I’m going to say ‘body corporate’ and ‘bodies corporate’ a lot below, so let’s shorten it to ‘BC’ and ‘BCs’ right off the bat.
BCs often get a bad rap in New Zealand. They can be seen as expensive, unwieldy, unaccountable, or stopping you from doing what you want with your property. As a result, some people are a bit afraid of them, or just want to steer clear of homes that are part of a BC.
Still, there are tens of thousands of homes across New Zealand which are part of a BC. And there are going to be a lot more in the future. Auckland needs 300,000-400,000 more homes in the next 30 years, and up to half of them could be part of a BC too. So it’s good to know a little bit about BCs, especially if you think you might like to buy a home in Auckland in the next few decades.
What is a body corporate?
First, what are they? A body corporate is a legal structure, like a company or charity. When you’ve got multiple homes or units on a single piece of land, a BC is usually the way to go. BCs are governed by the Unit Titles Act 2010, which started to get reviewed under the previous National government but then got shelved under the current one; hopefully it will be revisited sometime soon, as the aim is to make the system work better for everyone.
A body corporate is made up of all the unit owners. That’s right: if you own a unit in a block of apartments or terraces, you’re part of the big bad body corp, and together with all your neighbours you are the big bad body corp. Pretty simple, really.
Generally people get one vote per unit, whereas costs normally get allocated based on the size of the unit (i.e. a 3-bedroom apartment pays more than a 1-bedroom apartment in the same building).
What’s the time Mr Wolf?
How much do body corporate fees cost?
Based on the reliable metric of Herald article comments, one of the things people are most wary of with BCs is the cost, so I want to expand on this a bit. Body corporate levies can range substantially. Things like common facilities (gyms, pools, tennis courts, etc), the building’s age and condition, and the level of services can all affect the cost.
Here’s an example of BC levies, for a 14-year old building in the city centre with 100+ units (and no common facilities). The average levy is $3635 per unit. The key point here is that many of these costs are things you’d have to pay for yourself in a detached house; in a BC situation, they instead get packaged up in the body corp fee:
|Item||Price per unit|
|Long Term Maintenance Fund||$900|
|Common Area Electricity||$400|
|Passenger Lift Maintenance||$100|
|Repairs & Maintenance||$90|
|Window & Exterior Cleaning||$75|
|Fire Alarm/Sprinkler Testing||$60|
If you have your own house, you pay your own insurance for the building. In a BC situation, the BC takes out insurance for the whole building and recovers that cost through levies. If there’s a fire, or someone crashes a car into the building, the BC’s insurance will deal with it.
The Long Term Maintenance Fund is another important one. BCs have to plan for long term maintenance of the building – things like repainting, replacing the roof every 20 years or so, etc. Ideally, the BC will build up this fund over time, so that when it’s time to carry out the maintenance, there’s already enough money in the kitty. Again, this is something you’d have to take care of yourself in a house (and likewise Repairs & Maintenance).
Some of these things you’d probably just take care of yourself in a house – e.g. doing your own cleaning – and you also wouldn’t have any Building Manager or Secretarial costs of course. Still, looking at the costs above, probably less than half of the $3,115 levy is ‘additional’ cost compared to what you would have in a house.
Side note: this body corp also pays about $200 per unit for rubbish and recycling collection through a private provider – but also means it doesn’t pay the council’s ‘targeted rates’ for rubbish. I haven’t shown the costs in the table above, since that part of the BC fee essentially cancels out with the lower rates bill.
Overall: being part of a BC is a little more expensive, but not drastically so. And much of the ‘additional’ cost is just because you’re outsourcing cleaning, landscaping, etc, and avoiding the hassle of doing it yourself.
Lastly, out of all the guff I’ve read on bodies corporate, probably the best basic intro I’ve seen is this one from Crockers on the Ockham Residential website. Have a read of that and don’t be afraid of the big bad body corp.
The problem is you can’t control the timing of your costs. If you own a house you can delay work until you have saved up the cash or you can reduce the scope of work to match your budget. With a BC they send you a bill and you have to pay the amount they say when they say it.
The real issue is that different owners have different goals. The short term owners will be trying to reduce all costs and defer everything they can for later owners to pay for. The long term owners will be trying to build the capital maintenance fund. The real fund begins as the building gets old. Suddenly the $100 per year for the lift turns into a bill for a new lift. Redevelopment of a site is almost impossible with multiple owners so you will be faced with increasing costs just to keep what you have. I was going to say people should avoid them like the plague. But as a recent tweet noted, it turns out humans don’t actually do that.
The new requirements around the long term maintenance funds are, in theory at least, supposed to resolve that issue. The fund needs A maintenance plan than takes into account renewal of major items like the lift and roof and whatever, and a budget to ensure there is money to pay for them when the time comes.
In theory all you need are some common interests or objectives. But someone living in the top apartment will value the roof higher than someone living in the bottom apartment. Do you replace it at a particular age? When it looks old? Wait until the first leak? When the cost of repairing lots of leaks gets too high? With a house you can decide all of that for yourself and you can take into account your budget constraint and timing of income or ability to finance it.
That’s the point of a long term maintenance plan, you don’t leave it until the last minute waiting for leaks and you don’t leave it up to individual owners to lobby for particular items.
it’s a ten year outlook by requirement of the legislation, and reviewed annually. These do take into budget constraints and ability to finance. One of my bodies corporate has reduced LTMP contributions for three years on account of we’ve just completed and paid for a round of major renewals, however our roof is in better condition that scheduled in that round so we are pushing back that replacement for another five years.
So to answer your question succinctly, It gets scheduled for replacement at a particular age, and the schedule is reviewed every year. Personally, I’m quite comfortable paying my 1/37th of the annual maintenance review from a professional to know what foreseeable future will hold, than waiting for some nasty surprise next time the roof starts to leak or the lights flicker.
I don’t get the problem here. With a properly run BC, you have certainty as to what your outgoings will be every year, as there’s community pressure not to have wild fluctuations in levies from year to year. You also take care to ensure you take the path that will even out BC expenses to the greatest extent possible and not lead to wild fluctuations in expenses. Sure, there is money sitting in the maintenance fund that you contributed (waiting for that big-ticket item that can’t wait), but don’t have control of, but it’s not lost to you. Properties with solid maintenance funds tend to be more highly valued by the market than those who have neglected them. There’s still debate about whether to replace the roof/elevator/whatever this year or next and you make a pragmatic collective decision based on what you consider the best interests of the building, not what the person on the top floor thinks.
I guess that’s Miffy’s problem, he expects/assumes body corp committees are always inept. Well not the ones I’m on 😉
If you are replacing things by age rather than by performance then by definition you are wasting money and resources. If it is parts for an aircraft then it makes sense. Most people don’t do that with their house. They do some repairs first, save some money or arrange a loan and then reroof or reclad when it makes sense to based on need and their ability to pay. BC’s only take the first one into account and even then only broadly. If you can predict a leak then you are very impressive indeed. Particularly given that most leaks occur in parts you can’t actually inspect. But if everyone knows before signing up to a BC that work is going to be done before it is needed and sometimes well before it is needed then they have at least given an informed consent prior to the BC dipping its hand into everyone’s pocket. For those of us who don’t like that idea we stay well clear of any investment with a BC involved.
I guess you have to hope you are no longer involved as the building gets closer to the end of its economic life. But some group of suckers will be.
Not replacing by age Miffy, it’s budgeting for them based on their expected life and replacing them when they need replacing. The building gets reviewed every year and the forward maintenance plan updated accordingly.
Did you not see my comment right above about how we had budgeted to replace our roof this year but the inspector said it has about five years left, so we’ve left the money in the fund for now and reduced the payments accordingly?
Which is exactly the right way to treat a commercial property. But it isn’t how most home owners treat their house. Most homeowners want to extract more value from their home through fixing things to extend their life space and delaying major expenditure until it suits their ability to pay. In a BC those aspects are gone. It is why people with a traditional view of home ownership are never a good fit with a BC structure. My house will need a new roof some time in the next 15 years. I will probably do it a couple of years before I retire regardless of its condition. I can time my expenditure to suit my circumstances. If it fails earlier I will fix the first leak and get it done the following summer. Not having a BC means I can choose. BC’s have to act in a commercial manner, but most of us prefer to treat our house as personal property. There is quite a difference.
I think this is how BCs can end up being cheaper. Delaying maintenance can lead to stupid extra costs. Often hidden because people just include it in a “renovation”.
I know single women who love their BC because they get to enjoy the economies of scale and someone else doing all the organising.
Miffy, that’s a valid point for owner-occupiers, but a decent share of BC properties are owned by investors; up to 80% for CBD apartments.
Frankly, I’d want all investors to treat all their properties as if they were commercial properties. That they don’t is the cause of many of our housing quality issues. Not that it’s always the landlords’ fault, they’re responding to the incentives they face in the NZ market which are to focus on capital gain. The housing shortage didn’t help either, or the lack of knowledge among the public and even practitioners around what constitutes a good-quality home.
John as an economist I am sure you will understand my complaint about the budget constraint. Efficient choices take the budget constraint into account. A BC doesn’t have to do that as they can dip into the owners pockets. If you are already heavily leveraged that can occur at a really bad time. The whole system seems to work well when costs are low but look at examples where costs were huge like some of the leaky buildings. There were cases where owners had quite different objectives and values. It matters when expenses and capital improvement (or reduction) become blurred. For example the apartments in Orewa where the best option for fixing them was to remove the decks. A single owner could have optimised but a BC never could.
I am really afraid. My experience with Princeton apartment from 2003 to 2021 has been nightmarish.
Having been involved in multiple body corps, the obvious benefits are the ability to plan for longer term costs (though it has required legislative changes to ensure this happens – I’ve seen multiple buildings in VERY dire financial straits leaving the bill with current owners, while the ones who sold after contributing nothing for years got their tax-free profits and ran) and smooth them out and provide a level of political clout at a very local level.
On the downside, the committees tend to be older, whiter, extremely neoliberal, focused on short term cost reductions and a pathological fear/hatred of renters. Renters end up being excluded in communications, any community functions, lack of voice in the function of the building and constant breaches of their privacy (as per the Privacy Act) used to provide information to landlords that could only ever be used (illegally) evict them. Renters are scum, druggies/meth cooks, lazy dropkicks to them, no matter how high the rent is.
That applies to mostly owner occupied, but I know that ‘renter’ type buildings have their BCs taken over by small groups leveraging the proxy votes of overseas owners. This power is used to reduce maintenance costs and improve rental returns, turning a community into an asset that will be squeezed for every cent, driving out the people who want exactly that community, contributing to the downward spiral.
We are moving a new home with a shared laneway that has its own small BC. This is no issue, but economically it’s poor value – around 75% of the contributions are going to a property management company to do nothing but pay the rates (which are not included in that 75%) once a year. The scalability of this management seems poor.
If I could change one thing it would be to use the new privacy act to start hitting the body corporates in breach of it, and have legal action taken for the BC facilitating illegal evictions.
If there were two things it would be to integrate renters into the function of BCs, as ownership slips further and further away for a whole generation.
I’ve recently begun looking for an apartment to buy and it’s very interesting seeing these things in practice.
Another way tenants get treated like second class citizens is there are a lot of apartments advertised as “pet friendly for owner occupiers (subject to BC approval)”. Even as an owner occupier you presumably have to kneel and swear fealty to the body corporate overlords to get a cat that won’t be able to go outside your apartment anyway.
Also BC fees vary wildly, even for apartments in similar price brackets. Is the BC charging $4000/yr charging too little? Is the BC charging $8000 charging too much? Hard to tell. As part of the pre-purchase process you can get BC records (minutes of meetings and so forth) but just because these don’t reveal any dysfunction doesn’t prove that the BC is performing well.
A Body Corporate is what you make it. In my building, it plays a proactive role on many issues that are peripheral to building maintenance, such as fostering mutual support for residents during the Covid lockdown. Yes, there are those who want to focus only on short term cost reductions to the detriment of the Long Term Maintenance Plan (LTMP), but as a Committee we’re committed to ensuring that the LTMP works well and is adequately funded, and the AGMs usually see any short-termism pushed off to the side.
It’s also about communication. An active Committee can and should communicate not only with owners but also with occupants (whose names and contact details we don’t always know – so the mailbox becomes an important information channel). The key, if considering buying into an apartment building, is to find one that has a good percentage of owner-occupiers who have a stake in the building as a place to live, not just a place to earn money from.
Having worked in dispute resolution, I think a lot of neighbourhood conflict could have been resolved by having MORE bodies corporate – for such issues as a shared driveway in a large subdivision, for example. If ever there was a breeding ground for disquiet, upset and conflict in the neighbourhood, the maintenance of shared driveways has to be right up there. Unfortunately no one seems to think of this until the state of the driveway is dire and the conflict has already arisen. If owners are concerned about costs, there’s no need to have a property management company “manage” the driveway – it’s just a simple get-together of owners once a year to divide up tasks. Much easier to do BEFORE you get into internal disputes than afterward!
Mrs mfwic and I were saved a small fortune by a body corporate. We found an apartment with a good yield, the numbers worked even without any capital gain. It was well built with a lovely looking aluminium composite panel cladding. The only thing that stopped us was our fear of a Big Bad Body Corporate and having enthusiasts spending money for us. So we passed on the deal. Now someone else will be going through the pain of having the APC cladding replaced with something actually fire proof.
I live in an apartment in Wellington – so I’ve had role on the Body Corp of the building for the last 20 years. The problem we have had in Wellington is that insurance costs have been ramped up massively. Insurance that once cost $22,000 per annum for the entire building in 2001 is now nearer $200,000 each year, and is still rising, despite we being in a secure, already quake-strengthened building.
While in 2001 we paid about $2000 per year (BC fee, including insurance) for a 100m2 apartment, the massive ramp up in insurance cost has now pushed that to $10,000 a year for the same apartment. Unlike Auckland, the value of the property hasn’t gone up that much – probably just 30-40% over the same period.
I know it doesn’t affect you urban dwellers in Auckland that much, but it can spread to other cities. The Unit Titles Act decrees that ALL Body Corps insure their building on behalf of all residents – yet insurance companies are not taking on new clients down here. We had a choice of precisely One insurer to talk to for the last few years: most of the big insurers have simply pulled out of the market. Makes it almost impossible to save for the Long Term Maintenance Fund as well…..
It makes it very hard for a Council or Developers to meet the new Urban Design guidelines – the requirement for 6 storey buildings – if no-one can afford to live in these buildings once they are built. There needs to be a better system.
Damm, you are paying more in Body corp fees than I am paying total rent (admittedly in a shared flat). Honestly it sounds like the government should step in and offer some sort of guarantees / earthquake thing that makes it cheaper. I don’t think that private insurance companies would be up to solve these city demolishing events and now I suppose they have realized that too and are desperately trying to exit the market.
Yes, I absolutely feel your pain on insurance. We’ve had a bit of it up here in Auckland, but nowhere near the same extent. No easy solutions unfortunately.
Our house insurance in Wellington is $2464 per year for a villa in Newtown. That is more than we pay for a much larger house in Auckland.
I suppose it really it comes down to power and control. Are you willing to give up power? Over something of such importance and expense as your house.
I’ve been involved with a BC which has featured a litigious, entitled, retired and extremely neoliberal boomer lawyer owner of an apartment hijacking the process by getting himself elected to the BC committee and then proceeding to contest every cent of spending via the court process tying up the BC in procedural issues, injunctions, lawyers fees etc etc. Despite the clear conflict of interest, apparently you can do this – surely an area that needs tidying up somehow.
Even voting him off the committee resulted in a flurry of court action to try and prove the election was fraudulent and legal demands for every meeting minute, email and letter to be automatically forwarded to him as a right, where he then contested proceeding until he died, presumably of apoplexy. He left quite a legacy of deferred work, although fortunately the long suffering committee had managed to save a bit of money in the bank.
The rules around BCs need to be tidied up and updated for a 21st century reality for a much more owner occupier/long term rental domestic future.
Yeah, we definitely need a law update. A pity the previous programme got shelved. One of the planned changes was to reduce conflicts of interest by imposing a duty on committee members to act in the best interest of the BC much like company directors, rather than being able to act in their own personal interest.
FFS. Poor you.
He sounded like an absolute ….. nothing worse than lawyers using their own knowledge and time to screw lay people over.
When a property is for sale, the state of the body corporate finances, maintenance plan etc must be provided to prospective purchasers.
I’ve looked at a lot of BC properties for sale in recent years, mostly in the “townhouse enclave” category, rather than a large apartment building. I only ever saw one that was well funded for future maintenance- most had virtually nothing in the kitty. Hopefully the new legislation puts paid to the penny pinching.
As others have stated, it is human nature that some people will simply not invest in maintenance if they can get away with it, which is fine if you live in your own house, but not if your neglect affects others. Personally, a well funded BC will make me a willing purchaser because I know my prospective asset has probably been well maintained.