Body Corporate 208399 v Lee
[2015] NZHC 2548
•16 October 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-1640 [2015] NZHC 2548
UNDER The Unit Titles Act 2010 BETWEEN
BODY CORPORATE 208399
First ApplicantAND
DAVID RONALD THOMSON AND MARY ROSE THOMSON
Second Applicants
AND
YOUNG SAM KIM AND KEONGHEE LEE
First Respondents
AND
OTHER RESPONDENTS SET OUT IN A SCHEDULE TO THE APPLICATION
Hearing: 12 October 2015 Appearances:
D R Bigio for Applicants
Judgment:
16 October 2015
JUDGMENT OF KEANE J
This judgment was delivered by me on 16 October 2015 at 3pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Pidgeon Law, Auckland
BODY CORPORATE 208399 v THOMSON AND ORS [2015] NZHC 2548 [16 October 2015]
[1] Stoneybrook is a complex in Greenlane West, Epsom, comprising 57 two and three storey town houses in seven separate blocks. The body corporate was constituted under the Unit Titles Act 1972 on 11 September 2001. The complex received its final code compliance certificate on 11 March 2002.
[2] In July 2011 the body corporate resolved to have the complex reviewed after its weathertightness became a concern; and at a further meeting on 16 August 2011, with the benefit of a report relating to five units, resolved to lodge a claim with the Weathertight Homes Resolution Service. That claim was deemed eligible on 27
September 2011.
[3] On 15 April 2014, after receiving a more complete range of reports, including a survey to determine which parts of the exterior fabric were common property and which fell within unit boundaries, the body corporate resolved to apply to this Court for approval of a scheme under s 74 of the Unit Titles Act 2010.
[4] The application has been served on all the respondents, 57 of whom are the present registered owners of the units, seven of whom are the existing mortgagees and the last of whom is the body corporate’s insurer. The application has not evoked any opposition or indeed any formal response.
[5] On such an application three issues arise.1 Has the building been damaged or destroyed? If it has, is the scheme proposed appropriate in the circumstances? If it is what are the terms of the scheme to be?
Section 74 power
[6] This Court has power under s 74 of the Unit Titles Act 2010 to settle by order a scheme, on the application of a body corporate, “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
1 Tisch v Body Corporate 318596 [2011] NZCA 424; affirmed in St John’s College Trust Board v
Body Corporate 197230 [2013] NZCA 35.
2 Unit Titles Act 2010, s 74(1).
[7] The scheme, which the Court then becomes entitled to settle, after hearing from any unit holders or any insurer wishing to be heard, may provide for reinstatement in whole or in part of the building or other improvement. The Court has the ability to make any orders it considers expedient or necessary.3
[8] In the Tisch case, which concerned s 48 of the 1972 Act, which s 74 of the
2010 Act essentially replicates, the Court of Appeal set out the three step process that gives rise to the issues I have identified:4
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.
[9] As to step three, a scheme is more likely to be appropriate if it enjoys the broad support of the owners, as that suggests that it is more likely to be just as between them; and if it is sufficiently detailed to avoid any later misunderstanding or argument. Any steps taken before the scheme is settled, to be authorised retrospectively, should accord with the tenor of the Act and rules. Normally, and preferably, all the work contemplated should be done at the same time and to the same standard.
[10] Finally, the scheme should not depart from the Act and rules any more than is reasonably necessary to achieve fairness; a constraint which does not apply where the unit holders agree unanimously.5
First two issues – qualifying damage and scheme need
[11] The first of the three issues which the Court of Appeal identified in Tisch
presents no difficulty. The complex has unquestionably suffered qualifying
3 Section 74(2), (3), (6), (7).
4 Above n 1 at [35].
5 At [45] – [49].
destruction or damage, which calls for a comprehensive response by the Body
Corporate.
[12] The Body Corporate’s claim has been found to be eligible for resolution under the Weathertight Homes Resolution Services Act 2006 as a result of a report, dated 27 September 2011, confirmed in a complete report, dated 10 May 2013. That final report, in particular, concludes that there has been water ingress and damage requiring extensive remedial work.
[13] The EIFS clad wall areas and all texture-coated fibre-cement clad areas will have to be fully re-clad. The membrane roofs, internal gutters and all parapets, the decks and deck balustrades, will have to be repaired. The retaining walls against the sub-floor garages will have to be made waterproof. All damaged timber will have to be replaced. The assessed cost will be of the order of $7,976,308.
[14] There can be no debate, consequently, as to the second of the three issues either. A s 74 scheme is clearly essential. The only issue that there can be is as to the third of the issues, whether the scheme the Body Corporate now seeks to have approved is appropriate. I am satisfied that it is.
Third issue - appropriate scheme
[15] The terms of the scheme, which I have set out in summary at the end of this decision, adopting counsel’s helpful summary, is appropriately detailed, and generally accords with the scheme of the Act and the Body Corporate’s rules. It has broad support amongst unit holders and only departs from the letter of the Act as to the cost allocation to be made between them.
[16] Under the Act unit owners are responsible for repairing and maintaining their own units at their own cost;6 and the body corporate is entitled to recover from them the cost of any such repair if it carries out the work.7 A unit holder is also liable to
the body corporate for the cost of any repair made to the common property, which
6 Unit Titles Act 2010, s 80(g).
7 Section 138(4).
unit holders hold as tenants in common in shares proportional to their ownership interest in their units.8
[17] In this instance that distinction between individual and common property is not important. The survey of the exterior fabric, which the Body Corporate obtained, established that most of the exterior fabric lies within unit property. A larger concern has been as to how the direct, indirect and associated costs of repair should be allocated.
[18] The complex contains different types of units and, even within types, direct and indirect repair costs for similar units will vary. Some owners will have to contribute more than others. Associated costs, essentially professional fees, and Council consenting fees, have also to be apportioned and that has proved a particular concern.
[19] Repair and associated costs are able to be allocated under the Act according to the unit holders’ ownership interests (an interest fixed by a registered valuer on the basis of the relative value of the unit in relation to each of the other units),9 or according to their utility interests (a fair and equitable interest having regard to the relative costs and benefits of units).10 But in this case those costs are the same because the Body Corporate has not opted to have the utility interests assessed.11
[20] Rather, at the extraordinary general meeting on 3 June 2014, when the Body Corporate considered cost allocation, it chose between three options against a cost comparison for each and resolved that:
Direct repair costs be allocated to the individual unit to which the work applies and indirect repair costs and associated costs be allocated in accordance with ownership interest.
[21] The draft scheme approved by the Body Corporate at its annual general meeting on 3 December 2014 incorporates that basis for cost allocation; and I accept
8 Section 54.
9 Section 38(2)(a).
10 Section 39(2).
11 Section 41.
counsel’s submission that, as the unit holders themselves determined by their resolution, in this instance that is a fair and equitable basis for allocation.
Conclusion
[22] I am satisfied, therefore, that the scheme is essential and appropriate and enjoys the broad support of the members of the Body Corporate. I approve the
scheme accordingly.
P.J. Keane J
Key aspects of scheme
a.Clause 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.Clause 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 – 4.9).
c.Clause 5 Delegation of powers and duties – The Body Corporate may delegate all or any of its powers and duties to the 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.Clause 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
– 6.6).
e.Clause 7 Allocation of project costs – The reinstatement project costs incurred prior to works commencing will be allocated in proportion to each owner’s utility interest. All construction costs will be allocated to the individual units to which they relate. All associated costs will be allocated in proportion to utility interest. Utility interest is the same as the ownership interest for this Body Corporate. Once the reinstatement project is complete, a cost reconciliation is to be undertaken by a consultant engaged by the Body Corporate. If necessary, adjustments will be made to reflect the intent of clause 7.1.
f. Clause 8 Raising funds to pay for repairs – The Body Corporate will levy contributions from Owners in accordance with clause 7 of the Draft Scheme using the best estimates available to the Body Corporate when the levy is struck. Where the Body Corporate becomes aware that the contributions raised are insufficient to cover the overall cost, the Body Corporate should immediately cause its consultants to undertake a reassessment of the overall costs and calculate the additional contribution required from each owner. These amounts are then to be raised in accordance with the Scheme. 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. Any additional works requested by an owner and undertaken in
accordance with clause 4.8 shall be paid for by that owner (clauses
8.1 – 8.4).
g. Clause 9 Entering into 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.Clause 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 by giving written notice to the Court and all parties. 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. Clause 11 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 a rate of 10% from the due date until that date that the payment is made. Interest shall be calculated daily. 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 11.1 – 11.7).
j. Clause 12 Transfer of unit under 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 12.1 – 12.3).
k. Clause 13 Management of Funds – 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 audit shall be undertaken by an independent auditor at the end of the reinstatement project (clauses 13.1 – 13.5).
l. Clause 14 Indemnity and liability – The owners jointly indemnify and hold harmless, the Body Corporate, its members, the Chairperson and the Committee except for any fraudulent act or omission or for wilful misconduct. Owners who own unit property as trustee of a trust have their liability limited to the net assets of the trust (clauses 14.1 – 14.2).
m. Clause 15 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 15.1).
n.Clause 16 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 16.1 – 16.2).
o.Clause 17 – 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 17.1 – 17.3).
p.Clause 18 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 8.1 –
18.3).
q.Clause 19 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 19.1 – 19.2).
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