When a unit title development is created a valuer must assess the ownership interest for each unit, which is essentially the relative market value of that unit compared with all of the other units.
It’s possible for the body corporate to also establish a separate utility interest for each unit. That utility interest is then used to calculate the share of levies paid. If a separate utility interest is not set by the body corporate, then the utility interest is the same as the ownership interest for the unit.
Establishing separate utility interests allows some flexibility between different types of ownership (e.g. retail vs. residential) or owners with different benefits from the development (e.g. lifts that are not used by the ground floor tenancies). Unfortunately there can only be one utility interest for each unit, so its not as flexibile as some bodies corporate need.
The utility interest is used to calculate levies due by the unit for the operating account together with any long term maintenance fund and contingency fund. These include most of the costs levied by bodies corporate at present e.g. insurance, repairs and maintenance, the sinking fund.
If a body corporate had also established a capital improvement fund, then levies for that fund are still calculated by the ownership interest, regardless of whether a utility interest is set. That’s because the ownership interest remains relevant to determine each owner’s share in the underlying land if the body corporate is ever collapsed e.g. by the cancellation of the unit plan. The ownership interest also remains relevant to calculate the unit’s voting rights if a poll is demanded following the passing of a resolution by the body corporate. Utility interest is about each owner’s use of the property and ensuring a fair allocation of costs. Ownership interest is about an owner’s property right.
The ownership interest and utility interests are recorded by LINZ on the titles to the units. They can be reassessed, but only every 3 years.
New bodies corporate can consider setting a separate utility interest at the outset, in addition to the valuer’s assessment of ownership interest.
Existing bodies corporate can reassess either the ownership interest or utility interest or both every 3 years. The unit entitlements that were created under the Unit Titles Act 1972 have become both the ownership interest and utility interest under the 2010 Act, so for many unit title developments these old calculations may be quite out of date. There was not really an easy way to change the old unit entitlements, so bodies corporate often adopted their own private arrangements instead. These continue in some bodies corporate today, but run the risk of being subject to challenge e.g. if an existing owner gets aggrieved or if someone new buys in.
If a body corporate has a FDU that is being used as a place of business or a residence or otherwise, it is important that the body corporate considers setting a utility interest for the FDU, so as to ensure the FDU is paying a fair share of costs.
The assessment of the utility interest is done by the body corporate itself, not a valuer. The body corporate works out the utility interest on a fair and equitable basis, having regard to the benefits and costs to the units. A special resolution is required (75% voting in favour) and this is a designated resolution, so notice of the resolution needs to go to all owners and others with an interest (typically mortgagees only).