Incorporated Societies Act 2022: reregistration risks for property development societies

As we discussed in our previous article, the deadline for incorporated societies in New Zealand to reregister under the Incorporated Societies Act 2022 (New Act) is fast approaching. With only two months to go, almost half of all incorporated societies have not reregistered under the New Act. Many are embedded in residential, commercial and industrial property developments and subdivisions.

In this article, we take a closer look at the specific considerations for these types of property development-related societies, including the potential consequences if they miss the reregistration deadline.

 

Property development societies

Property development societies are often set up by developers of large property developments and subdivisions, either voluntarily or as mandated by territorial authorities through resource consent or subdivision consent conditions. They provide a legal framework to, among other things:

• own and manage communal facilities and infrastructure in property developments, such as parks, utility services and shared driveways
• levy owners to raise funds for the ongoing maintenance and repair of communal facilities and infrastructure
• ensure uniformity of design and construction of buildings within a development
• implement rules and regulations for the use of communal facilities and infrastructure
• take enforcement action on behalf of the owners in a development against non-compliant owners.

Incorporated societies are a convenient vehicle for property development societies and are well suited to fulfil these purposes.

 

What happens if a property development society misses the reregistration deadline?

The New Act does not provide for an automatic reregistration process for existing incorporated societies. Existing incorporated societies, including property development societies, must proactively reregister before 5 April 2026. If a society fails to reregister, it will be removed from the register and cease to exist from 6 April 2026.

When a society ceases to exist, its surplus assets will be distributed in accordance with the New Act. The New Act confers various powers on the Registrar of Incorporated Societies to dispose of a removed society’s assets, including land. We consider this is a low risk for property development societies, as the Registrar is unlikely to move quickly to dispose of a property development’s communal facilities and infrastructure owned by a property development society.

More relevantly, a property development society will lose its purpose and function if it ceases to exist. It will be unable to manage communal facilities, raise funds, or implement and enforce covenants, rules and regulations in the property development. Failing to reregister could also expose members (as property owners) to enforcement action for breach of resource consent or subdivision consent conditions (where applicable). Officers who, by inaction, allow a society to cease to exist may also face claims from members.

However, societies removed from the register because they missed the reregistration deadline can apply to be restored to the register until 6 April 2032. On restoration, the society will be treated as having continued in existence as if it had not been removed from the register.

That said, restoration is not guaranteed. The Registrar’s decision is discretionary and the Registrar must be satisfied there is a proper reason for the society to exist. Public objections could also prevent restoration. For property development societies required by resource consent or subdivision consent conditions, we expect the requirements for restoration will be more easily satisfied.

Restoration would not remove the risk of liability referred to above. If, in the unlikely scenario, the Registrar has already disposed of any assets of the society, those disposed assets will not be returned to the society following restoration.

 

How can property development societies reregister under the New Act?

To reregister under the New Act, every incorporated society must ensure that its constitution complies with the New Act’s requirements. One new requirement is that a society’s surplus assets must be distributed to a nominated not-for-profit entity on liquidation of the society or removal from the register. The New Act prohibits distribution of a society’s surplus assets to its members.

This may be inappropriate for property development societies that own significant communal facilities and infrastructure. Those societies should consider whether ownership of significant assets should be transferred to related entities with an alternative legal structure.

For the time being, societies that own communal facilities and infrastructure in property developments have an extension of time to meet these distribution requirements. They can reregister under the New Act before 5 April 2026 while retaining a clause in their constitution enabling surplus assets to be distributed to members. They then have until 5 October 2028 to amend their constitutions to meet the New Act’s surplus asset distribution requirements and, if necessary, transfer ownership of significant assets to another entity more appropriate for holding assets.