Guide to Residents' Associations and Body Corporates

Laine Moger

Laine Moger

Journalist and Property Educator for 6 Years
Introduction

Buying from a New Build development means, more often than not, you share aspects of your property with others. Think townhouses and apartments - you’ve got common areas, common walls … all the owners within a block are in it together.

Because of this sharedness, you do need to have a few rules in play. It can get hairy otherwise, especially when it comes to insurance. This is why when you buy into a New Build development you will often be automatically signed up as a member of either a body corporate or a residents association.

Body corporates have been around forever, but residents associations are the new kids on the block. So, what’s the difference?

In this article, you’ll learn what the main difference is between the two, and what each will cover in terms of your investment property.

The Difference Explained

What Are The Main Difference Between Body Corporates and Residents' Associations?

The primary difference between a residents association and a body corporate is the ownership of the land underneath the building.

Residents Associations are a newer concept, which were born of and becoming more commonplace for, new townhouses being built.

So what do we mean by this?

If you are a member of a residents association you own the land underneath your property, like a townhouse, and then co-own any of the common areas with your neighbours - think driveways, car parks, the grassy patches outside.

But if you are a member of a body corporate, all the land underneath the building is collectively owned by all purchasers. So, if there are 10 townhouses in a block, you co-own all of the land beneath with the 9 other owners.

Which Property Uses Which

What Sorts Of Properties Tend To Use Either A Residents' Association Or A Body Corporate?

Generally speaking, a multi-unit apartment building will have a body corporate, whereas a row of adjoining townhouses will have a residents association.

That’s because if you own a townhouse, it’s easy to own the land underneath it. But if you have four apartments stacked on top of each other, then you all need to own the land together.

A body corporate is a legal requirement of, and is automatically created by, the Unit Titles Act 2010 when the developer submits his or her plans for the New Build. It is not something you can opt-out of.

A residents association, on the other hand, tends to be an incorporated society. You can’t opt out of these either, but more on that below.

Here is an example of a body corporate property type:

666 Artist Impression

Here is an example of a residents' association property type:

Hobsonville Point
The Cheaper One

Which One Is Cheaper?

A residents association tends to be the cheaper of the two options.

Why? Because a body corporate has more responsibility and organises more services.

For instance, because a body corporate might own the exterior of an apartment block, it will organise for the exterior of the building to be washed, painted and maintained. This costs money, so you pay the body corporate a fee.

But, with a residents association, because you own the exterior of the building the washing and maintaining is your responsibility. This also costs money, but you pay the cost yourself as and when they need to happen.

This means you don’t have to pay the residents association as much money per year. However, you do need to be aware that you’ll still pay those maintenance costs over time as a part of the upkeep of your own home - just like any homeowner must do.

Because body corporates are a legal requirement, they do carry an administrative burden. Oftentimes, this equates to more paperwork, more compliance and more cost to keep everything tickity-boo.

This is another reason why a residents association tends to be cheaper.

Here is a table outlining the differences between the two:

RA v BC
RA Cost

How Much Does A Residents’ Association Cost?

Each development will have a different budget tailored to the specifics of the development, so the cost will be on a case-by-case basis.

If the the association decides to cover more than just the common areas, they’ll need to include more in the budget.

Here at Opes Partners, we typically budget $500 a year for a residents association fees. However, these can vary and be up to $900 annually.

On top of this, you are very likely to pay your insurance through the association too(more on this below). But, because you buy this collectively, insurance can often work out cheaper than if you bought it on your own.

Ultimately, the annual membership fees and the budget for the forthcoming year are agreed at the Annual General Meeting.

Sometimes, when you are buying a property off-the-plans, it can be hard to investigate the costs and fees for the residents association. This is because, often the developer won’t set up the association until the properties are almost built.

It’s equally important to note, each member may not pay the same amount. If you have more access to the common areas or a larger piece of land, then you may pay a larger share of the levies.

This will be set out in the constitution of the residents association, which will be provided to you by the developer.

Insurance

An Important Note About Insurance

Notwithstanding shared aspects of the build, properties in a development of 5 or more will have one insurance policy for the whole group. There is no wiggle room to change it.

This means the residents association will collect the money from each owner and pay the insurance company.

Whether organised through your residents' association or not, you still need to pay these costs. Happily, if insurance is organised through the association, it often will end up being cheaper.

For a more in-depth explanation of shared insurance, check out our insurance article.

BC Cost

How Much Does A Body Corporate Cost?

Generally speaking, body corporates are more expensive but fees vary greatly.

Rather than a one-off levy, unit owners pay different amounts depending on the size of the apartment, car parks, and the sorts of amenities within the building.

These varying figures are set by a registered valuer, before the build begins, who takes into consideration the value and size of each unit compared to another.

But to give a sense of the figures, the body corporate fees for one apartment development Opes recently worked on ranged from $2,808 for a one bedroom, to $3569 for a two bed dual-key.

BC 666 fees

Generally, body corporate fees should range from $2,500 - $4,500 annually.

Some complexes will have elevators, pools and gyms. These add significant costs.

So if these nice-to-haves are within the building, expect to pay a bit more. If they’re not, expect to pay a bit less.

Older buildings often require more maintenance. These body corporates will often have a ‘sinking fund’, also known as Long Term Maintenance fund, and this covers long-term expensive costs.

Some older apartment buildings we’ve seen have body corporate costs up to $6,500 per year to contribute towards those long term funds.

Compulsory Membership

Do I Have to Join A Resident’s Association?

Yes, like a body corporate, a residents association is compulsory.

There will be an encumbrance on the title. Put simply, that means you, or anyone who buys the property will legally need to be a part of the residents association and pay the fees.

The Incorporated Society may own a lot of land, and as a member you own a share - be it a roadway, park or bush area - and are therefore required to contribute to the maintenance and upkeep.

Oftentimes, the management of the residents association is outsourced to a professional company, like Crockers Body Corporate Ltd or Auckland Property Management.

Helen, from Crockers, says ​​each Society will have its own individual constitution that advises:

  • Rules and requirements (such as whether you can paint your house)
  • Process for handling arguments with your neighbours
  • How the money works

Don’t be put off by the compulsory aspect of joining the association because it will often work in your favour.

If your neighbour wants to paint their house bright pink or park a used car in the front lawn, that will impact your property. So, you probably want rules in place to make sure that doesn’t happen.

Rules

What Sort of Rules Am I Going to Have To Follow?

To set up a residents association (an incorporated society) you need to submit a constitution, which sets out the rules for each owner in the development and how the association is governed.

The constitution is drafted by the developer’s lawyers, which is then later adopted.

These are all publicly available through the Incorporated Societies Register. So if you are buying an already-built property that has the association set up, you can find these rules online in advance.

So, the constitution covers how certain aspects will function operationally and includes the important, albeit boring, things like voting procedures, meetings, maintenance, and who pays for maintenance.

But, more interestingly, it also gives guidance on how residents (your tenants) should behave.

For instance, the rules might state whether you can paint the exterior of the building, or whether or not you can hang washing from windows.

For example, the Hobsonville Point Residents Association constitution – in Auckland – addresses things like noise control limits, how loud your house alarm can be, a ban on altering your house or parking a broken down vehicle on your front lawn.

Here’s an example of HRPS’s constitution:

Constitution front page HPRS
Constitution Example RA2
Constitution Example
Exemptions

What Does The Resident’s Association Not Cover?

The residents association does not cover everything and there are still things that remain solely your, as the property-owner, responsibility.

These things include your rates, landlords insurance, and the maintenance of your building.

How Does It Work

How Does A Residents' Association Actually Function?

Even if an external company, like Crockers, is appointed to assist with record-keeping and finances for the society, it doesn’t mean you can just sit back and relax.

There are annual meetings to attend to play your part. Although, your property manager may attend these in your place.

Also, a committee and chairperson will be elected at each annual general meeting to administer the society and make sure the professional company does its job.

You might decide you want to be a member of this committee. This means you would take part in making decisions on behalf of the Society to ensure the smooth running of things.

Final Thoughts

Last Thoughts On The Matter

Some property investors worry about buying into properties with a residents association or body corporate, because they think it means extra cost.

However, they really serve in your favour and exist to make sure your investment is maintained over time.

They ensure you, as a responsible property owner, pay your fair share alongside your neighbours.

Also, it keep you from being featured on an episode of neighbours at war.

Laine Moger

Laine Moger

Laine Moger has been a journalist and reporter for the last 6 years. She previously worked for Stuff, The North Shore Times and Radio NZ. She has a Bachelor of Communications (Honours) from Massey University and a Diploma of Journalism from the London School of Journalism.