Appeal of shared living brings challenges of looking after common property
By David Gibbons – Crombie Lockwood Branch Director Christchurch
OPINION: As demand for space and house prices continue to rise across the major centres apartment living is proving to be increasingly popular.
While there are many benefits to shared space living options there are also some challenges.
For example, there can be unexpected costs for maintenance of property in common areas or to cover uninsured losses that need funding. Decision-making is by committee, which is also not always plain sailing.
A body corporate is a legal entity created when land is subdivided and registered to establish a unit titles scheme. Every owner of a flat or lot held under a unit title automatically belongs to it.
A body corporate can be any building comprising multiple, individually-owned units such as apartment buildings containing residential dwelling units, commercial buildings, or buildings containing a combination of commercial units and residential dwelling units.
The body corporate manages the insurance for body corporate property and maintenance of the common areas on behalf of the owners.
Apartment owners can pay anything from a few hundred to tens of thousands a years in body corporate fees.
Body corporate insurance requires that the property must be insured under one policy under the name of the body corporate. This means that except where the Unit Titles Act allows, individual owners cannot insure their unit themselves but will need to arrange their own contents insurance separately.
The property must also be insured to their full insurable value at all times. This usually means that insurance valuations are obtained each year to make sure that the value the property is insured for is sufficient.
Where the property is not adequately insured this can become a major problem for the body corporate members, and valuations are the key.
If an apartment building is valued at $15 million dollars, but will cost $20m to rebuild then in the event of a catastrophic event like the 2011 earthquake there is going to be a shortfall in the amount available to rebuild or repair.
Doing due diligence on the valuer you use is also important. Make sure you check that the valuer has experience in assessing body corporates for insurance purposes.
They need to communicate clearly on the respective rights and responsibilities of the members and in particular their responsibility to separately insure their own property.
Another challenging issue in the event of a major incident is assessing the damage from unit to unit and managing the claim with so many people involved. If the damage is deemed to be uneconomic to repair then all owners need to agree on the way forward. Damage may vary quite widely from unit to unit and some owners may dispute how the insurance proceeds are allocated.
Determining who owns what property and what values are attributed to it can be difficult at claims time. For example, in a small apartment building with a gym or exercise room the body corporate may own the equipment.
Making decisions by committee is potentially fraught with the danger of delay. In one case, some body corporate members wanted a building retrofitted with a sprinkler system and have earthquake strengthening, while other members didn't or couldn't afford to.
Even after an insurance settlement is distributed, the owners still have to work together. That is even the case after a building is demolished, because the title to the land is still based on the physical boundaries of the former units.
So unless the units are being rebuilt exactly as they were, the owners must agree either to the cancellation of the unit plan or the completion of a new redevelopment plan.
Post-earthquakes the claims settlement process for body corporates has proven to be really challenging but that practical experience has helped us provide better advice to our clients.
If you own a unit title property, or are planning to purchase one we recommend seeking advice from an insurance specialist so that you understand your position.
Source: http://www.stuff.co.nz/business/opinion-analysis/73864985/Appeal-of-shared-living-brings-challenges-of-looking-after-common-property