Body Corporate 162791 v Gilbert
[2016] NZHC 2404
•10 October 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-003833 [2016] NZHC 2404
BETWEEN BODY CORPORATE 162791
Plaintiff
AND
JOHN GILBERT First Defendant
QSM TRUSTEE LTD (in Receivership and in Liquidation)
Second Defendant
Hearing: 15 - 17 June 2016 Counsel:
J F Anderson QC and T J G Allan for the Plaintiff
NS Gedye AC, S M Jass andJ A MacGillivray for the Defendants R J MacDonald for the Non-Party [Ashton Investments Limited]
(Granted Leave to Withdraw at Commencement of Trial)
R J Cooke for Ashton Investments Limited (on 17 June 2016)
Judgment:
10 October 2016
JUDGMENT OF EDWARDS J
This judgment was delivered by Justice Edwards
On 10 October 2016 at 3pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Counsel: J F Anderson QC, Auckland
N S Gedye QC, Auckland
Solicitors: Grove Darlow and Partners, Auckland
Tompkins Wake, Auckland
Copy To: MBC Law Limited, Auckland
BODY CORPORATE 162791 v GILBERT [2016] NZHC 2404 [10 October 2016]
INDEX
Introduction ................................................................................................................[1] Background ................................................................................................................[5] Terms of the Covenant .............................................................................................[16] Pleadings ..................................................................................................................[20] Issues ........................................................................................................................[23] Interpretation of Covenants......................................................................................[25] Statutory context ......................................................................................................[28] Agreed declaration – interrelationship with the Unit Titles Act 2010 .....................[35] Issue 1 – Exhaustion of the Redevelopment Rights.................................................[40] Issues 2 and 3 – Subdivision consent under the Resource Management Act 1991..[56] Issue 4 – Compensation ...........................................................................................[65] Issue 5 – Redevelopment limited to creation of units? ............................................[70] Further units.........................................................................................................[72] Redevelopment below level three .........................................................................[83] Result .......................................................................................................................[94]
Introduction
[1] On 20 September 1994 the owner of the property known as the Mid City centre entered into a covenant securing certain redevelopment rights for itself and its successors and assigns (Covenant). The Covenant was registered against the title of the land and binds current and future proprietors of units in the centre.
[2] The plaintiff is the body corporate for the centre (Body Corporate). It seeks declarations as to the redevelopment rights secured by the Covenant. In particular, it seeks declarations relating to the exhaustion of the redevelopment rights; the scope of redevelopment allowed; and whether compensation is payable for common property taken under the Covenant.
[3] The second defendant (QSMTL) is the owner of five units in the centre and the Grantee of the Covenant. The first defendant is the receiver of QSMTL. The defendants oppose the declarations sought by the Body Corporate, although agreement has been reached on the interrelationship with the Unit Titles Act 2010,
and the scope of the rights as they affect common property below level three. The defendants counterclaim for two declarations confirming that the Covenant allows successive redevelopments, and does not require the Grantee to pay compensation for the taking or use of common property.
[4] Aston Investments Ltd is the financer of QSMTL. It was granted leave to intervene at the closing submissions stage of the hearing. It generally supports the position taken by the defendants although advocates caution in making the agreed declarations.
Background
[5] The Mid City centre comprises a basement; a mid-level of two floors containing individually owned units currently used as retail premises; and an upper level spread over three floors (known as levels three to five).
[6] The common property includes an arcade running between Queen Street and Elliott Street on level one (ground floor), and an arcade and lobby on level two which provides the main access to those units. The common property also comprises open voids and lobby areas throughout the building.
[7] The complex comprises 44 units in total. QSMTL is the registered proprietor of units 3A to 3E and its accessory units (the level three units) which are located on levels three to five of the complex. Those units originally comprised picture theatres and were noted as such on the certificate of title.
[8] By 1994 the Mid City centre was owned by Mission Developments (Auckland) Ltd (Mission). Mission converted the property into its current unit title structure. It registered the Covenant against the relevant titles and then deposited the unit plan. Units below level three were sold subject to the Covenant. Mission retained the level three units until they were sold in 1997. Ownership of those units has changed hands a number of times since then, and there have been a number of redevelopment proposals for levels three and above, none of which have come to fruition.
[9] One of those proposals included the construction of a six story residential apartment block. In Myers Park Apartments Ltd v Sea Horse Investments Ltd, the owners of the level three units commenced proceedings seeking to enforce the terms of the Covenant to allow that development to proceed.1
[10] Venning J held that the Covenant was for the benefit of the owners of the level three units; it was not inconsistent with s 44 of the Unit Titles Act 1972; and was enforceable against the other unit owners.2 A claim for extinguishment and modification of the Covenant under the Property Law Act 1952 was declined on the grounds there had been no particular change since its creation; and an order for compensation for the use of common property was found to be unnecessary as the owner had already made a commitment to buy the common property at market value.3 Despite the owners succeeding in that case, the redevelopment did not go ahead.
[11] On 9 September 2010, the 239 Queen Street Trust was settled with a view to acquiring the level three units. The corporate trustee of that trust, 239 Queen Street Trustees Ltd (now in liquidation), (239 QSTL) was incorporated the following day. Negotiations between 239 QSTL and the Body Corporate culminated in a letter of understanding dated 24 November 2010. The key terms of that letter record that the balance of levy arrears would be written off on completion of a roof replacement by
239 QSTL, and a variation to the Covenant would be agreed to remove any reference to common property within the complex, but the option for redevelopment of the airspace would be retained. The letter also contemplated the grant of a licence and the transfer of common property to 239 QSTL.
[12] Settlement of the sale of the level three units occurred on 17 May 2011. Over the following months, a plan was developed to level the picture theatre floors and erect retail booths on levels three to five, including the common property on those
floors. This came to be known as the “Queen Street Markets”.
1 Myers Park Apartments Ltd v Sea Horse Investments Ltd (2006) 7 NZCPR 454 (HC).
2 At [22]–[26], [38] and [44]–[45].
3 At [50] and [54].
[13] The Body Corporate and 239 QSTL continued to negotiate but failed to agree the terms of a licence for the common property, and a variation of the Covenant. The Body Corporate eventually issued a statutory demand for the non-payment of levies in September 2012 and applied to put 239 QSTL into liquidation.
[14] QSMTL was incorporated in December 2012 and replaced 239 QSTL as corporate trustee. The level three units were transferred to QSMTL which then became liable for all levies owing in respect of those units. QSMTL was placed into receivership on 25 July 2013 and the first defendant, Mr Gilbert, was appointed receiver. The following day QSMTL was placed into liquidation.
[15] On 5 August 2013, the Body Corporate revoked any licence over levels three to five and cancelled the letter of understanding. It threatened to remove the retail booths that were erected on the common property. The defendants disputed the Body Corporate’s right to do so. They indicated that the authority to operate the Queen Street Markets was derived from the Covenant, rather than any licence. That position is no longer taken in this proceeding. QSMTL now accepts that the Queen Street Markets were operated on the basis of a licence, and accordingly, the rights under the Covenant have not yet been triggered.
Terms of the Covenant
[16] The preamble to the Covenant provides as follows:
A. The Grantor is the registered proprietor of the Land and intends to deposit the Unit Plan over the Land, both as referred to and defined in the Schedule, but reserving for the benefit of the Grantee certain rights relating to the redevelopment of the Land.
B. This deed of covenant is intended to bind the Grantor, the Grantee, the Body Corporate, and all of the Proprietors from time to time in accordance with the provisions of Part V of the Property Law Act
1952.
[17] Relevant definitions include:
“Common Property” means the common property shown on the Unit Plan. “Proprietor” means a person registered as a proprietor of a stratum estate in a
Unit or Units on the Unit Plan.
“Redevelopment Plan” means a plan specifying all of the principal and accessory units and common property as may exist consequent upon redevelopment.
“Unit Plan” means a unit plan to be deposited under number 162791 (North
Auckland Land Registry).
“Unit” means a principal unit to be created consequent upon the deposit of
the Unit Plan and …
[18] The interpretation section includes cl1.6 which provides:
The obligations arising pursuant to clause 2 of this deed shall be deemed to apply severally to each Unit and shall in each case be determined by reference to Units owned as at the relevant date that an obligation is to be determined in accordance with the relevant provisions of clause 2.
[19] The operative terms of the Covenant provide as follows:
2.1The Grantee may at any time effect a redevelopment of one or more Units or any part of the Common Property into further units (“Redevelopment”). A Redevelopment may include (without limitation) construction of additions to the Building in the roof and airspace above the Building together with such supporting structures and access to such additions throughout the Common Property together with such other changes to the Building that may be necessary or desirable in the opinion of the Grantee for the Redevelopment. A Redevelopment may also include (without limitation) development and completion of construction of further units in the Building (by, for example, but without limitation, subdividing existing Units or changing the layout and design of the theatre complex and to redefine the Common Property in such a manner as it shall consider fit). Subject to clause 2.3 the Grantee shall have the free and unrestricted right to complete the Redevelopment and Redevelopment Plan. The Grantee may alter the rules of the Body Corporate upon the deposit of the Redevelopment Plan to provide for such rules as shall in the reasonable opinion of the Grantee be necessary or desirable for the proper efficient and equitable management of the Body Corporate for the benefit of owners of all of the Units provided the use and enjoyment by the Proprietors of their respective Units shall not be materially affected in any adverse way.
2.2 Each Proprietor:
(a) does hereby consent to any such Redevelopment;
(b) shall obtain the consent of any mortgagee of each respective Proprietor or caveator or other encumbrance holder in relation to the Unit;
(c) shall procure the execution by the Body Corporate of and shall (if required) execute a transfer of such area of Common
Property to the Grantee together with such other documents as may be required so that certificates of title of the new principal unit or units created (together with any new accessory units created appurtenant to any such principal units) may be issued in the name of the Grantee;
(d) shall give or acquire or join in giving and acquiring any consent and do and execute and join in executing and doing all or any such documents, plans, deeds, acts, matters or things necessary or expedient for completing the Redevelopment Plan and effecting the deposit of the Redevelopment Plan including (without limitation) the adoption of any new rules for the Body Corporate in terms of clause 2.1 above;
2.3 Notwithstanding the provision of clause 2.1, the Grantee shall:
(a) provide details of the Redevelopment to the Body Corporate and to the Proprietors prior to undertaking any work;
(b) act reasonably having regard to the interests of the
Proprietors and occupiers of the Units;
(c) substantially maintain access to the Units through the
Common Property;
(d) maintain reasonable continuity of services, amenities, escalators and lifts at all times;
(e) not affect the size and location of any Unit owned by any Proprietor other than by the Grantee itself or such other Proprietor as may have consented in writing to such alteration in size and location;
(f) endeavour to cause the least disruption reasonably possible to the occupiers of the Building, it being acknowledged by the parties that there may be some disruption such as noise, dust, vibration and nuisance caused by the Redevelopment;
(g) in the interests of minimum disruption to businesses operating in the Building, the Grantee shall as far as reasonably possible, carry out redevelopment work which may have an adverse impact on Proprietors, occupiers, their invitees and shoppers, outside business hours and with adequate safeguards and measures to minimise noise, dust, vibration and nuisance;
(h) prior to the deposit of a Redevelopment Plan provide to the Body Corporate and the Proprietors a copy of the Redevelopment Plan upon which shall be specified all principal and accessory units and common property.
Pleadings
[20] The claim as originally commenced comprised six causes of action. Summary judgment on the first cause of action was declined in the High Court, but allowed in the Court of Appeal.4 The Court of Appeal’s judgment was affirmed by the Supreme Court.5
[21] The parties subsequently reached agreement with the only issues remaining in dispute relating to the interpretation of the Covenant. The plaintiff’s fourth cause of action and the defendants’ second counterclaim seek declarations as to the meaning of the Covenant.
[22] Further consensus was reached during the trial as to the terms of two declarations. The agreed declarations were incorporated in the plaintiff’s fourth cause of action in the third amended statement of claim dated 17 June 2016 and are set out at [35] and [83] of this Judgment. Aston Investments Ltd did not consent to these declarations and submitted that the terms of the declarations go further than the Covenant permits.
Issues
[23] The parties agreed the following list of issues:
1.Are the grantee’s rights exhausted on the deposit of a redevelopment plan or does the grantee have an ongoing right to carry out successive redevelopments?
2.Should the Court declare that Redevelopment under the Covenant must be pursuant to a subdivision consent under s 218 of the Resource Management Act 1991?
3.Do the terms of or scope of a resource consent for subdivision obtained by the Grantee define the Redevelopment that may be undertaken pursuant to the Covenant? If yes, can the Grantee re- define the Redevelopment by seeking a varied or substituted resource consent?
4. Is compensation payable to the Body Corporate for Common
Property taken under the covenant?
4 Body Corporate 162791 v Gilbert [2014] NZHC 567; and Body Corporate 162791 v Gilbert
[2015] NZCA 185, [2015] 3 NZLR 601.
5 Gilbert v Body Corporate 162791[2016] NZSC 61, (2016) 11 NZCLC 98-042.
5. Should the Court declare that the Grantee’s rights in respect of
Common Property are limited to the creation of units?
[24] The agreed declarations, and each of these issues, are considered below.
Interpretation of Covenants
[25] The parties are agreed that the interpretation of covenants affecting land involves the same approach taken to other commercial contracts. The parties’ intentions are to be discerned by considering the meaning which the document would convey to a reasonable person having all the background knowledge which would have been available to the parties in the situation in which they were at the time of the contract.6
[26] There are divergent views on whether a more restrictive approach to the admission of extrinsic material should apply to registered covenants given that third parties inspecting the register cannot be expected to look beyond the registered document to interpret it.7
[27] The issue is not one I need to address in this case as I have not found it necessary to resort to extrinsic evidence not available to third parties in interpreting the Covenant.
Statutory context
[28] The Covenant was created when the Unit Titles Act 1972 was in force. Section 44 of that Act governed redevelopment of unit title structures. Section 44(1)
provided:
6 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].
7 Body Corporate 341188 v District Court at Auckland [2015] NZCA 393, (2015) 16 NZCPR 667 at [21]. Leave to appeal was granted by the Supreme Court in Escrow Holdings Forty-One Ltd v District Court at Auckland [2016] NZSC 188 and the appeal was heard on 28 June 2016. A decision has not yet been released. See also Vincent v Lakes International Golf Management Ltd [2016] NZCA 382 at [35], n 13.
44 Redevelopment
(1) On a redevelopment, application shall be made to the Registrar for the deposit of a plan of redevelopment, being a new unit plan in substitution for the existing unit plan. The new unit plan shall be deposited under the same number as the existing unit plan, and the provisions of section 20 shall apply accordingly.
[29] Section 44(4) provided that a plan of redevelopment could not be deposited unless the application was made by the proprietors of all the units pursuant to a unanimous resolution, and the written consent of mortgagees and caveators had been obtained.
[30] Mr Jones and Mr Gibbons gave expert evidence for the parties at trial. Both experts agreed that the requirement for unanimous consent made redevelopment under the Unit Titles Act 1972 notoriously difficult. A restrictive covenant was one of the means by which the mandated consent of other unit owners to a redevelopment could be obtained to bypass that difficulty.
[31] The Unit Titles Act 2010 came into force on 20 June 2011. Part 2, subpart 10 governs redevelopments.
[32] Under the 2010 Act, a distinction is drawn between redevelopments which consist solely of adjustment of the boundary between one or more units shown on a unit plan and do not materially affect the common property or the use, enjoyment or ownership interest of any unit (as set out in s 65); and all other types of redevelopments.
[33] For the s 65 redevelopment, the consent of affected owners must be obtained. Section 68 governs other types of redevelopment. Section 68(3) requires the written consent of all unit holders materially affected by the redevelopment and any lessor or licensor to be obtained, and agreement by a special resolution (i.e. 75 per cent of a quorate general meeting) to the new unit plan.
[34] After a special resolution is passed, all unit owners, mortgagees, and interest holders must be notified, and a notice of objection to the redevelopment may be
lodged with the Body Corporate within specified statutory timeframes. Other statutory provisions govern the determination of that notice of objection.
Agreed declaration – interrelationship with the Unit Titles Act 2010
[35] The parties agreed a declaration in the following terms:
Subject to there being a Redevelopment as defined in clause 2.1 of the covenant and subject to the Grantee complying with its obligations in clause
2.3 of the covenant, the Proprietors and the Body Corporate are obliged
under clause 2.2 of the covenant to do those things required by the Unit
Titles Act 2010 to effect such Redevelopment.
[36] At a general level, a declaration confirming that the Covenant dovetails with the Unit Titles Act 2010 is unobjectionable. Such a declaration is consistent with the underlying purpose of the Covenant which was to secure the consent required under the Unit Titles Act legislation to any redevelopment.
[37] But in the absence of any disagreement or even uncertainty about that issue, it is difficult to see how making a declaration in agreed terms will provide assistance to the parties (whether present or future).
[38] There is also a risk in granting declaratory relief in the abstract. A concrete proposal which engages the relationship between the Unit Titles Act 2010 and the Covenant may reveal difficulties in the form of the declaration which are not presently apparent.
[39] In the circumstances, I do not consider it necessary to grant the agreed declaration and I decline to do so.
Issue 1 – Exhaustion of the Redevelopment Rights
[40] The Body Corporate contends that the redevelopment rights in the Covenant are exhausted on deposit of a Redevelopment Plan. It says that the Covenant does not give rise to multiple redevelopment rights and was intended to afford the developer a single shot at redevelopment.
[41] The defendants oppose that position and seek a declaration which confirms that successive redevelopments are allowed under the Covenant.
[42] Both parties rely on the plain meaning of the Covenant.
[43] The phrase “at any time” as used in cl 2.1 could be interpreted as affording multiple rights of redevelopment, or it could mean that the rights do not have to be exercised at a certain point of time, but can be exercised “at any time” within the life of the Covenant. The latter interpretation accords with the plain and ordinary meaning of the words in my view. It gives substance to the word “at”, which pin- points a particular moment in time as used in the phrase. The fact that “from time to time” appears in recital B, but not cl 2.1, bolsters that interpretation. But such an interpretation does not mean that the Covenant only affords a single right of redevelopment, or that multiple rights are necessarily precluded.
[44] Little can be read into the use of “a” and “the” in either cl 2.1 or the definition of Redevelopment Plan in my view. References to “a” Redevelopment in cl 2.1 could mean a single redevelopment (as the Body Corporate suggests) or a redevelopment undertaken at a particular point in time without precluding a further redevelopment undertaken at another point in time (as the defendants contend). Similarly, references to “the” could refer to one particular redevelopment without precluding further redevelopments. The same reasoning applies to the definition of “Redevelopment Plan”.
[45] Similarly, the word “any” used in cl 2.2(a) (“does hereby consent to any such Redevelopment”) may be read in at least two different ways. It can mean any redevelopment in the sense of a choice amongst many; or it can mean a single redevelopment should the redevelopment rights be triggered. The use of the word “any” is not probative of whether single or multiple rights of redevelopment are contemplated in my view.
[46] Finally, I consider the words “in each case” as used in cl 1.6 refer to the Units
to which the obligations arising under cl 2 apply, and do not refer to separate
instances of redevelopment as the defendants submit. That phrase does not speak to the question of multiple redevelopments at all in my view.
[47] Overall, the plain and ordinary meanings of the words relied on by both parties emphasise the longevity of the rights secured by the Covenant. But, they do not bear on the question of whether successive or one-off redevelopments rights were intended by the drafters of the Covenant.
[48] A key plank of the Body Corporate’s position is that the Covenant would become unworkable if it were intended to endure beyond the deposit of a single Redevelopment Plan. The definitions of “Unit”, “Proprietor” and “Common Property” in the Covenant all refer to “the Unit Plan”. Ms Anderson submits that the “Unit Plan” means the original unit plan which was to be deposited. Therefore, she submits that upon deposit of the Redevelopment Plan the definitions under the Covenant will become unworkable, and accordingly the redevelopment rights will be spent.
[49] Preamble A to the Covenant refers to the intention of the Grantee (Mission) to deposit the Unit Plan. In that context, I accept that the definition of Unit Plan appears to refer to the original Unit Plan “to be deposited”. But I do not accept that the definition is therefore incapable of referring to other unit plans “to be deposited”, or that the Covenant would become unworkable after deposit of a Redevelopment Plan.
[50] Section 44(1) of the Unit Titles Act 1972 provided that a plan of redevelopment became a new unit plan which was deposited under the same number as the existing unit plan. It also provided that s 20 of that Act would apply. That section set out provisions governing supplementary record sheets and new unit plans. Subsection 3 provided:
20 Supplementary record sheets and new unit plans
…
(3) In any case where, under any of the provisions of sections 18, 19, and 44, a new unit plan is deposited under the same number as a previous unit plan–
(a) the previous unit plan shall be filed under a different number:
(b) the plan so deposited shall be noted so as to show clearly that it is in substitution for the earlier plan, which plan shall be identified by the number under which it is filed:
(c) where any unit is described in any certificate of title or in any other instrument whatsoever by reference to a numbered unit plan in respect of any land, the reference shall be read as a reference to the plan for the time being deposited under that number in respect of that land.
… (emphasis added)
[51] There is nothing in the Covenant which suggests that this statutory process was to be ousted or modified in any way. Construed in its statutory context, once a Redevelopment Plan was deposited it would become a Unit Plan under the same number as the existing Unit Plan (in this case, No 162791 as specified in the definition of “Unit Plan”). References to units and common property described by reference to the original Unit Plan would be read as referring to the plan for the time
being deposited under that number (i.e. the Redevelopment Plan).8 The Covenant
would not therefore become unworkable following the deposit of a Redevelopment
Plan but could continue to operate by reference to that Redevelopment Plan.
[52] Ultimately, I consider the Covenant to be silent on the question of when redevelopment rights are spent and whether single or multiple rights of redevelopment are authorised by its terms. The absence of any express clause specifying an expiry date, or other machinery by which the Covenant could be brought to an end, underscores that silence.
[53] Section 126G of the Property Law Act 1952 provided a statutory mechanism by which covenants might be extinguished or modified. An equivalent provision is found in s 317 of the Property Law Act 2007. The 1952 provision was invoked in Myers Park Apartments. Venning J rejected the application on the grounds that there had not been a change of circumstances to justify extinguishing or modifying the
Covenant.9
8 A similar scheme applies under the 2010 Act: see ss 49 and s 68.
9 Myers Park Apartments Ltd v Sea Horse Investments Ltd, above n 1, at [50].
[54] In the absence of an express provision, I consider the Covenant was intended to endure until application was made to either extinguish or modify it pursuant to s
126G of the Property Law Act 1952, or its statutory equivalent. Whether single redevelopments or multiple redevelopments are authorised by the Covenant does not depend on an interpretation of the Covenant terms, but on whether the statutory criteria for extinguishment or modification have been met in a particular case. That will depend on the nature of the redevelopment and the other circumstances which exist at the time the application is made.
[55] It follows that I do not consider that the redevelopment rights are exhausted on deposit of the Redevelopment Plan as the Body Corporate contends. Nor do I consider that multiple rights are necessarily allowed under the Covenant. The answer to when the Covenant will expire is not found in the terms of the Covenant, but in the statutory criteria which applies on application for extinguishment or modification. Both claims for declaratory relief are accordingly declined.
Issues 2 and 3 – Subdivision consent under the Resource Management Act 1991
[56] The Body Corporate seeks a declaration in the following terms:
(ii) Redevelopment under the Covenant must be pursuant to a resource consent for subdivision under the Resource Management Act 1991 which defines the redevelopment proposed to be undertaken.
[57] Ms Anderson submits that the declaration is necessary to further elucidate what is meant by Redevelopment under the Covenant. She submits that it is only through consent for subdivision being granted that unit holders will be able to know that the redevelopment rights are being exercised, and that will then allow them to ensure that the obligations on the Grantee in cl 2.3 are properly observed.
[58] Redevelopment is defined in cl 2.1 of the Covenant. That definition is not linked to a requirement that a resource consent or any other building consent be obtained.
[59] In contrast, the meaning of “Unit Entitlement” is specifically defined by reference to the meaning ascribed to it by the “Act”. The “Act” is defined to mean
the Unit Titles Act 1972 and includes any statutory modification or re-enactment of that Act.
[60] If the meaning of “Redevelopment” was to be linked to the Resource Management Act, then an express reference to that statute could have been specified. The absence of such reference suggests there was no intention to link it in this way.
[61] The declaration is not necessary to police the terms of the Covenant. Clause
2.1 makes the right of redevelopment subject to cl 2.3. Clause 2.3 places a number of obligations on the Grantee. Those include providing details for the redevelopment to the Body Corporate and to the Proprietors prior to undertaking any work (cl
2.3(a)), and acting reasonably having regard to the interests of the Proprietors and occupiers of the units (cl 2.3(b)). Those obligations provide the means by which unit owners may know whether or not the Covenant rights are being exercised, and the means by which they may monitor compliance with the obligations imposed.
[62] A declaration linking redevelopment to a subdivision consent is not necessary and is at odds with the comprehensive definition of redevelopment provided in cl 2.1.
[63] This does not mean that the Covenant exempts the Grantee from compliance with the Resource Management Act. As Venning J held in Myers, the Grantee will need to obtain all necessary consents and approvals to be able to effect a redevelopment.10 Both experts agreed that any redevelopment under the Covenant is likely to require subdivision consent under the Resource Management Act. At a practical level therefore, compliance with applicable statutory controls may mean the Proprietors and Body Corporate receive the substantive information they seek in any
respect.
[64] I accordingly decline to grant the declaration sought.
10 Myers Park Apartments Ltd v Sea Horse Investments Ltd, above n 1, at [55].
Issue 4 – Compensation
[65] The Body Corporate says that it is implicit in the Covenant that the Grantee is obliged to compensate it for taking common property either above or below levels three to five. It seeks a declaration to that effect. The defendants oppose that declaration and counterclaim for a declaration confirming that compensation is not payable under the Covenant.
[66] I do not consider that a right to compensation can be implied into the Covenant. The Covenant clearly defines the various parties’ rights and responsibilities. The Grantee’s obligations are listed in cl 2.3. They do not include an obligation to pay for any common property taken for the redevelopment. Such an obligation imposes a significant burden on the Grantee and if such an obligation was intended then it is reasonable to expect it to have been expressly stated.
[67] The absence of such an express term is not surprising given that the Covenant was a grant of rights from Mission to itself. At the time the Covenant was registered it already owned all the common property, and the level three units. There was no reason for it to insert an obligation to agree to pay for that common property again when undertaking a redevelopment.
[68] Construing the Covenant as requiring compensation to be paid, (or implying a term to that effect), would significantly alter the commercial balance struck in the Covenant and relied on by third parties in examining the register. There is no basis to imply the obligation to pay compensation in those circumstances.
[69] The defendants’ declaration is widely drafted. I consider the declaration needs to be tailored to the rights under the Covenant. A declaration in those terms is set out at the end of this Judgment.
Issue 5 – Redevelopment limited to creation of units?
[70] The Body Corporate seeks a declaration confirming that the redevelopment rights in cl 2.1 may only be exercised to create units as defined in the Unit Titles Act
2010.
[71] This issue has two aspects to it. The first is whether a redevelopment must relate to the creation of units under the Unit Titles Act regime, or whether something less than the creation of units is authorised by the Covenant. The second aspect concerns the extent of the redevelopment rights in relation to the levels below level three – both in terms of the creation of units and rights in relation to common property.
Further units
[72] The genesis of this claim was the dispute between the parties as to whether the Queen Street Markets was a redevelopment under the terms of the Covenant. That issue is no longer in dispute, as the defendants now accept that the rights under the Covenant have not been triggered, and the Queen Street Markets were authorised by licence.
[73] As the issue developed at trial, it became apparent that there was still a dispute between the parties as to the meaning of cl 2.1. The defendants contend that cl 2.1 is to be read as a whole, whereas the Body Corporate contends that the first sentence defines redevelopment, with the remaining part of the clause to be read subject to that clause.
[74] “Redevelopment” is defined in the Covenant to “have the meaning ascribed to it in clause 2.1”. The first sentence of cl 2.1 provides as follows:
The Grantee may at any time effect a redevelopment of one or more Units or any part of the Common Property into further units (“Redevelopment”) …
(emphasis added)
[75] I agree with Ms Anderson that this first sentence defines a “Redevelopment”. That interpretation gives meaning and effect to the word “Redevelopment” contained in the parentheses at the end of the first sentence. A “Redevelopment” must therefore involve a redevelopment of units or the common property “into further units”.
[76] That interpretation is consistent with the definition of redevelopment in the
1972 Act which included “the subdivision of existing units by sale, transfer or
partition into two or more new units, the enlargement of a unit, and the erection of
one or more new units on the common property”.11
[77] It is also consistent with the definition of “Redevelopment Plan” in the
Covenant which is as follows:
“Redevelopment Plan” means a plan specifying all of the principal and accessory units and common property as may exist consequent upon redevelopment.
[78] As confirmed by this definition, the outcome of a redevelopment involves a new unit plan specifying principal and accessory units and common property consequent upon redevelopment.
[79] It follows that the remainder of cl 2.1 is to be read subject to the definition contained in the first sentence. That clarifies the scope of what constitutes a redevelopment, but it does not authorise a redevelopment that does not involve redevelopment of existing units or the common property “into further units”.
[80] A requirement that a Redevelopment involves the creation of further units does not mean that the common property must be converted “into further units”. That would be inconsistent with the remainder of cl 2.1. The third sentence of that clause specifically provides that a Redevelopment may include the construction of further units by subdividing existing units or changing the layout and design of the theatre complex and redefining the common property. The end result of any redevelopment must be the creation of further units, but the changes to the common property could be part of that redevelopment, and may or may not be used to create those further units.
[81] What constitutes “further units” must be understood within the meaning of the Unit Titles legislation. The structure for the building is a unit title structure. “Unit entitlement” under the Covenant is defined as having the same meaning under the Unit Titles Act 1972 and any statutory modification or re-enactment of that Act. The word “units” must refer to units within the meaning of the Unit Titles legislation; it
does not make sense in any other context.
11 The definition of redevelopment under the 2010 Act is substantially the same.
[82] A declaration confirming that a Redevelopment must involve the creation of further units within the meaning of the Unit Titles legislation is set out at the end of this Judgment.
Redevelopment below level three
[83] The other aspect of this issue is the scope of the redevelopment rights below level three. The parties reached agreement on the terms of a declaration in relation to the common property below level three as set out below:
Subject to the Grantee observing the obligations in clause 2.3 of the covenant to each other Proprietor and the Body Corporate, clause 2.1 of the covenant gives the Grantee the right to take a transfer of, utilise, redefine or alter Common Property below level 3, in such a manner as it shall consider fit, and in any way that may be necessary or desirable, in the opinion of the Grantee, for the Redevelopment provided that such transfer, utilisation, redefinition or alteration is ancillary to a Redevelopment as defined in clause
2.1
[84] Although the agreed declaration deals with common property only, the issue also arises in relation to the creation of further units below level three. That is because the definitions of common property and units in the Covenant do not distinguish between units and common property located above and below level three. Clause 2.1 expressly provides that a Redevelopment may include construction of further units in the “Building”, which is defined to mean the building known as “MidCity Centre”. On its face, therefore, the rights in cl 2.1 would allow a substantive redevelopment of the units and common property below level three.
[85] I agree with the parties that this cannot have been intended when the Covenant was drafted. The units and common property below level three were to be sold to third parties subject to the Covenant. Mission retained the level three units, with the right to redevelop levels three and above. The intention was not to redevelop the units which were to be sold to third parties, but to retain the right to “unlock the value” (as Ms Anderson put it) in the upper floors.
[86] Such a distinction was the foundation of Venning J’s decision that the Covenant was for the benefit of the level three units. The features of the Covenant which Venning J relied on to reach that conclusion were as follows:
[35] … At the time the covenant was made level three was developed as the cinema theatre complex. The lower levels were developed as retail units, as they remain. If there was to be a redevelopment of the centre it would naturally be of level three if and when the use of level three as a cinema complex ceased or changed. Clause 2.1 of the redevelopment covenant recognises that by expressly referring to the example of a redevelopment as the “subdivision of existing units or changing the layout and design of the theatre complex and to redefine the common property in such manner as it shall consider fit”. …
[36] Further, clause 2.1 also provides for the redevelopment to include construction of additions to the building in the roof and air space above the building “together with such supporting structures and access to such additions throughout the common property … ”. Physically any such development would involve the redevelopment of level three and would be based on level three. The evidence of Mr Park, the structural engineer, confirms this. His evidence which I accept was that “nothing can be constructed onto the existing roof and no other unit owner, other than the owner of the cinema units, could develop a structure into the air space above the cinema units”.
[37] In addition the common property referred to in clause 2.1 is the common property being the air space above the roof over level three. On the level three plan of units on lots 1 and 2 DP28105, the common property above the roof is noted as “(to be subject to redevelopment rights)”. That reference does not appear on any of the other plans relating to the other levels in the complex.
[87] Although the issue is slightly different, the reasoning in that case is equally applicable. The benefit of the Covenant was to allow substantive redevelopment rights in relation to level three and above, and was not intended to extend to the units below level three which were to be sold, (and were so sold), to third parties.
[88] The obligations in cl 2.3 provide another indication that the substantive redevelopment rights were not intended to extend below level three. Those rights include an obligation to maintain access to the units through the common property and continuity of services, amenities, escalators and lifts. Importantly, the Grantee is prohibited from affecting the size or location of any “unit owned by any Proprietor other than by the Grantee itself”, unless that proprietor consents in writing. Those rights provide the outer limits of the extent of interference with the common property below level three in my view.
[89] Whilst the substantive redevelopment was to take place on level three, the Covenant clearly contemplated that consequential changes to the rest of the Building might be required. This finds expression in the cl 2.3 rights mentioned above, but
also the broad rights preserved in cl 2.1 which confirm that a Redevelopment includes “the right to supporting structures and access to additions throughout the Common Property”.
[90] I therefore agree with the parties that the redevelopment rights below level three must be ancillary to any redevelopment of levels three and above. I consider that distinction applies whether it relates to the creation of further units or the use of the common property. In other words, cl 2.1 would allow the creation of a further unit below level three if that unit was ancillary to a redevelopment on level three and above, and did not otherwise infringe the rights in cl 2.3.
[91] However, whether a declaration should be made in the terms sought by the parties is a separate question. Although access to declaratory relief does not depend on there being an existing dispute,12 there is no concrete proposal before the Court by which the terms of the declaration may be tested. An attempt to provide clarity around this issue may simply result in uncertainty as to what is meant by the declaration in any particular case. Mr Cooke’s note of caution about making an
agreed declaration has some force in this context.
[92] Furthermore, the terms of the agreed declaration use words (“transfer, utilisation, redefinition or alteration”) which do not appear in cl 2.1 itself. In reality, it is a negotiated clause between the parties to the proceeding.
[93] The balance between declaratory relief and variation to the Covenant by consent is a delicate one in this case. In the circumstances I am prepared to declare that Redevelopment below level three must be ancillary to Redevelopment on level three and above. Agreement between the parties which extends beyond that should
be recorded by way of variation to the Covenant.
12 Mandic v The Cornwall Park Trust Board (Inc) [2011] NZSC 135, [2012] 2 NZLR 194 at [9].
Result
[94] The Body Corporate is successful in its claim that Redevelopment means Redevelopment into further units. The fourth cause of action is allowed to that extent. The remainder of the fourth cause of action is dismissed.
[95] The defendants are successful in their second counterclaim that the Covenant does not give rise to a right to compensation. The second counterclaim is allowed to that extent. The remainder of the second counterclaim is dismissed.
[96] I make the following declarations:
(a) The terms of the Covenant do not require the Grantee to pay compensation for Common Property taken for a Redevelopment as defined in the Covenant.
(b)A Redevelopment under the Covenant involves the creation of further units within the meaning of the Unit Titles legislation.
(c) Redevelopment below level three is ancillary to Redevelopment of level three and above.
[97] Each party has had a measure of success. That favours an order that costs lie where they fall. Nevertheless, if either party seeks an order of costs, then a memorandum in support shall be filed within 15 working days of this judgment, with a memorandum in response filed 10 working days thereafter. Costs will be
determined on the papers.
Edwards J
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