What is a Body Corporate?

How does the Unit Titles Bill 2008 and the Unit Titles Act 2010 affect bodies corporate?

Because of the increased controls on the development of property by legislation by the Government, the administration of a body corporate has become more complicated. As a result of the pressures imposed by ARC seeking a review of the Unit Titles Act, the problems associated with the Leaky building Syndrome and the review of the activities of the Building Industry Authority, the government reviewed the Unit Titles Act 1972. It was reviewed that this Act did not offer a satisfactory procedure for resolving disputes. It proposed that a central government agency should expand its services to include a dispute resolution service for unit title matters.

This brought about the introduction of the Unit Titles Bill 2008. This had extensive public submissions and members of the Select Committee heard from representatives if a wide spectrum of legal professionals, authorities and organisations such as Strata. The Unit Titles Bill 2008 was extensively reworked and became the Unit Titles Act 2010. Some changes that the Act includes widening the purposes of the previous Act so that it includes reference to an efficient and effective financial regime; clarifying rules and responsibilities for management and decision making within a body corporate; and flexibility of a body corporate’s operational rules. However the Act does not come into effect until June 2011 as the Regulations to the Act have to be passed.

What are the changes that your body corporate needs to be aware of?

The commencement of the Unit Titles Act 2010 will bring with it a change in the way your body corporate is administered and in the way your property is maintained. Some of the changes in the management of your body corporate include:

- new terminology where “ownership interests” will replace “unit entitlements”;
- the Tenancy Tribunal will hear mist disputes;
- the financial regime of a body corporate will be different; and
- a body corporate must have a long term maintenance plan which will be funded by a long term maintenance fund

Some of the changes which will affect your unit or your body corporate:

Overseas owners of units: overseas owners must appoint a New Zealand based owner’s agent. The agent has the power to enforce the body corporate’s operational rules on the occupant of the unit.
Long-term maintenance plan: A long term maintenance plan must be established and maintained. This identifies future maintenance requirements, estimates costs involved, provide a basis for levying owners, and provide ongoing guidance to the body corporate.

Long-term maintenance fund: A long term maintenance fund must be established. These funds can only be spent if the items are set out in the long term maintenance plan.

Utility interest and ownership interest: An ownership interest (formally known as a “unit entitlement” under the Unit Titles Act 1972) is based on the relative value of units in the body corporate. It is used to determine the beneficial interest and the voting rights of an owner of a principal unit

Financial statements: A body corporate must keep accounting records to correctly record and explain the transactions of the body corporate and enable the financial statements of the body corporate to be readily and properly audited or reviewed.

The first annual general meeting of your body corporate under the Unit Titles Act 2010 must consider:

- if its existing body corporate rules will continue in force for the transitional period of 15 months or if the body corporate agrees by special resolution that it should have new rules;

- the assessment of ownership and utility interests;

- the adoption of a long-term maintenance plan and a long-term maintenance fund;
- the composition of the body corporate committee;
- the powers and duties that should be delegated to the body corporate’s committee or to the
body corporate’s secretary;
- what sort of auditing or accounting oversight the body corporate wants for its financial statements;
- the appointment of a chairperson for your body corporate.

How is a body corporate Trust accounting system structured?

The trust accounting system consists of a Trust Account, Accounting Software, Transaction Handling, Accounting reporting, Internal Controls and External Control. Each one is outlined below:

Trust Account

Strata operates a Trust account via the ASB Bank. They have instant access to online bank statements via the ASB’s Fastnet internet site which allows monitoring of all transactions as well as to make timely payments to service providers.

Accounting software

StrataMaster if a specialist body corporate software used by Strata which records all transactions, reconciles body corporate balances with the Trust account and integrates other body corporate data such as the ownership register. The software also produces transaction and ledger reports to facilitate the production of statements of receipts and payments which are distributed to proprietors with the agenda for each Annual General Meeting (AGM).

Transaction handling

Levies are received and processed daily, as are payments to body corporate suppliers and service providers. These are the share each proprietor pays towards the body corporate annual budget. All relevant information is recorded in StrataMaster and source documents are filed and kept for auditing purposes.

Accounting reporting

The statement of Receipts and Payments produced for the Annual General Meeting details all funds received and payments made. All invoices are kept on individual body corporate files for easy retrieval and audit.

Internal Controls

All invoices are first authorised for payment by a body corporate manager before passing on to accounts staff for processing via StratMaster. EFT (Fastnet) batches are then carefully checked before being authorised via Fastnet. Cheques are checked against a source document before being signed and posted. A minimum of three staff members are involved in processing these payments.

External Control: Auditing

The Trust account is fully reconciled twice a week and a hard copy record of the reconciliation is kept on file. Staff are guided by Strata’s Office Procedures manual and a StrataMaster manual to provide consistent procedures. Strata’s Trust Account is audited once every two months by Battley and Johnson. Audit certificates are issued every two months which state that proper accounting records have been kept. The most recent audit certificate is attached to the AGM agenda.

Why should you use an independent secretary to administer the body corporate?

Using an independent secretary such as Strata to administer the body corporate ensures the structure of the body corporate is maintained in accordance with rules and the Unit Titles Act. It also provides a platform for all proprietors to have an equal voice in affairs.

How does Strata function as secretary to a body corporate?

Strata invests significantly in training and education for staff to ensure everyone is well versed in the Unit Titles Act and the intricacies of body corporate finances and management. As secretary to the body corporate, Strata has the authority to assist the body corporate to control, manage and administer the common property and to exercise and perform some of the powers and duties of the body corporate. As a result, Strata can deal directly with professional bodies such as valuers and solicitors on behalf of the body corporate.

Strata charges an annual fee per unit for its duties. Some of these include giving notice of, and holding the annual general meeting, prepare a draft budget covering expenses for the body corporate and to levy members and pay accounts. Any additional work is charged on a “time and attendance” basis, for example preparing minutes of the AGM, travel, postage and other such expenses.

How are financial affairs of a body corporate organised?

Financial affairs of multi-unit complexes have become more complicated with the increase of size and complexity of bodies corporate. Strata employs an in-house chartered accountant, chartered secretary and qualified accounts staff. Anybody corporate with levies in excess of $60,000 must be registered under the provisions of the Goods and Services Tax Act. Strata organises any GST returns for the body corporate and an independent accountant files the annual tax return. A consulting engineer is often employed when a significant sum is spent on long term maintenance or those which are required to have a “Warrant of Fitness.” They assist in making sure the building is safe, sanitary and complies with the provisions of the Building, Health and Safety in Employment, and the Resource Management Act.