A question to mull over before thinking about buying into an apartment building or complex of townhouses is this: are you a body corporate kind of person?
Can you abide by a set of rules laid down by others which govern how you live?
If so, go ahead with the next exploratory steps – if not, perhaps stay away, says Joanna Pidgeon of Pidgeon Law in Auckland.
Body corporates are not for everyone but they are on the rise as apartments and complex living increases with the intensification of our cities.
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They are made up of all the owners in the building or complex who pay anything from a thousand or so dollars to many thousands of dollars annually – and council rates are generally on top of that.
The owners elect a committee and a chair, and most body corporates will appoint a professional manager from outside to run the administration side.
The body corporate will rule on all sorts of things, big and small. Can you have a pet? Can you hang your washing on the balcony? Does the roof need replacing? Should the annual fees go up?
Need for due diligence
Although a great way to break into the housing market, a clear message emerges from the experts – do your due diligence to a high level.
While there can be advantages to signing up to this way of living, there can be hidden costs and fish hooks.
John Gray of Hobanz, the Home Owners and Buyers Association which emerged out of the leaky building crisis, sees the disasters and says people need to understand the sort of relationship they are entering into, where decisions are made collectively by the body corporate regarding maintenance, repairs and more.
“If people don’t understand that, often confusion, anger and resentment arises when they’re told they can’t put a butterfly on their front door or change the colour scheme in some way.”
Hobanz deals with problems “left, right and centre” where people have not carried out their due diligence, and he also warns due diligence can be difficult to carry out.
A building report on the unit you are buying is advised but he says you also need to know how the whole complex is performing.
Pidgeon agrees due diligence is vital, to both assess the current state of affairs and to see what future costs there might be.
You need to view past minutes from the committee meetings and look at the long term maintenance plan – has the body corporate set aside money for maintenance or will there need to be levies made to pay for those works?
Go over the minutes
You can learn a lot from the minutes, she says. They might reveal if there have been leaky issues or whether there are issues around any owners not being able to pay their levies, because that can impact you financially.
“If you have insolvent owners you might need to be levied to cover a shortfall while the body corporate pursues those owners for payment.”
That can be expensive if there is a big project of repairs on the table.
The minutes also reveal the dynamics of how the building operates.
“Does everyone get on? Are there disputes or issues between different owners that might spill over into the management of the body corporate.”
You are buying into a community, not just a building, so think about the implications of that, Pidgeon says.
“For some people, they like to be able to make all their decisions rather than being part of a democracy where majority rules so I think you’ve got to make that determination about whether you are the right person to live in closer contact in a community rather than, you know, your house is your castle.”
She points out there can be fish hooks with the purchase of any property. You need to have a rainy day fund for repairs on a traditional house, too, although the difference is you can sit on the fence longer with a freehold property than with a body corporate.
Upsides to rules
The biggest issue Pidgeon sees with body corporate properties are people who haven’t carried out proper due diligence before they go in only to discover there is a latent defect or issue they were not aware of which has meant they have had to contribute to a big remediation project.
And she says to question body corporates with very low fees to make sure you are not inheriting deferred maintenance.
There are upsides, however, says Pidgeon, who lives in a body corporate situation herself.
Rules are necessary and ones like not having your washing on the balcony mean you don’t have to watch other people’s smalls dry while you’re having a barbecue.
There are likely to be rules around noise so your peace and enjoyment is not impacted, whereas in a house in a neighbourhood this is harder to control.
If people in your complex are being threatening there may be steps you can take with the Tenancy Tribunal.
“There’s probably more that you can take in a body corporate than you can if they are living next door.”
And if a pet is important to you, Pidgeon suggests you add a condition the body corporate consents to your having one.
Even John Gray is not against body corporates – some can be well run with owners who are proactive about maintenance, he says.
It’s just in his experience not many are and when people are caught out they can lose out big time financially.
More and more people are coming to Hobanz for help when it’s too late, he says: “You need to be very aware of what you are buying.”
