Conflict of Interest in Body Corporate | NZ Guide

Conflict of interest is one concept referenced in the Unit Titles Act 2010 that many body corporate owners and/or Committee members find difficult to determine when such a conflict exists. This article explains what conflict of interest means in a body corporate context, what the Unit Titles Act 2010 and its regulations require, and how committees should handle it when a conflict does arise.

Quick Answers

What is a conflict of interest in a body corporate?

A conflict of interest arises when a committee member has a personal or financial interest in a matter being decided by the committee, and that interest could influence or appear to influence their decision. The key test is whether the person stands to gain, or a family member or associate stands to gain, from the outcome.

Does a building manager on a body corporate committee have a conflict of interest?

Yes, in most cases. A building manager who is also a committee member has a direct financial interest in committee decisions about their own contract, remuneration or performance. That interest must be declared. The building manager must not vote on or take part in the decision on those matters, and must not sign any related documents. They may participate in the discussion and remain present unless the committee decides otherwise.

Is being a majority owner in a body corporate a conflict of interest?

No. Owning multiple units in a body corporate does not create a conflict of interest by itself. Each unit carries the same legal rights under the Unit Titles Act 2010, regardless of how many units one person owns. A conflict of interest requires a personal or financial advantage beyond what other owners receive.

What does the Unit Titles Act say about conflict of interest?

The Unit Titles Act 2010 includes specific conflict of interest rules for body corporate committee members in sections 114B to 114F. A committee member with a conflict must disclose the nature and extent of their interest and record it in the interests register. They must not vote on, take part in, or sign any documents relating to the matter. They may participate in the discussion and remain present unless the committee decides otherwise.

What happens if a conflict of interest is not declared?

Failing to declare a conflict of interest is a serious governance failure. It can expose the committee member to personal liability, create governance risk and may lead to owner notification, censure or a legal challenge, although failure to disclose does not automatically invalidate the committee decision.

What is a Conflict of Interest in a Body Corporate?

A conflict of interest exists when a committee member has a personal or financial stake in a matter that the committee is deciding. The concern is that their private interest might, whether intentionally or not, affect how they approach that decision.

The clearest cases involve money. If a committee member's business is being considered for a contract, if they would personally benefit from a particular maintenance decision, or if a family member stands to gain from a committee vote, that is a conflict of interest.

It is not about bad intentions. A committee member can be entirely honest and still have a conflict. The point is that the interest exists and needs to be declared, so the rest of the committee can make an informed decision without that influence affecting the outcome.

Common examples of genuine conflicts of interest in a body corporate include:

• A committee member whose company is tendering for building maintenance work

• A building manager who is also a committee member or chairperson, particularly where their own contract or fees are being discussed

• A committee member whose family member would benefit from a decision about a shared space or resource

• A committee member who has a financial arrangement with a supplier being considered by the committee

• A committee member who has a personal dispute with another owner and may not be able to act impartially on a related matter

These situations do not necessarily mean the person cannot be on the committee. In many cases they can continue to serve. The requirement is that they disclose the conflict and, generally, stand aside from voting on the affected matter.

Can a Building Manager Sit on a Body Corporate Committee?

One of the most common conflict of interest situations in New Zealand body corporates involves building managers. Many residential and commercial complexes have a building manager who is also actively involved in committee governance, sometimes as a committee member or even as chairperson.

This creates a potential governance conflict. The committee is responsible for oversight of the building manager's performance, setting or approving their remuneration, and reviewing their contract. If that same person is sitting on the committee making those decisions, they have a direct financial interest in the outcome.

The Crockers Body Corporate team sees this situation regularly in managed complexes across New Zealand. In their experience, one of the most common governance issues is committee members assuming that only financial interests from external parties matter. In practice, a building manager who serves on the committee has exactly the kind of direct financial interest that the conflict of interest rules are designed to address. The arrangement can work, but only if it is managed properly.

A building manager who also serves on the body corporate committee will usually have a conflict of interest when the committee is considering matters relating to their own contract, remuneration or performance. In those situations, they must comply with the conflict of interest obligations that apply to committee members under the Unit Titles Act 2010, meaning they must not vote on or take part in the committee decision, and must not sign any documents relating to that matter. They may participate in the discussion and remain present unless the committee decides otherwise.

Where a building manager is also the chairperson, there are additional complications. The chairperson has a role in setting meeting agendas, managing discussions and influencing outcomes. Bodies corporate in this situation should consider whether the arrangement appropriately separates the oversight function from the management function, and take professional advice if they are unsure.

Committees dealing with building manager governance should also consider their wider governance responsibilities. Effective committee governance includes areas such as long-term maintenance planning, which requires the same standard of impartial decision-making.

Is Being a Majority Owner a Conflict of Interest?

This is a misconception that comes up fairly regularly in body corporate settings, particularly in smaller complexes where one person or entity owns several units.

Owning a large number of units in a body corporate does not create a conflict of interest. Under the Unit Titles Act 2010, each unit carries its own legal rights. A majority owner has more voting weight in proportion to their ownership interest, but that is the same right that every owner has. They are simply exercising it on a larger scale.

A conflict of interest requires something more. It requires a personal or financial advantage that other owners do not share, where that advantage could influence a specific committee decision. Owning more units does not meet that test by itself.

Where majority ownership can become a governance concern is in a different context: where one owner controls enough votes to pass resolutions without support from other owners, or where the majority owner is also on the committee and has separate financial interests connected to the body corporate. Majority ownership can raise governance concerns, but it is not automatically a legal conflict of interest. Those issues are about governance balance and transparency, which are worth addressing, but they are separate from the specific legal concept of conflict of interest.

What Does the Unit Titles Act Require?

The Unit Titles Act 2010 sets out specific conflict of interest rules for body corporate committee members in sections 114B to 114F. These provisions apply to all committee members and set out what must happen when an interest is identified.

Section 114B requires committee members to comply with the conflict of interest rules in sections 114C to 114F. Section 114C requires an interested member to disclose the nature and extent of their interest to the committee and record it in the interests register. Section 114D sets out what follows: the interested member must not vote on the matter, must not take part in the committee decision, and must not sign any documents relating to the transaction or matter. They may participate in discussion and remain present unless the committee decides otherwise. Section 114E confirms that a failure to disclose does not automatically invalidate the committee decision, but the committee must notify body corporate members of the failure as soon as practicable, and the member's conduct may be censured. Section 114F requires the committee to keep an interests register.

In general, the key obligations under these provisions are:

• A committee member who has a financial or personal interest in a matter must disclose the nature and extent of that interest before the matter is discussed or voted on (section 114C)

• After declaring the conflict, the committee member must not vote on or take part in the committee's decision on the matter, and must not sign any documents relating to it (section 114D)

• The committee member may still participate in the discussion and remain present while the decision is made, unless the committee decides otherwise (section 114D)

• The disclosure must be recorded in the committee's interests register. It is also good practice to record it in the meeting minutes (sections 114C and 114F)

• The committee must maintain an interests register for this purpose (section 114F)

These are not optional steps. They are part of the governance obligations that come with being a committee member. Ignoring them, even unintentionally, can create legal and governance problems for the body corporate.

Some body corporates include additional conflict of interest provisions in their operational rules. Committees should be aware of what their own rules say, as these may impose obligations beyond the minimum statutory requirements.

How Should a Conflict of Interest be Declared?

Declaring a conflict of interest in a body corporate is straightforward when it is done properly. The key steps are:

• Identify the conflict before the relevant agenda item is reached. Do not wait until after the discussion has started.

• Notify the chairperson or, if you are the chairperson, notify the committee, that you have a conflict of interest in the matter

• Explain the nature and extent of the conflict clearly and briefly

• Do not vote on or take part in the committee's decision on that matter, and do not sign any documents relating to it

• You may remain present and participate in the discussion unless the committee decides otherwise

• Ensure the disclosure is recorded in the committee's interests register. Recording it in the meeting minutes as well is good practice

If you are unsure whether you have a conflict, it is usually better to declare it than to say nothing. An unnecessary declaration creates no harm. An undeclared conflict can create significant problems later.

Committees may also want to consider asking all members at the start of each meeting whether they have any interests to declare in relation to the agenda. This is good governance practice and reduces the risk of conflicts going unnoticed.

For information on How Are Decisions Made in a Body Corporate refer to our earlier article?

What if Most of the Committee Has a Conflict of Interest?

This is a situation that many committee members do not know about. Under the Unit Titles Act 2010, if 50% or more of committee members are prevented from voting on a matter because they each have a conflict of interest, the committee cannot decide the matter itself.

Instead, the issue must be referred to an Extraordinary General Meeting (EGM) of the body corporate, where all unit title owners can vote on it.

This rule exists to protect owners from situations where the committee is too conflicted to make an impartial decision. For smaller committees, it is worth keeping in mind. Even two or three conflicted members can trigger the threshold depending on committee size.

The table below summarises the most common scenarios. Use it as a starting point, not a definitive answer. If you are unsure about a specific situation, take advice.

Which Situations Are Actually Conflicts of Interest?

What Happens if a Conflict is Not Declared?

Failing to disclose a conflict of interest is a breach of a committee member's governance obligations under the Unit Titles Act 2010. The consequences are real, even if the failure does not automatically invalidate the committee's decision.

Under section 114E, when a committee member fails to disclose a conflict of interest:

• The committee decision remains valid, but the committee must notify body corporate members of the failure as soon as practicable

• The committee member's conduct may be censured under the Act

• Affected owners may still apply for relief through the processes available under the Unit Titles Act

• Trust among unit title owners can break down, leading to disputes, EGMs or challenges to the committee's authority

If your committee is unsure whether a situation creates a conflict of interest, Crockers Body Corporate can help you understand your governance obligations and support your committee with compliant decision-making.

What this Means for Body Corporate Committees and Unit Title Owners

For committee members, the practical message is simple. If you think you might have a conflict of interest in a matter before the committee, declare it. Do not assume the conflict is obvious or that someone else will raise it. It is your responsibility to disclose it.

For unit title owners who are not on the committee, understanding what conflict of interest means helps you assess whether your committee is being run appropriately. If you believe a committee member has an undisclosed interest that influenced a decision, you have the right to raise it. Depending on the circumstances, you may be able to request a review of the decision or call an EGM.

For body corporates that have a building manager involved in committee governance, the arrangement should be reviewed to make sure it includes appropriate disclosure practices and that the building manager is not participating in decisions where they have a direct financial interest.

Who Decides Whether a Conflict of Interest Exists?

It is not the body corporate manager’s role to decide whether a conflict of interest exists. Where committee members or owners disagree about whether someone is conflicted, that question can only be settled by a court or tribunal. A body corporate manager can record the disclosure, explain the obligations and recommend professional advice, but they have no legal authority to rule on the dispute.

Under the Unit Titles Act 2010, unit title disputes are heard through a three-tier system. The forum depends on the value and nature of the claim:

• The Tenancy Tribunal hears most unit title disputes up to a set monetary limit, where the dispute does not relate to the title to land.

• The District Court hears larger claims above the Tenancy Tribunal limit.

• The High Court hears the largest claims and any dispute relating to the title to land.

Taking a dispute to the Tenancy Tribunal or a court can be slow and expensive. For that reason, the parties should usually try to resolve the matter between themselves first, with professional advice where needed, before filing a formal claim. According to the team at Crockers Body Corporate, most conflict of interest concerns can be managed through clear disclosure and a sensible decision by the member to step back, without the matter ever reaching a tribunal.

For information on Electing Your BC Chair and Committee Members refer to our earlier article?

Key Takeaways

• A conflict of interest in a body corporate exists when a committee member has a personal or financial interest in a matter that could influence their decision. This includes interests held by family members or close associates

• Being a majority owner does not create a conflict of interest. Each unit carries equal legal rights regardless of how many units one person owns. Majority ownership can raise governance concerns, but it is not a legal conflict of interest

• Building managers who sit on committees have a conflict of interest in decisions about their own contract, fees and performance. They must declare it, and must not vote on, take part in, or sign documents relating to those decisions

• Sections 114B to 114F of the Unit Titles Act 2010 set out the obligations. Disclosures must be recorded in the interests register. If 50% or more of the committee is conflicted, the matter must go to an EGM

• If in doubt, declare it. An unnecessary disclosure creates no harm. An undeclared conflict can lead to censure, owner notification and legal challenge.

Final Thoughts

Conflict of interest in a body corporate is not complicated in principle. A committee member who stands to personally benefit from a decision, or whose family or associates stand to benefit, should declare that interest and step back from the vote. That is the core obligation.
Where things go wrong is usually when people either do not recognise that a conflict exists, or they avoid declaring it because they want to stay involved in a particular decision. Both are governance problems that can damage the body corporate and expose individual committee members to risk.
The Unit Titles Act 2010 sets the legal framework, but good governance goes beyond the minimum. Committees that build clear, consistent practices around disclosure are better placed to make decisions that all owners can trust.

Article written by Shanon Aitken, Crockers Property Management

This article was prepared by the Crockers Body Corporate team, drawing on their experience managing body corporates across New Zealand. It is intended as general guidance only and does not constitute legal advice. Committees with specific concerns about conflict of interest obligations should seek professional advice.

Need Support With Your Body Corporate?

If your committee is unsure whether a situation creates a conflict of interest, Crockers Body Corporate can help you understand your governance obligations and support your committee with compliant decision-making.