Apartments have always been common in some of our more developed urban areas, such as Auckland, Wellington and even Christchurch. As land and house prices increase, the option of buying an apartment is becoming more attractive. The Queenstown market in particular is definitely seeing this, as more developments of apartment style complexes are being constructed. While apartments may come at a more affordable price, there are a few key things to be aware of when looking at purchasing one.
Apartments or townhouses are commonly part of a Unit Title Development. Often a body corporate with a body corporate manager is used to manage the property and will deal with the day to day running of the development, including the maintenance of common areas (driveways communal gardens etc). There will be fees (known as levies) that will need to be paid to the Body Corporate however you are entitled to attend Body Corporate Meetings where you can have your say on any fees or rules relating to the development.
Unit Titles are regulated under the Unit Titles Act 2010 and the Unit Title Regulations 2011. One of the statutory requirements is for a Vendor to provide disclosure to a potential purchaser in the form of a pre contract and then a pre settlement disclosure statement. These disclosure documents hold important information about the unit, including amount of any levies, maintenance plans, balance of the bank accounts that relate to the development, and if there are any weather tightness issues.
Before you buy, it is really important to check on any weather tightness issues, and that you understand all the levies and projected costs. If there seems to be a discrepancy between the funds held by the Body Corporate in comparison to the budget and Long Term Maintenance Plan for the development, this may mean more levies will be charged in the future which you will be required to pay. We suggest any potential purchaser makes themselves aware of these fees and any costs that may need to be paid before confirming the agreement as unconditional.
Depending on the type of Apartment you are buying you may have issues arranging finance from a first tier lender, such as a bank. Some apartment ownership structures will not provide the bank with ample security. Unit Title developments do not usually have a problem with financing, but it is worth noting that they may require a larger deposit than a standard fee simple purchase. We strongly recommend you have these discussions with your lender and ensure a finance condition is included in your contract.
Some believe that building reports are not required for buying apartments, however if there any issues with water and the building leaking that the body corporate may be unaware of, this should show in a building report. Historically some complexes particularly in Auckland have had issues with water tightness and is something that should be checked if buying into an established development.
You will also need to ensure that the apartment has a code of compliance certificate, particularly if the development has been completed in stages as there have been cases of apartments that didn’t receive one for that particular apartment, or even the building as a whole not receiving one.
It is important when looking into buying apartments that you understand all of your obligations and potential risks involved. We are of the opinion it is better to discuss these risks prior to entering into an unconditional agreement, so you can have a full understanding of the transaction you are entering and can make an informed decision, and the agreement can be prepared in such a way so as to give you time to complete the required due diligence.
If you have any questions, or are looking at buying into an apartment building, please contact one of our awesome RVG staff for more information.
Article written by Rebecca Smith, Senior Solicitor