Body Corporate 197281 v Shankar
[2013] NZHC 429
•7 March 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-005942 [2013] NZHC 429
UNDER The Unit Titles Act 2010
IN THE MATTER OF An originating application for orders establishing a scheme under s 74 of the Unit Titles Act 2010
BETWEEN BODY CORPORATE 197281
First Applicant
ANDUMBRELLA HOLDINGS LIMITED Second Applicant
ANDJAMES JAI SHANKAR, EVELYN SAROJINI SHANKAR, JOYCE SARITA SHANKAR AND OTHERS
First to One Hundred and Eighth
Respondents
Hearing: 20 February 2013
Appearances: D R Bigio and S M Langley for Applicants
No appearance for Respondents
Judgment: 7 March 2013
JUDGMENT OF ELLIS J
This judgment was delivered by Justice Ellis on 7 March 2013 at 2:15 pm pursuant to R 11.5 of the High Court Rules
Registrar / Deputy Registrar
Date……………………….
Solicitors: Pidgeon Law, P O Box 6536 Wellesley Street, Auckland 1141
Fax: (09) 337-0827 – S Langley – Email: [email protected]
Counsel: D R Bigio, P O Box 4338 Shortland Street, Auckland 1140
Fax: (09) 307-1572 – [email protected]
BODY CORPORATE 197281 V SHANKAR & ORS HC AK CIV-2012-404-005942 [7 March 2013]
[1] Body Corporate 206481 seeks an order under s 74 of the Unit Titles Act 2010 (the Act) authorising a scheme for the remediation of a development known as the Mountain View Apartments, which is located at 68 Mountain Road, Panmure. The development suffers from building defects and (consequentially) leaks.
[2] There are 99 units in the development and all owners and other interested parties have been served with the application. The only respondent to take any steps in the proceeding is Westpac New Zealand Ltd who has advised that it abide the Court’s decision. Accordingly, the matter proceeded by way of formal proof before me.
[3] At the outset I record that there is no question that the s 74(1) threshold is met; the building has indisputably been damaged.[1] The professional advice given to the Body Corporate is that effectively a full re-clad is required with other structural and compliance issues also needing to be addressed. An estimated cost of the remedial works has been compiled on the basis of that advice and presently stands at some $8.4m. That sum includes professional fees, consents and GST.
[1] Section 74(1) provides: This section applies if any building or other improvement comprised in any unit or on the base land is damaged or destroyed, but the unit plan is not cancelled.
[4] It is also relevant to note at the outset that, although there has not been a complete consensus as to some of the detail of the proposed scheme, all owners and interested parties agree that a scheme of some kind is required.
[5] The delineation between common and private property in the development is relatively clearcut. Yeomans Survey Solutions (Yeomans) have provided an opinion on the boundaries between the two and have established that:
… the majority of the exterior weatherproofing “fabric” of the units are within unit property. The exceptions are the exterior weatherproofing “fabric” of a few end walls in each of the lots, the covered entranceway structures and adjoining walls in relation thereto, together with the lower roof of block 3 which are currently within future developments unit (FDU) D, which will ultimately become common property.
[6] For reasons that will later become apparent it is relevant to note that the roof of all the buildings are within the boundaries of the top floor units and are thus unit
property under the Act. The only exception is the lower portion of a block 3 roof, which is common property.
[7] The provisions of the draft scheme envisions that the entire development i.e. common and unit property, be repaired in a single project. The specific provisions of the proposed scheme were helpfully summarised in submissions by Mr Bigio and that summary is annexed to this judgment. The majority of these provisions are standard in schemes of this kind.
[8] The two issues which are peculiar to this development and to the scheme relate to the roof, which, as I have noted, largely constitute private property, and the large decks which adjoin certain of the top floor units. The decks form part of the two units to which they attach and are thus private property.
[9] As far as the roof is concerned the operation of the Act would mean that the top floor unit owners would be liable to bear the entire cost associated with roof and parapet repairs. The Body Corporate in this case formed the view that this would not be fair given that the roof is essential to the overall integrity of the entire building. A departure from the 2010 Act was therefore recommended whereby the total roof remediation cost would be shared amongst all owners in proportion to their ownership interests.
[10] At the EGM on 4 July 2012 (the issue having been discussed at previous EGMs) 35 owners voted in favour of this re-apportionment, six voted against and one owner abstained.[2]
[2] A further proposal by the Body Corporate that indirect costs associated with the reinstatement project (as defined by the quantity surveyor for the project) would be paid for by owners in accordance with the RCAP was also passed at this EGM (28 owners in favour,13 against and one owner abstaining).
[11] A similar resolution to share the costs associated with the repair of the roof decks across all owners in proportion to ownership interest was defeated. After further discussion it was agreed that owners be asked to consider three other options, namely sharing of either 75 per cent, 50 per cent or 25 per cent of the roof deck repair costs. That matter was put to the vote at a subsequent EGM on 22 August
2012 and it was ultimately resolved that:[3]
[3] Forty of the owners present at the EGM voted in favour of this motion and eleven voted against.
(a) 25 per cent of the roof deck repair costs would be shared amongst all owners in proportion to their respective ownership interests; and
(b) The owners of units 67 and 69 would pay the remaining 75 per cent.
[12] From the evidence before me I am satisfied that a robust process was followed by the Body Corporate in arriving at the scheme and in particular, the two potentially contentious variations or departures from the Act I have noted above. Although some owners did not participate in or vote at the EGMs to which I have referred, no steps have been taken by those non-voting owners in this proceeding. And importantly, the difference in dollar terms between the lower floor owners’ position under the Act and the liability of those owners under the variations is small. As I understand it, those owners who will be required to pay more for the remediation work under the scheme (by virtue of the re-apportionment of the roof and roof deck costs) will be liable to pay a further $3,000 to $4,500 each. In the context of a complex remediation work such as this, that additional cost burden cannot be seen as particularly significant.
[13] The leading authority in relation to the approval of unit title schemes is the Court of Appeal’s decision in Tisch v Body Corporate 318596.[4] Although that decision related to a scheme under s 48 of the Unit Titles Act 1972, s 74 is materially the same as that section. The Court of Appeal in Tisch said there were five factors to be taken into account when considering the terms of a proposed scheme:[5]
[4] Tisch v Body Corporate 318596 [2011] NZCA 420, [2011] 3 NZLR 679 (CA).
[5] At [45] – [49].
First, a scheme with a broad support is to be preferred. The greater the level of support from owners for the proposed scheme, the more likely it is that the scheme does justice between owners …
Secondly, the scheme should be appropriately detailed. The more detailed a scheme, the less scope for later misunderstanding and argument about it.
Thirdly, providing that what has been done by the body corporate before the s 48 scheme is actually approved is in accordance with the scheme, the order has retrospective effect …
Fourthly, work should normally be done to the same standard and at the same time
…
Fifthly … the terms of the s 48 scheme should depart from the scheme of the Act and from the body corporate rules no more than is reasonably necessary to achieve what is fair as between unit owners in the circumstances … An exception to this fifth guiding principle is a scheme unanimously agreed to by all unit owners.
[14] An application of those factors in the circumstances I have set out above leads inexorably to the conclusion that a scheme should be settled in relation to the Mountain View Apartments and that the draft scheme before me is appropriate. In short:
(a) The development is damaged;
(b)All unit holders support the settling of a scheme and one is required in order to effect the necessary repairs;
(c) The only terms of the scheme that are potentially contentious have been the subject of robust and appropriate consultation and have clear majority support;
(d)Any financial detriment to those unit holders who voted against those terms or who did not participate in the votes is small, particularly compared with the overwhelming benefit of facilitating and completing the remediation work in a coordinated way;
(e) Those unit holders who voted against those terms or who did not participate in the votes took no steps to oppose the present application.
[15] I am therefore satisfied that the proposed provisions in the draft scheme are appropriate and I order that that scheme should be settled under s 74 of the Act
accordingly.
Rebecca Ellis J
Schedule
Detail of proposed scheme as summarised by counsel for the Body Corporate
16. The provisions of the draft scheme were summarised as follows:
(a) Section 3 Extent of repairs – The Draft Scheme covers all works required to address all of the defects and associated damage to the Development whether the works relate to common or unit property.
(b) Section 4 Duties, obligations and authorities of the Body Corporate – The Draft Scheme provides the Body Corporate with all of the necessary powers, authorities and duties to give effect to the Draft Scheme and reinstate the Development. This includes the authority to raise the money required to fulfil its obligations under the reinstatement project by levying contributions from owners and/or borrowing (clause 4.1 – 4.10).
(c) Section 5 Delegation of powers and duties – The Body Corporate may delegate all or any of its owners to the Body Corporate Committee. The Committee may, however, in its discretion refer matters for decision to a general meeting of the Body Corporate. Despite delegating its powers to the Committee, the Body Corporate retains the ability to perform any duty or power under the Draft Scheme as well as its overall responsibility for the reinstatement of the Development (clauses 5.1 – 5.3).
(d) Section 6 Duties and obligations of owners – Owners are generally required to co-operate with the Body Corporate in respect of the implementation of the Draft Scheme. They are also required to provide access to their unit property and vacate their unit as may be necessary and comply with health and safety directions (clauses 6.1
– 6.4).
(e) Section 7 Work undertaken prior to existence of the scheme – Investigation and repair work undertaken prior to the settling of the Draft Scheme is also covered. The work is deemed to have been carried out pursuant to the Scheme and the costs are recoverable from owners in accordance with clause 8 (clauses 7.1 – 7.2).
(f) Section 8 Basis for raising funds required for repairs – The Body Corporate will levy contributions from Owners in accordance with the Reinstatement Cost Apportionment Percentage (RCAP) as recorded in Schedule A. The RCAP will be recalculated and any necessary adjustments to levies will be made in the event that, subsequent to the Body Corporate entering into a construction contract, the quantity surveyor determines that there is a variance between the contracted costs and the repair estimates upon which the RCAP is based and there is likely to be a material difference to the RCAP. Any additional works requested by an owner and undertaken in accordance with clause 4.9 shall be paid for by that owner. Any
funds determined by the Body Corporate to be surplus to requirements at any time throughout the Reinstatement Project will be refunded to owners in the same proportion as they were collected unless any unpaid contributions and accrued interest to be deducted (clauses 8.1 – 8.4).
(g) The RCAP calculation is a combination of the ratio of cost associated with direct work to an individual unit to the overall direct cost of work to all units, and the cost associated with direct work to common property apportioned to each unit in accordance with ownership interest. The cost per unit is based on the Unit Titles Act
2010 position but with the roof repair costs shared by all owners in proportion to ownership interest. In addition, all costs related to the
roof decks of units 67 and 69 are to be shared in the following manner: 25% of the costs to be shared amongst all owners in
proportion to their respective ownership interests and the owners of units 67 and 69 paying the remaining 75%.
(h) Section 9 Reinstatement project and letting of construction contract – The Body Corporate must be reasonably satisfied that it can meet the costs of repairs (through contributions levied from owners or otherwise) before it enters into a construction contract for the repair work (clause 9.1).
(i) Section 10 Completion of reinstatement project – Following the issue of a code compliance certificate for the Repairs by Auckland Council, the Reinstatement Project shall be deemed to be completed and the order settling the Draft Scheme shall be discharged by the Body Corporate giving written notice to the Court and all parties. The Body Corporate shall then forward a copy of the Court’s discharge notice to the District Land Registrar (clauses 10.1 – 10.3).
(j) Section 11 Variations in excess of contingencies – All variations to the agreed plans and specification must be submitted to the Body Corporate and then be reviewed by the Body Corporate’s expert consultants. The cost of the repair work may need to be re-assessed and additional levies struck (clauses 11.1 – 11.3).
(k) Section 12 Recovery of unpaid contributions – If an owner fails to pay any invoice or contribution, the Body Corporate may at any date following the expiry of the deadline for payment serve written notice of default on that Owner. The Body Corporate’s administrative and legal costs and expenses in recovering the unpaid amount shall be payable by the owner in default. Interest shall accrue on all unpaid amounts at the Body Corporate’s trading bank account retail overdraft lending rate to be calculated at a daily rate from the payment due date until the date that the payment is made. The costs incurred in borrowing any amounts (whether due to an owner’s default or otherwise) shall be recovered from the owners in respect of which the borrowings were incurred at the same rate as charged to the Body Corporate together with an administrative fee. Any interest accrued on unpaid amounts is suspended pending repayment of the borrowings (clauses 12.1 – 12.7).
(l) Section 13 Transfer of unit property under the scheme – On the sale of a unit, all contributions due for payment before settlement of the transfer are payable by the outgoing owner and the incoming owner is responsible for all contributions due for payment after settlement. The Body Corporate shall include a full account of all contributions and invoices paid or unpaid when issuing any disclosure of information statement (clauses 13.1 – 13.3).
(m) Section 14 Accounting – The Body Corporate shall use a separate bank account for all transactions associated with the repair work. Statements shall be prepared and submitted to owners on a quarterly basis and an annual audit shall be undertaken by an independent auditor (clauses 14.1 – 14.3).
(n) Section 15 Indemnity and liability – The owners jointly indemnify and hold harmless, the Body Corporate, its members, the Chairperson and the Committee apart from where there is wilful misconduct, gross negligence or fraud. Owners who own unit property as trustee of a trust have their liability limited to the net assets of the trust (clauses 15.1 – 15.2).
(o) Section 16 Joint ownership – Where a unit is owned jointly, the separate owners shall be bound jointly and severally and the Body Corporate may deal with either owner (clause 16.1).
(p) Section 17 Dispute resolution – The Owners, the Body Corporate and the Body Corporate Committee agree to use their best endeavours and to act in good faith in attempting to resolve any dispute arising in connection with the Draft Scheme. Provision is made for disputes to be resolved by mediation, arbitration or application to the Court for further orders (clauses 17.1 – 17.2).
(q) Section 18 Mediation – Should the parties agree to refer the dispute to mediation they will use their best endeavours to agree to the appointment of a mediator and undertake mediation and if the matter is resolved the parties shall execute a binding settlemente agreement. Should the matter not proceed to mediation within 28 days of either party first seeking mediation, then that party shall withdraw its offer by written notice and seek to refer the matter to arbitration or to the Court (clauses 18.1 – 18.3).
(r) Section 19 Arbitration – An arbitrator shall be appointed in accordance with the First Schedule of the Arbitration Act 1996 should the parties be unable to agree upon a sole arbitrator within ten working days of reaching agreement to arbitrate. By agreeing to arbitration, the parties agree to be bound by every decision and award of the arbitrator to waive their right to seek leave to appeal or seek further recourse to the Court. Clause 1 of the Second Schedule of the Arbitration Act 1996 shall not apply (clauses 19.1 – 19.3).
(s) Section 20 Leave of the Court – Leave is reserved to any party affected by the Draft Scheme to apply for further orders including in respect of any disputes arising under the Draft Scheme or in the event that the Body Corporate does not proceed with the repair work (clauses 20.1 – 20.2).
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