Residents' Associations part of new regime

Monday, December 5, 2022

Residents' Associations fall under the new Incorporated Societies Act 2022 changes. The new Act looks to modernise and regulate the law relating to incorporated societies, which will have a big impact on all existing incorporated societies, particularly Residents' Associations. Three key impacts for Residents’ Associations are:

1.    Compulsory re-registration
All existing incorporated societies must re-register under the new Act. The period for re-registration will open in October 2023 (exact date TBC) and run for 2.5 years through to April 2026. Re-registering will involve updating the incorporated society’s rules to comply with the new Act, and then submitting a re-registration application (a fee will apply, the amount is still to be advised). 

If an incorporated society does not re-register during the re-registration period, they will cease to exist when re-registration closes in April 2026. That means they will become an unincorporated group of individuals with no legal personality. All the individuals involved will be personally liable for the activities that were previously the society’s. This will have huge implications for things like contracts, debts, insurance, employment relationships, and funds that were in the name of the society.

2.    Wind Up
Under the 1908 Act it was possible for surplus funds to be distributed to members when a society was wound up (this was considered an exception to the prohibition against private pecuniary profit).  

Under the 2022 Act, when a society is wound up its surplus assets must be distributed to a not-for-profit – meaning an incorporated society, a charitable entity, or any other society/institution/association/organisation/trust that is not carried on for individual private benefit and whose funds are applied entirely or mainly for benevolent, philanthropic, cultural, charitable, sporting, or public purposes in New Zealand.

This poses a problem for Residents’ Associations, the intention of which has been to distribute surplus assets to the members upon winding up and which will not ordinarily be linked with a not-for-profit. 

3.    Controlling Member
Under the 2022 Act, it will no longer be possible to have a “controlling member” in the way that many existing Residents’ Associations have used this role for the developer to retain rights and controls, especially in a staged development. That has implications both for existing Residents’ Associations (which will need to modify their rules and remove the controlling member provisions in order to re-register) and new Residents’ Associations registering under the 2022 Act.  

Alternative ways of retaining rights and controls for the developer will need to be used instead, e.g. land covenants.

In addition societies will need to be governed by at least 3 officers, all of whom must be natural persons (so a development company cannot be an officer). A majority of the officers on the committee must be made up of either or both of the following:

  1. members of the society
  2. representatives of bodies corporate that are members of the society.

If you have any questions about the changes to Incorporated Societies, Residents' Associations or the new Incorporated Societies Act 2022, please contact a member of our Incorporated Societies or Property team.

 

Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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