include:
For new unit developments
- the requirement that sales contracts for units in new developments include extensive disclosure materials;
- a statutory right of buyers to terminate a contract for sale of a unit in a new development if the disclosure materials are incomplete or inaccurate;
- a statutory warranty provided by the seller of a unit in a new development, that the disclosure materials are complete and accurate; and
- restrictions on decisions by owners corporations during the 'developer control period'.
For sales of all units
- a number of implied warranties taken to be a part of a contract for the sale of a unit; and
- a statutory right of a unit buyer to terminate a contract if there would be a breach of an implied warranty at completion.
For management of unit complexes
- owners corporations of unit plans with 4 or more units establish, maintain and review a 10 year sinking fund plan;
- defined functions and delegations of the owners corporation manager;
- defined roles and responsibilities of the executive committee and executive committee members of an owners corporation;
- changes to the activities that the owners corporations may engage in, and to the types of resolutions required for a decision by owners corporations;
- appointment of a communications officer to assist an owners corporation to manage communications within the unit complex with 7 or more units;
- owners corporation to meet obligations when entering and managing service and maintenance contracts;
- requirements for the conduct of legal matters by the owners corporation;
- that an owners corporation must not unreasonably withhold consent for the keeping of an animal by the unit owner or occupier, but must not give consent during the developer control period; and
- provisions relating to dispute resolution by the ACT Civil and Administrative Tribunal (ACAT).
With the exception of sections dealing with ACAT, the amendments will take effect on the earlier of a day fixed by written notice of the Minister or 10 September 2009.
It has been suggested by the relevant ACT government department that the proposed changes will take effect from 31 March 2009.
The amendments that require the involvement of or applications to ACAT will take effect at a later date.
Outlined below is a more detailed overview of the significant amendments which we believe will impact unit title developments and owners corporations.
Developer's disclosure requirements and warranties for off-the-plan unit sales
Division 3.4 of the Act requires that the contract for sale of a unit in a units plan that has not yet been registered must include:
- the proposed articles of the owners corporation;
- details of any contract that the developer intends the owners corporation to enter into, including
- the amount of the buyer's contribution to the corporation's general funds that will be used to service the contract; and
- any personal or business relationship with another party to the contract;
- an estimate, calculated by the developer, of the buyer's contributions to the owners corporation's general funds for two years after the units plan is registered;
- details of any reservation of the right to keep animals, including type and number; and
- if the development will be staged, the proposed development statement.
When entering into the contract, the developer will in effect warrant that the information disclosed is accurate. If the developer's disclosure is incomplete or inaccurate and the buyer is significantly prejudiced because of this, the buyer may cancel the contract before completion by written notice to the developer. The new disclosure regime may cause difficulties for some developers to ensure estimates are as accurate as possible. It may also mean financiers are more cautious when lending funds for unit developments if buyers have greater rights to terminate contracts.
Developer control period
Section 46A (Restriction on owners corporation during developer control period) deals with restrictions on an owners corporation during a developer control period. The developer control period starts on the day the units plan is registered, and ends on the day when at least one third of the units (in the registered units plan) are owned by persons other than the developer.
Significantly, an owners corporation must not enter into any form of contract unless the contract is:
- disclosed in each contract for sale; and
- the contract is:
- for less than two years; or
- authorised by ACAT.
The articles of the owners corporation also cannot be changed during the developer control period. This means that developers will need to be organised when undertaking off–the-plan sales and ensure proposed contracts and articles are prepared well in advance. Time will tell how easy it is for developers to obtain approval from ACAT for longer contracts.
Section 115A of the Act outlines that if the contract for the sale of a unit appoints a developer as a proxy for the owners corporation, a proxy disclosure statement must be included in the contract, detailing the name or position of the person appointed, the length of the appointment and sufficient information on the development.
The developer must not exercise three or more proxy votes on a matter at a general meeting of an owners corporation and can only use the proxy in a development matter.
Implied warranties that will be made by sellers of units
Part 7A of the Act means the following seller's warranties will be implied into contracts for the sale of a unit:
- to the seller's knowledge, there are no unfunded latent or patent defects in the common property or the owners corporation assets other than those arising through fair wear and tear or disclosed in the contract for sale, and that the owners corporation records do not disclose any such defects;
- to the seller's knowledge, there are no actual, contingent or expected unfunded liabilities of the owners corporation that are not part of the corporation's normal operating expenses, other than liabilities disclosed in the contract; and
- there are no circumstances (other than as disclosed in the contract for sale) in relation to the affairs of the owners corporation that are likely to materially prejudice the buyer.
The warranties are not restricted to actual knowledge of the above but also include matters the seller ought reasonably to have knowledge of. If the seller breaches any of the implied warranties listed, before the contract is completed, the buyer is entitled to cancel the contract by written notice to the seller. In practice this means sellers will need to have greater reliance on owners corporations minutes or be more involved in the management of owners corporations to ensure that adequate disclosures are made in contracts for sale.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.