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Because of joint ownership of the apartment buildings and the individual lack of control - what are the specific risks of unit title properties and the costly side effects?


Unit Title Property

Apartment Owner’s Risks and Benefits

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Attractions and risks of owning an Unit Title Property


You will find unit title properties like apartments and town houses in high density areas.  The portion of land on the title is small. That makes the attractions of purchasing a city apartment obvious when considering price and location. Compared with stand-alone properties in the same price range they are mostly newly built and modern equipped. At the time I was busy with career and with a young family I preferred living in cities with good infrastructure by renting well equipped apartments. The Body Corporate owned the building, no maintenance makes life easy.


Being upfront with you, in NZ I changed my attitude towards apartments for mainly two reasons; Building and body corporate management issues. I own city apartments and a townhouse as investment properties. So, what are the related issues?




People with small pockets buy apartments


When you purchased something you would expect it is yours. This not exactly what happens when you buy an apartment. Apart from your bank which holds the apartment as security against the mortgage, the apartment building is owned by the body corporate. If the body corporate and the building are ill managed that can cost a fortune.


Apartment developments have been identified as leaky buildings and Christchurch's earthquakes have brought the issue of seismic strengthening into the spotlight. These two major issues can be very expensive for body corporates who pass on related million-dollar bills onto the unit title owners. In other words a bargain apartment can turn into a financial nightmare.


As potential apartment buyers you need to know;


· Freehold unit title or leasehold property: The future costs for leasehold apartments, when the lease of the ground needs to be renewed, are a huge cost-risk factor. The benefit is that a leasehold apartment/townhouse is cheaper because there is no land attached to it in comparison with a freehold unit title that includes a share of the land. 

· Some Body Corporates are entangled in disagreements about maintenance, state of repairs and unexpected costs.  The buyer needs to be experienced reading the body corporate meeting minutes as controversial subjects are concealed especially when reading the Building Manager’s reports. If you cannot find any signs of how the body corporate enforces House Rules – walk away!

· The new Unit Titles Act 2010 provides a new framework for the joint ownership and management of land, buildings and facilities that has increased costs for administration. You need to know your share of funding for long-term maintenance, operational contingency and capital improvements.


That is why the willing buyer should carefully execute “due diligence” before signing a purchase agreement for an apartment.



Changes of the UTA 2010


The Act states that the Body Corporate owns the common property, the unit title holder owns a share of it with all related costs to keep the building (common property) in good working order and to meet legal requirements.

The disclosure provisions e.g. pre-settlement disclosure of information enables the purchaser of an apartment to make an informed decision on their purchase.


Dispute resolution processes are new regulated and the role for the chairman of the Body Corporate as resource is clear defined.



Because of these joint ownership issues requiring to go along with Body Corporate and people who live in the building, the buyer of the apartment needs to know the rules which spell out who is responsible for what and what occupants are allowed to do (e.g. pet rules, rubbish and recycling collection, having parties, washing lines on balconies etc).


Apart from levies you as purchaser need to know the calculation of how much you have to pay towards long-term maintenance. The Act can have the apartment reassessed for levies any time as long as three years have elapsed since the last reassessment. In addition to the Body Corporate levies the owner of the unit has to pay rates, insurance, metered water, hot-water processing and lifestyle related expenses for electricity, parking, phone line, etc.



Take Away

Because of the joint ownership and the individual lack of control unit title properties have Body Corporate rules which spell out who is responsible for what, who pays what, and what to do if things go wrong. Be aware of the costly side effects. If you consider to purchase an apartment for budget and low maintenance reasons, see related articles below. 


Apartments – Safe Haven for First-Home Buyers?

How much does a Body Corporate cost you?

Apartment owner - Be aware of three different Ownership Types



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