Motel units can be converted to apartments

Each week, national law firm Simpson Grierson answers commercial property questions which can be emailed and headed "property problems". This week's question is answered by associate Warren Bangma and law graduate James Varcoe who can be contacted at warren.bangma@simpsongrierson.com and james.varcoe@simpsongrierson.com

Q. I own a motel and business has been slow recently, with consistently low rates of occupancy. The units are larger than most and could fairly easily be converted into residential apartments. What sort of legal process would I have to go through to do this? Can I obtain separate certificates of title for each apartment so that I could sell them?

A. The short answer to your question is "yes", you could potentially convert the units into residential apartments and obtain separate certificates of title for each. However, you would first need to obtain approval for this under the Unit Titles Act 1972, Resource Management Act 1991 (RMA), and Building Act 2004. You may also be required to pay a financial contribution or development contribution to your council.

Under the Unit Titles Act, you can convert parts of a building into separate legal units that can be bought and sold by individual owners. This arrangement is commonly used for apartments and terraced houses.

The motel would be split into areas that were for the exclusive use of one unit title holder (eg, apartment and car parking) and common areas (eg, the driveway and any shared amenities such as a swimming pool). The split between the exclusive use and common areas is shown on a unit plan. Each unit will then end up with its own certificate of title, provided the requirements below can also be met. For completeness, we note that Parliament has passed a new act to govern unit titles in the form of the Unit Titles Act 2010 which will result in some changes. However, this is not yet in force.

The creation of unit titles comes within the definition of "subdivision" under the RMA. Subdivision is controlled by the rules in your local council's district plan. Depending on those rules, you may require subdivision consent from the council to create unit titles.

Your chances of obtaining consent, if one is required, will depend among other things upon the objectives, policies and rules in the district plan and whether they, broadly speaking, favour apartments being created. Some councils have rules in their district plans that discourage motels or visitor accommodation from being converted into residential units. However, whether or not this is the case with your motel will depend on the specific content of the district plan of your local council.

In the end, the council will consider granting your application for consent based on the district plan and the effects generated by changing the motel to residential apartments, - for example, whether they will generate more traffic and require more parking.

The council may also have a number of detailed requirements for apartments. This too will depend on the contents of the district plan.

The council may require you to pay a financial contribution or development contribution if subdivision consent is granted. The amount that is required will vary. However, it may be substantial. If you wish to take this matter further, we recommend that you discuss it with council staff and also obtain independent advice from a specialist planner.

You will also need to consider the requirements of the Building Act. Before you can change the use of your building from motel units to residential apartments your council will have to be satisfied that the apartments comply, in all respects, "as nearly as is reasonably practicable" with the Building Code.

This is because the apartments will be "household units". Requirements under the Building Act and Building Code are generally more stringent for household units than other forms of use, so this may mean that, depending on the standards to which your motel has been built, alterations will be required before the units can be converted to residential apartments.

As compliance with the Building Act and Building Code are complex matters and any alterations required will depend on the present standard of your building, we recommend that you seek professional advice as to what may be required.

The information contained in Commercial Property is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.