New regulations have provided an interim fix for residents associations left in limbo by new requirements under the Incorporated Societies Act 2022. But as a temporary exemption, residents associations will still need to consider their future structure.
Background
A Residents Association is a type of incorporated society that exists for the benefit of the community it serves. It might maintain community facilities or common areas, or simply serve as a forum for residents to come together and organise community activities. Some Residents Associations will own common land as well.
Most Residents Associations will be registered under the Incorporated Societies Act 1908, which means that they will need to prepare for and re-register under the Incorporated Societies Act 2022. However, the new Act prohibits surplus assets from being distributed to members where the society is wound up.
This will cause issues for many Residents Associations who own common land, as “winding up” provisions often provide that surplus assets should go to the members. For Residents Associations with common land, this ensures that the residents will get a share in the land when and if the society winds up.
This prohibition is to preserve the principle that incorporated societies should not operate for the financial gain of members. However, for Residents Associations that own common land or other property on behalf of residents, if the association was wound up, residents would lose rights to property they justifiably see as being theirs.
What does the exemption mean for residents associations?
In response to these concerns, a temporary exemption has been made allowing Residents Associations to retain the clause in their constitution that enables distribution of surplus assets to members for the transition period.
The exemption is provided for under the Incorporated Society regulations. Residents Associations will still need to re-register under the 2022 Act by the deadline of 5 April 2026. At the same time, they must also notify the Registrar that the constitution they are submitting retains a clause permitting distribution of surplus assets to members if the association winds up.
The temporary exemption will remain in place until 5 October 2028. During this period, Residents Associations must either amend their surplus assets provisions to comply with the Incorporated Societies Act 2022 or consider an alternative ownership structure.
Time to consider an alternative structure?
Although this exemption does not provide a permanent fix for Residents Associations under the new Act, what it does do is provide time for Residents Associations to consider their options and what the best structure will be going forward.
If your Residents Association is in this situation, let us know – we are happy to support you in considering your options moving forward. For further information on how the requirements under the Incorporated Societies Act 2022 will affect Residents Associations, check out this article.
We help with unincorporated and incorporated societies and answer questions all the time. If you would like to discuss further, please contact one of our team.
