Designation notice improves the management structure options for communal facilities

by | Oct 5, 2017 | Blog, Building, Commercial property, Fresh Business Thinking, General property Law, Sale and Purchase, Subdivisions, Unit Titles

What’s not to love about modern user-friendly legislation? Nearly a year ago the need to set up Incorporated Societies in order to manage communal facilities on a property development, became a thing of the past.


Incorporated Societies have their place but they require a minimum of 15 members, a common seal and are governed by legislation dating back to 1908. It makes better commercial sense for developers to set up a company to manage communal facilities.


For many years, developments offering the sale of an undivided share in land and membership in a society (or shares in a company) as a package with the sale of real estate, had been caught by securities legislation. Read a previous blog on this topic.


The inclusion of these types of arrangements had never really seemed to fit with the expectations of the Securities Act or the Financial Markets Conduct (FMC) Act. Despite this, the consequences of non-compliance were significant. Any agreements breaching the provisions of the legislation were void.


A detailed exemption was created but even compliance with this was time-consuming and expensive so the FMC (Communal Facilities in Real Property Development) Designation Notice 2016 was well received when it came into being in October 2016.


Scott Point, Hobsonville

a client development, at Scott Point, Hobsonville


The designation notice provides:

  • a means of allowing for communal facilities in a development and for those facilities to be managed by a company owned by the owners of land within the development
  • an easy way for developers to sell the shares and land without the requirement of full disclosure.


A designation notice is a device which changes how a financial product is categorised under the FMC Act. There are four standard types of financial product, each one carrying its own compliance obligations:

  • Debt
  • Equity
  • Managed investment products
  • Derivatives.


Shares to which the FMC (Communal Facilities in Real Property Development) Designation Notice 2016 applies, are not deemed to be a financial product for the purposes of the Act.


However, this special status comes with some specific requirements for the constitution of the company.


The company must:

  • Only manage the communal facilities – not carry out any other function
  • Not make a profit, except from activities beneficial for the shareholders and incidental to the management activities
  • Only trade or make a profit to offset the costs of management of the communal facilities.


The company constitution must provide that:

  • Shares can only be transferred to buyers within the development
  • After completion of the development, only an owner in the development can be a shareholder
  • Every owner is entitled to be a shareholder.


At AlexanderDorrington, we’re excited to advise our clients on the benefits of this legislative change. Not only does it save them time and money, but it is also a lot easier in terms of the amount of information required to comply with the disclosure requirements. The provision of communal facilities in property developments just became a much more attractive proposition.


By Debra Dorrington