Buying a townhouse in New Zealand: Residents' Association vs Body Corporate

As townhouses and apartments become increasingly common, it is helpful for first-time buyers to understand what the different ownership structures mean.

When you are looking at a property you will be given a copy of the ‘title’ which will tell you the nature of the legal rights. For a townhouse, it will either say ‘Fee Simple’ or  ‘Stratum in Freehold’. Stratum in freehold means it is a unit title and by law, the owners of the units form a Body Corporate which is subject to the Unit Titles Act 2010 (more on that below). This is common for multi-level apartments and some older townhouses and semi-detached dwellings, but it is less common for new townhouses.

If the title of a townhouse says fee simple, that doesn’t mean you will have nothing to do with your neighbours- it is likely that there is a Residents’ Association or Society.

This is an increasingly common structure chosen by developers to make sure the shared assets and property are managed by the owners jointly. When you buy into a property with a Residents’ Association, you are often deemed to automatically become a member and you are obliged to pay levies and observe the rules of the Residents’ Association.

It sounds a lot like a Body Corporate, and in some ways it is. 

What are the differences?

• With a Residents’ Association, you own your entire unit, the land beneath it, and a share of the communally owned land. 

• With a Body Corporate, you own only the inside of your apartment, and the Body Corporate (i.e. all members collectively) owns the land and common areas, such as the roof and exteriors.

• The above typically means that the Body Corporate is responsible for more maintenance and upkeep such as painting the exterior, whereas in a Residents’ Association you are responsible for the interior and exterior of your entire unit. Body Corporates are responsible for insurance whereas Residents' Associations usually do not handle insurance (some do). You can therefore expect Body Corporate levies to be higher than Residents’ Association levies.

• A Residents’ Association is not subject to the Unit Titles Act. This can reduce the compliance costs for the Residents’ Association but it also means that you have less of the protections afforded by the Unit Titles Act. For example, a prospective buyer of a unit title apartment or townhouse is entitled to receive information about the development, such as whether there are any known weathertightness issues, Court cases, or significant defects in the building.

• A Residents’ Association (if incorporated) is governed by the Incorporated Societies Act 2022. This requires it to have at least 10 members at the time of forming, a constitution, a governing body and a contact address. Being incorporated/registered gives the governing body a legal right to make decisions about the shared areas, and ensures there is a legal entity that can bring or defend a legal claim. 

So what should I look out for if I’m buying a townhouse?

Firstly, check whether there is a Residents’ Association already set up by the developer. 

It often depends on the level of shared amenities and there may be cost cutting considerations for the developer.

In some cases the developer keeps it very simple and might just put some basic things on the title, such as easements which allow each owner to use the other owners’ share of the driveway. In that case, if you want a formal structure for dealing with shared maintenance or terms of use, it would be up to the owners to form a Residents’ Association and register under the Incorporated Societies Act.

If there is a Residents’ Association, then some useful questions include:

• What are the rules and restrictions? 

• Is there a requirement to have the same insurer? 

• Are you allowed to paint your unit with your own colour preferences? 

• What is the Residents’ Association responsible for and what are individual owners responsible for? 

• What are the current or expected levies? 

If you are buying off the plans and the developers gives you an estimate of levies, be aware that this is not binding and that the levies can go up significantly by the time you take ownership. The developer may also enter contracts (say for management and maintenance) on the prospective owners’ behalf and you may be bound by them for a fixed period.

If you are looking at buying a townhouse and have questions, please contact our team on 04 4953747, or by emailing admin@devinelaw.co.nz .

NB: This article is a general overview only and not a substitute for legal advice specific to your circumstances.