Body Corporate 202283 v Reece
[2014] NZHC 864
•30 April 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV2014-404-000318 [2014] NZHC 864
BETWEEN BODY CORPORATE 202283
First Applicant
AMANDA MARIE GLEESON Second Applicant
AND
KIM MICHELLE REECE First Respondent
OTHER RESPONDENTS
Hearing: 28 April 2014 Appearances:
D R Bigio and J M May for the Applicant
No Appearance for the RespondentJudgment:
30 April 2014
[RESERVED] JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie on 30 April 2014 at 4.00 pm
Pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
BODY CORPORATE 202283 & ANOR v REECE & ORS [2014] NZHC 864 [30 April 2014]
Introduction
[1] Body Corporate 202283 seeks an order under s 74 of the Unit Titles Act
2010. It says that the unit title development it administers is a leaky building, that it suffers from various building defects and that water ingress occurs as a result. It seeks to establish a scheme under s 74 so that it can manage the reinstatement of the development.
[2] The Body Corporate has filed an originating application, and a detailed supporting affidavit from its chairperson, a Ms Gleeson. There are 21 units in the unit title development. There are affidavits on file confirming that all owners have been served. There is no opposition to the application.
Background
[3] Body Corporate 202283 was constituted under the now repealed Unit Titles Act 1972 on 10 July 2000, when unit plan DP202283 was deposited. The development administered by the body corporate is known as “Piazza Terraces”. It is situated in Harrison Road, Ellerslie.
[4] The development consists of two separate blocks containing 21 residential units, various accessory units, and an area of common property. There are 10 residential units in one block and 11 residential units in the other block. There is a concrete car park area between the two blocks, with each unit having two adjacent car parking spaces.
[5] Concerns were raised about the weathertightness of the complex, and in November 2003, the body corporate obtained a report from Maynard Marks, who are property and building consultants, in relation to the building. That report confirmed that there had been moisture ingress into the building and that it suffers from various building defects. It recommended a full re-clad. The report also addressed other issues that require remediation. The report included an estimate of the costs of the necessary remedial works as at November 2011. That cost was assessed at
$1,634,551.35, inclusive of professional fees, consents and GST. It had been
assessed by a Mr Ranum of Mallard Cooke & Brown Limited. Mr Ranum is a quantity surveyor.
[6] The report was considered by the body corporate at its AGM on 27 June
2012. It was there resolved to proceed with the drafting an application to the Court for an order settling a scheme for repair of the buildings comprising the development.
The Draft Scheme
[7] The draft scheme provides for the entire development, both common property and unit property, to be repaired as a single project. The provisions of the draft scheme were helpfully summarised by Mr Bigio, as counsel on behalf of the body corporate. Mr Bigio’s summary is annexed to this judgment – annexure A. The majority of the provisions are relatively standard in schemes of this kind. The reinstatement cost apportion percentage detailed in cl 8 of the proposed scheme is also annexed to this judgment – annexure B.
Assessment of Application
[8] Relevantly, s 74 provides as follows:
74 Scheme following destruction or damage
(1) 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.
(2) The High Court may, by order, settle a scheme on the application of—
(a) the body corporate…
(3) A scheme under subsection (2) may include provisions—
(a) for the reinstatement in whole or in part of the building or other improvement; or
…
(7) In the exercise of its powers under subsections (2) and (3), the High Court may make any orders that it considers expedient or necessary for giving effect to the scheme, including orders—
(a) …
(b) directing payment of money by or to the body corporate or by or to any person; or
(c) …
(d) imposing any terms and conditions that it thinks fit.
(8) The High Court may cancel, vary, modify, or discharge any order made by it under this section.
(9) The High Court may make any order for payment of costs that it thinks fit.
[9] The leading authority dealing with schemes of this kind is the decision of the Court of Appeal in Tisch v Body Corporate No 318596.1 This case was decided under the now repealed 1972 Act, but the relevant section in that Act – s 48 – has been essentially replicated as s 74 of the 2010 Act. I am satisfied that, in all material respects, the Court of Appeal’s observations in Tisch apply to s 74 of the 2010 Act.
[10] I note that Tisch has subsequently been affirmed by the Court in St John’s
College Trust Board v Body Corporate No 197230.2
[11] The Court in Tisch considered that the legislation imposes a three-step process on a court considering an application to settle a scheme. The steps are as
follows:
§Step 1: The court must be satisfied that the building has been damaged or destroyed.
§Step 2: If so satisfied, the court must decide whether to settle a scheme. That is, the court must decide whether a scheme is appropriate in the circumstances.
§Step 3: If the court decides a scheme is appropriate, it must then decide what the terms of the scheme should be.3
1 Tisch v Body Corporate No 318596 [2011] NZCA 420.
2 St John’s College Trust Board v Body Corporate No 197230 [2013] NZCA 35.
3 At [35].
[12] As the Court noted, step 1 is a triggering requirement. The buildings comprising the unit title development must be damaged or destroyed.
[13] Here, this issue is not in dispute. As I have noted, the body corporate has received professional advice from well qualified property and building consultants. They have advised there are defects in the buildings, that there is moisture ingress into the development occurring as a result, that a full re-clad is necessary, and that other works require remediation at the same time. I am satisfied that the buildings comprising the unit title development are damaged.
Step 2
[14] As the Court of Appeal observed in Tisch, step 2 arises because the section
provides that the court, “may… by order settle a scheme”.4
[15] While settling a scheme between themselves should always be the best option for unit holders, in the present case, the body corporate, despite its best endeavours, has not been able to convene a meeting at which all unit title holders were present and voted in favour of the scheme. Further, as it will become clear shortly, the scheme proposed by the body corporate departs from the provisions of the Unit Titles Act in some respects.
[16] In my view, it is appropriate to settle a scheme in the present case. The unit title development requires significant repair works, affecting both common property, and individual unit property. All proprietors will benefit from the remediation works proposed. It is desirable that all works be undertaken at the same time, and to the same standard, and there is no good reason why a scheme should not be approved for
the benefit of all unit owners.
4 Unit Titles Act 2010, s 74(2).
[17] The Court of Appeal in Tisch identified five factors which need to be taken into account when considering the terms of a proposed scheme. I summarise them as follows:
(a) A scheme with broad support is to be preferred; (b) The scheme should be appropriately detailed;
(c) Providing that what has been done by the body corporate before the scheme is actually approved is in accordance with the scheme, the order has retrospective effect;
(d)Work should normally be done to the same standard and at the same time;
(e) The terms of the 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 between unit owners in the circumstances.
[18] In the present case, I am satisfied that the proposed scheme is appropriately detailed. There should be little room for misunderstanding or argument about it. Further, there are detailed dispute resolution, mediation and arbitration provisions, and ultimately, under the proposed scheme, leave is reserved to any party affected by the scheme to apply for further orders from the court, including in relation to disputes arising out of the scheme. Further, insofar as I am able to glean from the materials made available, nothing has been done by the body corporate to date which is not in accordance with the proposed scheme. Further, I am satisfied, on the basis of Ms Gleeson’s affidavit and the parts of the Maynard Marks report annexed to that affidavit, that all remediation work should be done to the same standard and at the same time.
[19] The terms of the proposed scheme do, however, depart from the scheme of the Act in one significant respect, and that departure has not been endorsed by all owners.
[20] The 2010 Act provides for the apportionment of repair costs for both common property and property that falls within unit boundaries. The basic principles can be summarised as follows:
(a) Unit owners must repair and maintain their own units, and they are responsible for the costs of doing so – s 80(g);
(b)Common property is owned by the body corporate and the owners of all units are beneficially entitled to the common property as tenants in common and in shares proportional to the ownership interest of their respective units – s 54;
(c) The body corporate must manage, maintain, and keep in a good state of repair, the common property and any assets owned by the body corporate – s 138(1);
(d)The body corporate must maintain, repair or renew, all building elements and infrastructure that relates to or services more than one unit – s 138(2);
(e) Any costs incurred by the body corporate that relate to repairs to building elements and infrastructure contained in a principle unit are recoverable by the body corporate from the owner of that unit – s 138(4).
[21] In the present case, were the Act to apply in its terms, unit owners would be required to pay the costs of work relating to their own individual units, and contribute to the costs of work on common property in proportion to the ownership interest of their unit.
[22] The body corporate engaged Yeomans Survey Solutions Limited to provide an opinion on the position of boundaries between units and common property in the complex. Yeomans reviewed the available material, and expressed the view that:
The majority of the exterior weatherproofing fabric of the walls and other building elements, including the entire roof structure are within unit property, as opposed to common property, with the only exception being an exterior portion of the eastern wall of unit U which is within common property.
[23] I attach plans showing the development – annexure C. As can be seen from the plans, four units in the development have end walls. Only one of those end walls
– that forming part of unit U – is common property. It is coloured green in annexure C. In the case of the other three units with end walls, units A, K and L, the end walls are designated as unit property. Presumably, the initial plan was originally deposited recording this, because the end wall on unit U faces onto common property. The end walls on units A, K and L face into property belonging to each of those units.
[24] Under the 2010 Act, and based on the survey completed by Yeomans, the owners of units A, K and L would be required to meet the entire cost associated with repair of their end walls, as those costs are within their unit boundaries. This would have the effect of making their contribution to the repairs much higher than that of other units which do not have end walls.
[25] The committee of the body corporate formed the view that the allocation of costs, strictly in accordance with the 2010 Act, would not be fair, given that all units are very similar in size, and that they require basically the same repairs. The committee recommended a departure from the 2010 Act, to the extent that the costs associated with repair of the three end walls of units A, K and L should be shared across all owners, as if they were common property.
[26] The draft scheme was prepared on this basis, and it was circulated to all owners for their consideration at an extraordinary general meeting, proposed to be held on 30 January 2013.
[27] At that extraordinary general meeting, the body corporate resolved to adopt the cost apportionment option of owners paying for repairs to their units with the
exception of repair costs for the three end walls in units A, K and L which were to be shared across all owners as if they were common property. However, only nine of the 21 owners were represented at this extraordinary general meeting.
[28] Notwithstanding that the resolution had been passed, the committee considered that it would be appropriate to attempt to obtain further feedback before applying to the court on the basis of the cost allocation agreed to at the meeting. As a result, a letter was sent to all owners with the minutes of the 30 January 2013 extraordinary general meeting, containing a brief outline of the process involved, and requesting that unit owners seek further clarification, including legal advice, if they did not understand the matters in issue.
[29] No responses were received from unit owners.
[30] On 7 March 2013, the committee sent a further letter to owners, asking them to complete a response form indicating whether or not they agreed with the resolution passed at the extraordinary general meeting held on 30 January 2013. Only 10 owners responded. Seven owners agreed with the resolution. One owner did not agree and two owners did not appear to understand the position.
[31] At the body corporate’s annual general meeting on 20 June 2013, a concern was expressed that some owners did not understand the process. A resolution was put to the annual general meeting that the body corporate proceed with the s 74 application in any event. The meeting did not pass that resolution.
[32] At this point, the committee, in effect, went back to the “drawing board”. It sent a further document to all owners on 29 August 2013, endeavouring to explain the cost apportionment in laymans’s terms, and inviting all owners to attend an informal gathering with committee members so that they could ask questions, and any concerns could be addressed. Only one owner came to the informal meeting. That owner disagreed with the cost apportionment. That owner expressed the view that the three end wall owners (that is, the owners of units A, K and L), should pay
50 percent of the cost of repairing the end walls themselves, with the remaining
50 percent being shared by the other 18 owners.
[33] On 10 October 2013, the committee circulated an agenda and background papers for an extraordinary general meeting to be held on 19 October 2013. The papers provided by the committee provided four options for the apportionment of the repair costs to the three end walls forming part of units A, K and L. It proposed that each option should be put to secret ballot. The proposed resolutions involved each owner paying the costs associated with the repair of his or her own unit, with the exception of the end units, where the following options were to be put to members in successive resolutions, until one was passed:
(a) One hundred percent of the repair cost of the end walls would be divided between all owners in proportion to their ownership interest;
(b)Seventy five percent of the repair costs of the end walls would be divided between all owners in proportion to their ownership interest, and 25 percent by each unit owner with an end wall;
(c) Fifty percent of the repair costs of the end walls would be divided between all owners in proportion to their ownership interest, and
50 percent by each unit owner with an end wall; and
(d)Twenty five percent of the repair costs of the end walls would be divided between all owners in proportion to their ownership interest, and 75 percent by each unit owner with an end wall.
If none of these options were passed, then the provisions in the Act were to prevail, with the result that 100 percent of the repair costs of the end walls would be met by the owners of the individual units with an end wall.
[34] A spreadsheet showing the costs apportionment for each unit, with the end wall costs shared on the basis of each option, was included with the background papers circulated by the committee. As a result, the consequences of each option would have been clear to the owners.
[35] The extraordinary general meeting was held on 19 October 2013. Seventeen of the 21 unit owners were either present or represented. The body corporate resolved that each owner should pay the costs associated with the repair of their own unit, with the exception of end units A, K and L. It was resolved that 50 percent of the costs associated with the repair of the end walls would be divided between all owners, in proportion to the ownership interest of their respective units, with the other 50 percent would be paid by each of the unit owners affected – namely, the owners of units A, K and L. Ten owners voted for this motion, and seven voted against it.
[36] The draft scheme presented to the Court has been prepared in accordance with this resolution.
[37] As I have already noted, the originating application and the draft scheme has been served on all unit owners. There is no opposition to the scheme.
[38] I am satisfied that the scheme is a fair and justified approach that provides certainty both to the body corporate and to individual unit owners. Extensive efforts have been made by the committee of the body corporate to consult with owners, to explain to them the issues involved and to deal with the apportionment of costs in a principled way. There can be no doubt but that the committee has done its best to ensure that owners are fully informed on the various options available for cost apportionment. Owners have had the opportunity to have their views heard and considered. The draft scheme reflects the will of the majority of owners.
Conclusion
[39] For the reasons I have set out, I am satisfied that the scheme proposed by the body corporate should be settled, and that the draft scheme which has been presented to me is appropriate. I order that the scheme should be settled under s 74 of the Act accordingly.
[40] No costs were sought, and I make no order in that regard.
[41] I record my thanks to Mr Bigio for his helpful and comprehensive
submissions.
Wylie J
Annexure A
Summary of Key Aspects of Scheme
1.The Draft Scheme provides for the entire Development – common property and unit property – to be repaired as a single project.
2. The provisions of the Draft Scheme may be 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 amounts required to fulfil its obligations under the reinstatement project by levying contributions from owners and/or borrowing (clause 4.1 - 4.11).
(c) Section 5 Delegation of powers and duties – The Draft Scheme provides that the Body Corporate may delegate all or any of its powers and duties 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 cooperate 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 6.1-6.5).
(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 to the Draft Scheme (accidentally omitted from the draft filed in Court but now appended to these submissions). 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 less any unpaid contributions and accrued interest to be deducted (clauses 8.1 - 8.4).
(g) 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).
(h) 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. The Body Corporate shall give written notice to the Court and all parties seeking an order discharging the Scheme. The Body Corporate shall then forward a
copy of the Court’s order discharging the Scheme to the District Land
Registrar (clauses 10.1 – 10.3).
(i) Section 11 Variations in excess of contingencies - All variations to the agreed plans and specifications 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 reassessed and additional levies struck (clauses 11.1 - 11.3).
(j) 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).
(k) 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).
(l) Section 14 Accounting - The Body Corporate shall use a separate bank account for all transactions associated with the repair work. The
Committee shall nominate persons authorised to operate the separate bank account. 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 - 14.4).
(m)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).
(n) 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).
(o) 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).
(p) 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 settlement 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).
(q) 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 and 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).
(r) 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 works (clauses 20.1 –
20.2).
Annexure B
BC 202283 – Piazza Terraces
Reinstatement Cost Apportionment Percentage (“RCAP”)
Annexure C
Unit RCAP A(1) 5.86% B(2) 4.58% C(3) 4.58% D(4) 4.58% E(4) 4.58% F(5) 4.58% G(6) 4.58% H(7) 4.58% I(8) 4.58% J(9) 4.58% K(11) 5.86% L(12) 5.85% M(13) 4.57% N(14) 4.58% O(15) 4.58% P(16) 4.58% Q(17) 4.58% R(18) 4.58% S(19) 4.58% T(20) 4.58% U(21) 4.59% 100%
0
2
0