Body Corporate 210106 v Respondents as set out in Schedule 1 to the Application
[2022] NZHC 255
•23 February 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2021-404-1888
[2022] NZHC 255
UNDER The Unit Titles Act 2010 and the Property Law Act 2007 IN THE MATTER OF
An application for orders cancelling a unit plan
IN THE MATTER OF
An application for orders for the sale of the base land
BETWEEN
BODY CORPORATE 210106
First Applicant
WILLIAM JOHN JEFFREY
Second Applicant
AND
THE RESPONDENTS AS SET OUT IN SCHEDULE 1 TO THE APPLICATION
Respondents
Hearing: 9 February 2022 (by VMR) Appearances:
T J Rainey and J Pidgeon for the applicants No appearance for the respondents
Judgment:
23 February 2022
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 23 February 2022 at 10:00 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
BODY CORPORATE 210106 v THE RESPONDENTS AS SET OUT IN SCHEDULE 1 TO THE APPLICATION [2022] NZHC 255 [23 February 2022]
Introduction
[1] Body Corporate 210106 (the Body Corporate) is the body corporate for a 12- unit residential apartment complex at 3 Edinburgh Street, Auckland, known as The Zone (The Zone). The Zone suffers weathertightness defects that have led to significant structural damage.
[2] Remediating the weathertightness defects and repairing the damage would be cost prohibitive. The Body Corporate has therefore resolved to sell the complex as a redevelopment opportunity. The proceeds of sale are to be divided between the principal unit owners.
[3] The Body Corporate hoped to sell the complex and divide the proceeds of sale without having to make any application to this Court. It prepared a deed of arrangement for all unit owners to execute. The deed would have authorised a committee to act on behalf of all unit owners to sell the property and distribute the proceeds.
[4] Three unit owners declined to execute the deed, though none put forward a viable alternative to the proposed sale. The Body Corporate and the second applicant (Mr Jeffrey, the chair of the Body Corporate’s committee) therefore brought an application seeking:
(a)an order under s 188 of the Unit Titles Act 2010 cancelling the unit plan, with the effect of undoing the subdivision of the land into the principal units; and
(b)an order under s 339 of the Property Law Act 2007 for the sale of the land and the division of the proceeds between the owners.
[5] All owners and registered mortgagees of the units were served with the application. No party opposes the application.
[6] The Body Corporate has entered into an agreement to sell the property, conditional on this Court’s approval of the orders sought.
[7]For the reasons that follow, I am satisfied I should make both orders.
Background
[8] The Zone was a warehouse that was built in the early 1950s and later redeveloped into apartments. It was subdivided into 12 principal units on 4 March 2002, with the Body Corporate coming into existence on that date.
[9] The Zone is a leaky building. Its weathertightness issues have compromised its structural integrity to the point that it is no longer safe for occupation. The cost of remediating the defects is estimated as being between $7.5 million and $8.5 million.
[10] The Body Corporate is unable to raise the funds necessary to conduct the repairs. On 2 September 2019, it resolved instead to sell the property. Attempts to arrange the sale through a deed of arrangement were frustrated by the failure of some unit owners to execute that deed.
[11] Subsequently, the Body Corporate resolved to make the present application to the High Court for orders to cancel the unit plan and for the sale of the land.
Issues
[12]The issues are:
(a)whether the Body Corporate has established under s 188 of the Unit Titles Act that it is just and equitable to order that the unit plan be cancelled, having regard to the rights and interests of all affected parties; and
(b)if such an order is made, whether the Body Corporate has established it is appropriate to make an order for sale under s 339 of the Property Law Act, and if so, the terms of that order.
Applicable law
Cancellation of the unit plan
[13] The Unit Titles Act provides two procedures for the cancellation of unit plans. The first, under s 177, is for a body corporate to apply directly to the Registrar-General of Land. The second, under s 187, is for a body corporate to apply to the High Court for an order for the cancellation of the unit plan. Here the applicants have applied under s 187.
[14]Section 188 of the Unit Titles Act provides:
188 Cancellation of unit plan by High Court
(1)The persons described in paragraphs (a) to (f) of section 187(2) have the right to appear and be heard.
(2)The High Court may authorise that the unit plan be cancelled if—
(a)the High Court is satisfied that it is just and equitable that the body corporate be dissolved and the plan cancelled having regard to—
(i) the rights and interests of any creditor of the body corporate; and
(ii) the rights and interests of every person who has any interest in any unit or in the base land or in any part of the base land; and
(b)no principal unit in the unit title development to which the plan relates contains a subsidiary unit title development.
(3)If the High Court makes a declaration authorising the cancellation of a unit plan under subsection (2), the High Court may by order impose any conditions and give any directions as it thinks fit, for the purpose of giving effect to the declaration, including—
(a)directions for the payment of money by or to the body corporate; or
(b)the distribution of the assets of the body corporate; or
(c)a direction to modify or extinguish, in whole or in part, any registered interest or caveat or notice of claim entered on the register in relation to any unit, the common property, or the base land.
(4)The High Court may, at any time before the unit plan is cancelled under section 189, vary or modify the terms of any declaration or order made by it under this section.
(5)The High Court may make any order for payment of costs as it thinks fit.
[15] On any cancellation of a unit plan (whether by the Registrar-General or by the High Court), there is a merger of the estate held by the body corporate in that part of the base land that comprised common property and the estate in that part of the land that comprised units. That merged estate vests in the persons who were the owners of the units in shares proportional to their ownership interest.1 The body corporate is dissolved.2
[16] Where a unit plan is cancelled following a declaration made by the High Court under s 188, the High Court may extinguish, in whole or in part, any registered interest in relation to any unit, the common property or the base land.3 This is in contrast to a cancellation by the Registrar-General, where such extinguishment is automatic.4
[17] In determining whether it is just and equitable that a body corporate be dissolved and the unit plan cancelled, the Court will:5
… balance all the conflicting claims, giving proper weight to each consideration of right, duty and fairness brought forward by the parties. The expression ‘just and equitable’ may be regarded as an example of statutory hendiadys, the reference to equity not being by way of an additional test but for the purpose of ensuring that the justice to be applied will be equitable justice, ‘the justice of the individual case’. Accordingly justice and equity are referred to herein as one criterion, not two criteria.
[18] An applicant must show, on the balance of probabilities, that a dissolution and cancellation of the unit plan is just and equitable having regard to all relevant rights and interests.6
1 Unit Titles Act 2010, ss 180(2)(a) and 189(5)(b).
2 Sections 185 and 189(5)(c).
3 Section 188(3)(c).
4 Section 183.
5 World Vision of New Zealand Trust Board v Seal [2004] 1 NZLR 673 (HC) at [64].
6 Lake Hayes Property Holdings Ltd v Petherbridge [2014] NZHC 1673, (2014) 15 NZCPR 590 at [47].
Sale of the land
[19] When a unit plan is cancelled, the unit owners become co-owners of the land in shares proportional to their ownership interests. If all co-owners agree, they may sell the land. Where, as here, agreement is not obtained from all co-owners, one or more of those co-owners must, if they wish to sell the land, have recourse to s 339 of the Property Law Act. That section provides, in relevant part:
339 Court may order division of property
(1)A court may make, in respect of property owned by co-owners, an order—
(a)for the sale of the property and the division of the proceeds among the co-owners; or
(b)for the division of the property in kind among the co-owners; or
(c)requiring 1 or more co-owners to purchase the share in the property of 1 or more other co-owners at a fair and reasonable price.
…
[20] The provision gives the Court a broad discretion to order the sale of property and division of the proceeds of sale.
[21] Section 342 sets out the matters a court must consider before making an order under s 339(1):
342 Relevant considerations
(1)A court considering whether to make an order under section 339(1) (and any related order under section 339(4)) must have regard to the following:
(a)the extent of the share in the property of any co-owner by whom, or in respect of whose estate or interest, the application for the order is made:
(b)the nature and location of the property:
(c)the number of other co-owners and the extent of their shares:
(d)the hardship that would be caused to the applicant by the refusal of the order, in comparison with the hardship that
would be caused to any other person by the making of the order:
(e)the value of any contribution made by any co-owner to the cost of improvements to, or the maintenance of, the property:
(f)any other matters the court considers relevant.
Analysis
Just and equitable to cancel unit plan?
[22] The unit owners cannot afford to remediate The Zone’s weathertightness defects. The Body Corporate is accordingly unable to perform its duties of repair and maintenance under the Unit Titles Act.7 The units in the complex can no longer be safely occupied and cannot be used as residential accommodation.
[23] Most unit owners support the sale of the land. None formally opposes the application. None has put forward an alternative proposal for dealing with the defects and with the unit owners’ inability to afford to remediate those defects.
[24] I am satisfied, in those circumstances, that it is just and equitable that the Body Corporate be dissolved and that the unit plan be cancelled.
Appropriate to order sale of the land?
[25] Having determined that the unit plan should be cancelled, I turn to consider whether it is appropriate to order that the land be sold. Here, I must consider the relevant matters set out in s 342 of the Property Law Act.
[26] The proposed order will benefit all unit owners equally, with the property being sold to realise the residual value in the land. The building is no longer fit for purpose and its owners are unable to remediate its defects.8
7 Section 138.
8 Section 342(a).
[27] The property is located in a relatively high-value area in Auckland. With the building in a state of irremediable disrepair, the property’s residual value is in the land.
The property’s sale would allow the unit owners to realise that value.9
[28] Proceeds of the property’s sale would be distributed to the unit owners in proportions corresponding to their respective ownership interests.10
[29] No parties served with the application have identified any relevant hardship that would arise from the making of the order. Hardship would be caused to the Body Corporate if the order is refused — such would amount to requiring unit owners to continue owning a building no longer fit for habitation.11
[30] Each unit owner has contributed to the maintenance of the complex in proportion to his or her ownership interest. The distribution of the proceeds of sale will see each owner receive a proportionate share based on that ownership interest, subject to an initial allocation to clear outstanding levies.12
[31] The applicants made the present application after following the designated resolution procedure in the Unit Titles Act. The resolution was approved with nine votes in favour, no votes against and no abstentions. Despite ample opportunity, no party has objected to the resolution or to the application. The Body Corporate has entered into a conditional sale agreement in respect of the property, with a sale price higher than that estimated in valuation advice.13
[32] Having regard to these considerations, I am satisfied it is appropriate to order the sale of the land.
Terms of the orders
[33] As noted, it is proposed that the proceeds of sale be distributed to each unit owner in proportions corresponding to their respective ownership interests. Where
9 Section 342(b).
10 Section 342(c).
11 Section 342(d).
12 Section 342(e).
13 Section 342(f).
there is a mortgage registered against a unit, the distribution will first be paid to the unit owner’s mortgagee in repayment of any amounts owed by the unit owner under their loan agreement with the mortgagee. It is proposed that this payment will discharge all claims the mortgagee may have against the Body Corporate but will not discharge any liability the unit owner may have to the mortgagee under any loan agreement.
[34] I am satisfied this proposal sufficiently protects the position of the mortgagees. The mortgagees were served with that proposal and have not raised any opposition. The clear intent of the proposal was that the mortgages would be extinguished on cancellation of the unit plan but without discharging the liability of the unit owners under their loan agreements. It is therefore also appropriate to order, under s 188(3)(c), that any mortgages over principal units be extinguished on cancellation of the unit plan.
[35] Mr Rainey, for the applicants, submitted a final version of draft orders on 22 February 2022. I approve those draft orders, except that the cross-references between the orders (at 4(b)(ii), 5(d), 5(d)(i), 5(e)(ii) and 6) need to be updated.
[36]The applicants did not seek costs.
Result
[37] I make orders for the cancellation of the unit plan and the sale of the land, on the terms set out in the draft orders dated 22 February 2022, subject to the cross- references between those orders being updated.
Campbell J
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