Body Corporate 212050 v Lee

[2016] NZHC 2526

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-1894 [2016] NZHC 2526

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 212050
First Applicant

WLCK INVESTMENT LIMITED Second Applicant

AND

I-CHEN LEE & JOHANN JIA-HANN LIM

First Respondent

AND FORTY OTHER RESPONDENTS

Hearing:	20 October 2016
Appearances:	D Bigio QC for Applicants No appearance for Respondents
Judgment:	21 October 2016

JUDGMENT OF LANG J

[on originating application for orders establishing a scheme

under s 74 of the Unit Titles Act 2010[

This judgment was delivered by me on 21 October 2016 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

BODY CORPORATE 212050 v & LIM [2016] NZHC 2526 [21 October 2016]

[1]      This proceeding concerns a building development located at 134-150 Symons

Street, Auckland and known as “Glenside Terraces”.  The development consists of

60 principal units divided into three distinct groups of units.  One group comprises a block of three storey mixed-use townhouses and retail tenancies.   The second comprises 17 principal units situated in one block of two storey townhouses.  The third comprises 27 principal units in a basement carpark.

[2]      The  owners  of  the  units  discovered  problems  with  the  stability  of  the substrate and the condition of the townhouses in 2011.   The body corporate responsible for conducting the affairs of the complex then filed proceedings in this Court to recover damages from parties involved in the construction of the buildings That litigation was ultimately settled in July 2013, and the body corporate is still holding the corpus of the funds received by way of settlement.

[3]      The body corporate commenced remediation works in 2014.  This required the occupants of the townhouses to vacate their units.  Construction work ceased in March 2015, by which stage the cladding and joinery had been removed from the 33 townhouse units.   At that point the body corporate decided to demolish the townhouses completely and rebuild them.   It has now obtained a resource consent authorising it to construct new units on the site, and it is in the process of obtaining a demolition consent to enable the existing townhouses to be demolished.  It expects to be in a position to apply for a building consent shortly.

[4]      The  body  corporate  proposes  to  pay  for  the  demolition  of  the  existing buildings and the construction of the new buildings using the settlement funds it received from the litigation, together with funds received from levies to be imposed on unit owners.

[5]      The body corporate now seeks the approval of the Court for the establishment of a scheme under s 74 of the Unit Titles Act 2010 (the Act) to enable the demolition and building works to proceed.

Key aspects of the scheme

[6]      As Mr Bigio for the body corporate points out, the proposed scheme largely adopts the model used in other schemes previously approved by this Court.  It has necessarily been tailored, however, to incorporate the body corporate’s decision to demolish and rebuild large parts of the complex.  The body corporate has also been required to allocate costs as between affected townhouse and basement carpark units, the latter of which remain in use today and are largely unaffected by the problems associated with the rest of the complex.

[7]      The fact that the scheme requires the townhouse buildings to be demolished and rebuilt necessarily requires cancellation of the existing unit plan and deposit of a new unit plan.

[8]      The body corporate proposes to levy the unit holders in accordance with the actual  cost  required  to  demolish  and  rebuild  each  unit.    The  reinstatement  of common areas will be met by unit owners in accordance with the ownership interest of their respective units.  This is in keeping with the regime provided for by the Act, which requires unit owners to pay the cost of work related to their own individual units, and to contribute to the cost of work on common property in proportion to the utility interest for their units.  In the present case the utility interest and ownership interest of each unit holder is the same.

[9]      Unit  owners  have  now  been  given  full  details  of  the  scheme.    At  an Extraordinary  General  Meeting  (EGM)  held  on  28 April  2016  the  unit  owners present voted unanimously to proceed with the application to this Court with the scheme in its present form.

[10]     The proceeding has now been served on all unit owners, and no notices of opposition have been received.  As a result, the Court is entitled to proceed on the basis that the unit owners all agree that the scheme is appropriate for their purposes.

Jurisdiction

[11]     The leading authority in this area is the judgment of the Court of Appeal in

Tisch v Body Corporate 318596.1  Although Tisch was decided under the 1972 Act, s

48 of that Act now largely reappears as s 74 of the current Act.

[12]     In Tische the Court of Appeal approved the following three step process when the Court is considering an application to settle a scheme:

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.

[13]     There can be no argument that the first step has been met in the present case. The townhouses have been damaged to the extent that they require demolition and rebuilding.

[14]     I am also satisfied that a new scheme is appropriate in the circumstances. That is necessary in virtually every case where a building owned under the Act requires significant works such as demolition and rebuilding.  In Tisch the Court of Appeal set out five factors to be taken into account when considering the terms of a proposed scheme:2

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.

1      Tisch v Body Corporate 318596 [2011] NZCA 420, affirmed in St John’s College Trust Board v

Body Corporate 197230 [2013] NZCA 35.

2      At [45]-[49].

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.

[15]     In the present case the scheme appears to have the unanimous support of the owners.  This is evident from the vote that was passed at the EGM on 28 April 2016, and the fact that no unit owner has sought to oppose the present application.

[16]     The  scheme  is  also  detailed,  and  the  work  will  be  done  to  appropriate standards and at the same time.  The terms of the scheme are also broadly in line with the scheme prescribed by the Act.

Result

[17]     I am satisfied that it is appropriate to approve the scheme.  I therefore make orders in terms of the originating application dated 10 August 2016.

Lang J

Solicitors:

Alexander Dorrington, Auckland

Counsel:
D Bigio QC, Auckland