Body Corporate 368694
[2021] NZHC 2731
•12 October 2021
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-363
[2021] NZHC 2731
UNDER ss 187–189 of the Unit Titles Act 2010 and ss 339–343 of the Property Law Act 2007 IN THE MATTER OF
an application for an order authorising the cancellation of a unit plan and for consequential orders
BETWEEN
BODY CORPORATE 368694
Applicant
Hearing (by VMR): 11 October 2021 Counsel:
P Skelton QC and S Rankin for applicant
Judgment:
12 October 2021
JUDGMENT OF GWYN J
[1] Body Corporate 368694 is the Body Corporate of a unit titled property, located at 75 Featherston Street, Wellington (the property). The property consists of the Rydges Hotel (the Hotel), and three separate retail businesses independent of the Hotel operations.
[2] The Body Corporate has applied under s 187 of the Unit Titles Act 2010 (the Act) to cancel Unit Plan 368694 (the Unit Plan) and dissolve the Body Corporate, to extinguish the registered leases relating to the Hotel Units, and for consequential orders under the Property Law Act 2007 (the PLA). The orders are sought to enable the property to be sold, pursuant to existing conditional sale and purchase agreements. The Body Corporate says the sale is desirable because the unit owners will obtain a price significantly higher than the market value of the units if sold individually; they
BODY CORPORATE 368694 [2021] NZHC 2731 [12 October 2021]
will not have to pay the significant costs of remedial work required in relation to seismic issues with the Hotel and bathroom renovation requirements; and they will not have to bear the cost of trading losses while the Hotel is closed to enable that work to be carried out.
[3] Before I turn to the details of the property and the Body Corporate’s application I set out the legal framework relevant to the orders sought.
Legal context
Unit Titles Act 2010
[4] Under s 177 of the Act, a body corporate can resolve to cancel a unit plan and apply to the Registrar-General of Land (the Registrar) to effect cancellation. The default effect of cancelling a unit plan includes that:1
(a)the fee simple, or (as the case may be) the estate as lessee or licensee, vests in the former unit owners in shares proportional to their ownership interests;2
(b)where two or more persons were the owners of any unit, whether as joint tenants or tenants in common, the share in the unit that vests in them under ss 180 or 182, as between themselves, vests in them as joint tenants or as tenants in common as the case may be;3 and
(c)the relevant body corporate is dissolved.4
[5] In more complex cases such as the present, where additional directions are required, cancellation may first need to be authorised by the High Court. Those cases are governed by the application process under ss 187 and 188 of the Act, which in relevant part provide that:
1 Unit Titles Act 2010, ss 180 – 182 and 185. Where an application is made to the Court under s 187, the Court can modify the operation of these provisions.
2 Sections 180 – 182.
3 Section 184.
4 Section 185.
(a)a body corporate (inter alia) may apply to the High Court for the cancellation of a unit plan, after a special resolution to do so;5
(b)the body corporate must serve a notice of any such application on (inter alia) every unit owner and on the Registrar-General of Land;
(c)unit holders have the right to appear and be heard on the application;
(d)the Court may authorise the cancellation of a unit plan if it 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;
(e)if the Court makes a declaration authorising the cancellation of a unit plan it may impose any conditions and give any directions as it thinks fit, for the purpose of giving effect to the declaration, including:
(i)directions for the payment of money by or to the body corporate; or
(ii)the distribution of the assets of the body corporate; or
(iii)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.
5 A special resolution is one which requires 75 per cent or more eligible voters to vote in in favour of it in order to pass: s 98(4).
[6] If the Court authorises cancellation, and once any conditions and directions have been complied with, s 189 provides that:
(a)the applicant or the applicant’s successor in title may apply to the Registrar for cancellation of the plan;
(b)unless the Court otherwise directs, the application must be accompanied (inter alia) by a certificate from a registered valuer showing the ownership interests and proposed ownership interests (if any) reassessed for all the units in the unit title development; and
(c)if the application is made in accordance with all the requirements of s 189, the Registrar must cancel the plan.
[7]Section 189 also provides that, unless the Court otherwise directs:
(a)the applicant must comply with the requirement under s 177(7) that a registered valuer reassess the ownership interests (unless the Court directs otherwise);
(b)the provisions of ss 180–182 and 184 apply; and
(c)the body corporate is dissolved upon cancellation of the unit plan.
[8] The Court has recognised in a number of cases that the ultimate question for the Court under s 188(2) is whether it is just and equitable that the body corporate be dissolved and that the unit plan be cancelled, having regard to all the relevant rights and interests.6
[9] The onus of proof, on the balance of probabilities, is on the applicant to demonstrate that it is “just and equitable”.7
6 Re Body Corporate 31428 [2020] NZHC 3218 at [6]; Re Body Corporate 44426 [2015] NZHC 3284 at [8].
7 World Vision of New Zealand Trust Board v Seal [2004] 1 NZLR 673 (HC) at [77].
[10] In Lake Hayes Property Holdings Limited v Petherbridge, Panckhurst J summarised the “just and equitable” test as follows:8
[48] … The phrase “just and equitable” means equitable justice, the justice of the individual case. All matters relevant to the rights and interests of creditors or interest holders must be considered. And, importantly, the evaluation must be conducted with proper regard to the scheme and purpose of the Act.
[11] Under s 188(3) of the Act the Court may give 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.
[12] In OM Hardware Ltd v Body Corporate 303662 Dunningham J held that the “just and equitable” test applied in relation to s 188(2)(a) is also engaged in an application under s 188(3).9
Property Law Act 2007
[13] Section 339(1) of the PLA provides for the Court to make an order for the sale of the property and division of the proceeds among the co-owners. Subsection (4) provides that a Court making an order under s 339(1) may make a further order specified in s 343. Section 343 in turn provides for orders including the following, which are relevant to this application:
(a)directing how the proceeds of any sale of the property, and any interest on the purchase amount, are to be divided or applied;10 and
(b)providing for, or requiring, any other matters or steps the court considers necessary or desirable as a consequence of making the order under s 339(1).11
8 Lake Hayes Property Holdings Ltd v Petherbridge [2014] NZHC 1673, (2014) 15 NZCPR 590 (HC).
9 OM Hardware Ltd v Body Corporate 303662 [2015] NZHC 190 at [34].
10 Property Law Act 2007, s 343(d).
11 Section 343(g).
[14] In Robertson v Robertson the Court of Appeal confirmed that s 339 provides the Court with a broad discretion.12
The property
[15] Mr Graham Wilkinson provided two affidavits in support of the Body Corporate’s application. Mr Wilkinson is the chairperson of the Body Corporate and the sole director of Hotel Management (Featherston St) Limited (the Hotel Manager).
[16] The property comprises 319 individual principal unit titles. There are three different types of units:
(a)Hotel Units – the Rydges Hotel is a 4.5 star, 280 room hotel. The 280 Hotel Units collectively make up 84 per cent of the total ownership interest of the Body Corporate. These are the hotel rooms that are individually owned and leased to the Hotel Manager. The registered lease documents for the Hotel Units are for all relevant purposes materially identical. None of the owners of the Hotel Units have the right to occupy their unit for residential purposes. They receive a commercial return on the unit, which depends upon the profitability of the business of the Hotel.
(b)Commercial Units – there are 36 Commercial Units, which make up approximately 14 per cent of the total ownership interest. The Commercial Units are the bar and restaurant, conference rooms, swimming pool, gym and 30 car parks associated with the Hotel. All of the Commercial Units other than one carpark unit, unit P17, which Mr Wilkinson owns through an associated company (Beswick Holdings Limited), are owned by Featherston Trustee Company Limited as Trustee for the Rydges Owners Group Trust (the Trust). The Trust purchased the Commercial Units to ensure that the ownership and control of the Commercial Units, necessary for the operation of the Hotel, was managed for all unit owners, who are the beneficiaries of
12 Robertson v Robertson [2021] NZCA 295 at [11].
the Trust. The Commercial Units are leased to the Hotel Manager for the purpose of operating the business of the Hotel.
(c)Retail Units – there are three Retail Units, which make up approximately two per cent of the total ownership interest. The Retail Units do not share in the income or the expenses of the Hotel. The owners of the Retail Units operate their own separate businesses on the ground floor of the Hotel.
[17] Mr Wilkinson explains that in late 2017 it became apparent that major seismic strengthening work was required on the Hotel. In 2019, the Body Corporate arranged for, approved, and started detailed design work to determine what seismic strengthening work was required.
[18] On 28 January 2021, WT Partnership, a project management consultancy, provided an estimate of the cost of the necessary seismic strengthening works at approximately $10,230,000. A levy of at least $1,000 per unit entitlement is required to cover this cost. Mr Wilkinson notes that, by way of example, the owner of a Hotel Unit with a unit entitlement of 28 would receive a levy of $28,000 for the seismic strengthening works.
[19] At an Extraordinary General Meeting (EGM) on 3 February 2021, the Body Corporate approved a special levy of $10 million to fund the cost of the seismic strengthening work. The levy was due to be paid by Unit Owners on or before 30 April 2021, but the Body Corporate has put on hold the necessary remedial work and payment of the levy pending the outcome of the proposed sale, which is discussed below.
[20] Mr Wilkinson says he has been contacted by a number of concerned Unit Owners about the cost of the seismic strengthening works and the financial impact any resulting levy would have on them. They are concerned that they will not be able to afford to pay the levy, nor be able to raise additional finance from their bank due to the current risks and uncertainty associated with the operation of the Hotel Business.
[21] As Mr Wilkinson notes, the cost of the seismic strengthening work is two-fold. In addition to the cost of the work itself, the Hotel would have to close for up to eight months while work on the lift shafts is undertaken. The Hotel would generate little returns while the work is completed. The Unit Owners will instead incur losses of approximately $550 per unit entitlement. Those losses have not been factored into the special levy passed at the February 2021 EGM.
[22] In addition, Mr Wilkinson notes it will be necessary to undertake renovation work on the bathrooms in the Hotel Units to maintain the Rydges’ brand standard. Mr Wilkinson has received an initial estimate for the renovation of the Hotel bathrooms at approximately $30,000 per room, but is investigating options to reduce this cost closer to approximately $15,000 per Hotel Unit.
Proposed sale of the property
[23] In late 2020 the Hotel Manager and NZ Hotel North Island Limited (the purchaser) entered into negotiations for the sale of the property. The purchaser, together with various associated business interests, wishes to acquire the property, including the Hotel, by purchasing 100 per cent of the ownership interest.
[24] As part of the due diligence process, the Body Corporate engaged a registered valuer, JarvisNZ (Jarvis) to undertake an independent assessment of the valuation of a typical Hotel Unit. The Jarvis report concluded that the stabilised current market value (as at November 2020) of a typical Hotel Unit is in the region of $5,100 per unit entitlement.
[25]The purchaser has offered to purchase:
(a)The Hotel Units for a purchase price calculated for each unit on the basis of $7,000 per unit entitlement; that is, the purchase price for the Hotel Units significantly exceeds the sum of the market value of the units if sold individually.
(b)The Commercial Units at a price that is the higher of:
(i)the outstanding BNZ loan debt secured by mortgage on the Commercial Units; or
(ii)an independent valuation of the Commercial Units.
(c)The three Retail Units at a price to be determined by an independent valuer or otherwise negotiated.
[26]The Hotel Unit sale and purchase agreement is subject to five conditions:
(a)The purchaser receiving duly executed agreements for sale and purchase for not less than 75 per cent of the unit entitlements in the Unit Plan. This condition has been satisfied.
(b)In relation to the Commercial Units owned by the Trust, the trustee and the purchaser executing a sale and purchase agreement, and the trustee confirming that it has received all necessary approvals under the Trust Deed to sell the Commercial Units under that agreement. This condition has been satisfied.
(c)The purchaser and the Hotel Manager entering into an Interface Agreement. This condition has been satisfied.
(d)Completion of the purchaser’s due diligence in respect of the property, and the purchaser being entirely satisfied with the results of that due diligence. This condition has been satisfied.
(e)The High Court, on the application of the Body Corporate, granting an order providing for the implementation of the proposed transaction. This requires the cancellation of the Unit Plan and the grant of consequential orders for the transfer to the purchaser of the resulting freehold title that arises on cancellation.
Offer sent to Hotel Unit owners
[27] Between 9 and 13 April 2021, the Hotel Manager wrote to all Hotel Unit owners enclosing an offer from the purchaser to purchase their unit on the terms and conditions set out in the written sale and purchase agreement. Each Hotel Unit owner received an identical offer, in which the purchase price was calculated based on the unit entitlement of the Hotel Unit multiplied by $7,000.
[28] The letter included a summary of current issues facing the Hotel, the sale process, and the key terms of the sale and purchase agreement.
[29] The Hotel Manger also sent each Hotel Unit owner copies of instructions on how to complete the sale and purchase agreement; a schedule setting out the price for each individual unit, together with information providing for comparative pricing; an estimated timeline for completion of the collective sale process; a question and answer sheet; and the Jarvis valuation report for a typical Hotel Unit.
[30] Owners of more than 75 per cent of the Hotel Units accepted the purchaser’s offer and returned signed sale and purchase agreements.
Extraordinary General Meeting
[31] On 4 May 2021, the Body Corporate gave notice to all Unit Owners of an EGM of the Body Corporate, to be held on 13 May 2021, to consider and, if thought fit, approve the proposed transaction.
[32] The EGM was held at the Hotel on 13 May 2021. The following resolution was passed at the EGM, with 257 votes in favour (representing 86.3 per cent of ownership interests), and 44 votes against (representing three Hotel Unit owners, one of which owns 42 Hotel Units):
Resolution 1: That the Body Corporate should proceed with the Proposed Transaction (including applying to the High Court for a Court Order).
“Proposed Transaction” means
a) the cancellation of the Unit Plan;
b) the sale to the purchaser of the freehold title created as a result of the cancellation of the Unit Plan including, as necessary, orders requiring sale of interests in the freehold title under and pursuant to a Court Order together with all consequential matters and processes arising from or in connection with those matters including any related matter approved or adopted by ordinary or special resolution of the Body Corporate or ordered by a Court Order.
[33] The Body Corporate notified owners of the outcome of the EGM by letter of 20 May 2021.
[34] Since the EGM the owners of the three Retail Units and the owners of the Commercial Units have signed sale and purchase agreements agreeing to sell those units to the purchaser.
The Body Corporate’s application
[35]The Body Corporate seeks:
(a)a declaration authorising the cancellation of the Unit Plan;
(b)in order to give effect to the declaration at (a), an order authorising the surrender of each of the leases registered against the existing unit titles in the Unit Plan;
(c)an order that immediately following the surrender of the leases and subsequent cancellation of the Unit Plan, all of the owners’ rights, title and interest in the property be sold, and the consolidated title transferred to the purchaser (or its nominee) in accordance with the terms of the existing sale agreements for the Hotel Units, Commercial Units and Retail Units (the sale).
(d)an order that the proceeds from the completion of the sale be applied to:
(i)discharge any mortgages or other encumbrances registered against the existing unit titles;
(ii)make any deduction for payments that would be required, such as rates or unpaid Body Corporate levies as at the settlement date, had the unit owner entered into the relevant sale agreement applicable to their unit type; and
(iii)hold the balance of the funds in Buddle Findlay’s trust account to the order of the Court with the unit owner’s share to be paid to the unit owner as soon as they have completed all statutory anti-money laundering requirements, or as otherwise directed by the Court.
[36] As well as setting out the work required to the Hotel, the reasons why a sale is thought desirable, and the relevant processes so far taken under the Act by the Body Corporate, Mr Wilkinson has also provided the following documents to the Court:
(a)a copy of the Unit Plan for the property;
(b)a copy of the Body Corporate’s supplementary record sheet and title searches of all the units;
(c)a copy of the Body Corporate rules;
(d)a copy of a specimen registered lease for a Hotel Unit;
(e)the Jarvis valuation report of a typical Hotel Unit, dated 26 November 2021;
(f)the standard offer letter and sale and purchase agreement sent by the purchaser to all Hotel Unit owners in April 2021;
(g)the material sent by the Hotel Manager to each of the Hotel Unit owners with the offer from the purchase, referred to at [29] above;
(h)notice of, minutes from, and other documentation associated with the EGM on 13 May 2021;
(i)copies of the sale and purchase agreements;
(j)various correspondence with Hotel Unit owners who have not yet signed the sale and purchase agreements.
Service of the application
[37] The application was first called before Associate Judge Johnston on 1 September 2021. At that stage some parties were considering whether to oppose the application. Associate Judge Johnston directed that any notice of opposition to the application and affidavit evidence in support be filed by 10 September 2021.13 Service has been effected in accordance with the Court’s directions.
[38] In his supplementary affidavit of 6 October 2021, Mr Wilkinson advises that 96.7% of all unit owners, representing an ownership interest of 97.98%, have now entered into conditional sale and purchase agreements to sell their units to the purchaser.
[39] There remain six unit owners, who own seven of the 280 Hotel Units, that have not entered into agreements to sell their units to the purchaser. Three of those owners have declined the purchaser’s offer, two are undecided, and one has not responded.
[40] No party has filed a notice of opposition to the application and no interested party has sought to be heard.
[41] The sole remaining condition to be satisfied is for the Court to authorise the cancellation of the Unit Plan and the consequential orders sought.
Urgency
[42] The Body Corporate’s intention is to complete the sale to the purchaser on the later of 29 October 2021, or the date that is not more than 30 working days after the purchaser has confirmed the order of this Court is satisfactory. Following completion
13 Body Corporate 368694 CIV-2021-485-363, Minute of Associate Judge Johnston, 1 September 2021.
of the purchase, the purchaser is to undertake required work to upgrade the seismic rating for the property. Planning for that work is proceeding on the basis that the settlement will occur promptly (within 30 working days) after the order is issued, with the intent that this occur before the end of 2021. That is the context to this application being heard with some urgency.
[43] The applicant advises that the orders sought by the Body Corporate remain necessary, even though a large majority of the owners have now entered into agreements to sell their units to the purchaser, because it may be necessary to seek the assistance of the Registrar to sign the documentation.
Discussion
Rights and interests of interested persons
[44] I have set out at [17]-[22] above Mr Wilkinson’s evidence in relation to the seismic strengthening work and other renovations required to the Hotel, the cost of that work, and the consequent closure and loss of income to the Hotel Unit owners.
“Just and equitable”
[45] Mr Skelton QC, counsel for the Body Corporate, summarised the factors that make it just and equitable that the orders sought be granted:
(a)The overwhelming majority of unit owners support the sale of the property to the purchaser. Only six unit owners, who hold approximately 2.02% of the total ownership interest, have not returned the conditional sale and purchase agreements. None of those six has filed a notice of opposition to this application. No interested persons have sought to be heard on the application.
(b)The Hotel Unit owners are all to be treated in the same way, each receiving a purchase price calculated on the basis of $7,000 per unit entitlement.
(c)The purchase price referred to at (b) significantly exceeds the market value of the units if sold individually.
(d)The unit owners will not have to pay the significant costs of seismic remedial work and bathroom renovations.
(e)Some unit owners have expressed concern that they would be unable to pay the levy necessary to fund the seismic remedial work if the sale does not proceed.
(f)The unit owners will not incur the trading losses necessary when the Hotel is closed to undertake the remedial work.
My assessment
[46] I acknowledge that not all of the Hotel Unit owners have accepted the purchaser’s offer. However, those owners between them hold only 2.02 per cent of the ownership interests of the Body Corporate. None of them has filed a notice of opposition to this application.
[47] Having regard to the evidence about the cost of necessary seismic strengthening to the Hotel, bathroom renovations and loss of income arising from the resulting closure of the Hotel, I accept that there would be considerable hardship to the unit owners who wish to sell their units to the purchaser if the orders are refused and, as a result, the sale could not be completed.
[48] Conversely, I accept there would be little or no hardship for the those Hotel Unit owners who have not entered into sale and purchase agreements with the purchaser if the orders sought are made, as they would receive the same price (calculated on a proportionate unit entitlement basis) and the same other terms as the other owners of Hotel Units. The owners of the Hotel Units do not have the right to use their units as a residence, as all units (other than the three Retail Units) are leased to the Hotel Manager for the purpose of operating the Hotel business, so those owners are not detrimentally affected by the sale in an immediate and personal sense.
[49] Mr Wilkinson advises that, on completion of the sale, the proceeds of sale will be held on behalf of the owners who have not responded to correspondence about the sale and have not entered into agreements to sell their units, in Buddle Findlay’s trust account, until those owners have completed the necessary documentation, including anti-money laundering paperwork, or until further order of the Court. I am therefore satisfied that the financial interests of those owners will be appropriately protected.
[50] Creditors will be paid in full from the proceeds of sale of the units and will not be prejudiced by the sale.
[51] In my assessment these factors cumulatively mean that the interests of all the unit holders overall are best served by cancellation of the Unit Plan and the sale of the property, and it is therefore just and equitable that I make the orders sought under the Act.
[52] I am also satisfied that the consequential orders sought under the PLA are necessary and appropriate to enable the sale of the property to the purchaser to be effected, and for the Body Corporate to seek from the Court any further consequential directions.
Conclusion and Orders
[53] I consider it is just and equitable that Body Corporate 368694 be dissolved and that the Unit Plan be cancelled under s 188(2) of the Act, and that each of the leases registered against the existing unit titles in the Unit Plan be surrendered under s 188(3) of the Act. I am also satisfied that it is appropriate to grant the consequential orders sought under ss 339(1) and 343(b) and (g) of the PLA.
[54]I make the following orders:
(a)A declaration, pursuant to s 188(2) of the Unit Titles Act 2010, authorising the cancellation of Unit Plan 368694.
(b)An order, pursuant to s 188(3) of the Unit Titles Act 2010, authorising the Registrar of the Court (on the request of the solicitors for the
applicant) to sign any relevant documents that are necessary to register the surrender of each of the leases registered against the existing unit titles in the Unit Plan.
(c)An order, pursuant to s 339(1)(a) of the Property Law Act 2007, that immediately following the surrender of the leases and subsequent cancellation of the Unit Plan, all of the owners’ rights, title and interest in the property situated at 75 Featherston Street, Wellington be sold and the consolidated title transferred to NZ Hotel North Island Limited (or its nominee) in accordance with the terms of the existing sale agreements for the Hotel Units, Commercial Units and Retail Units and otherwise on the terms as ordered by the Court in this proceeding (the sale).
(d)An order, pursuant to s 343(d) of the Property Law Act 2007, that the proceeds from the completion of the sale be applied:
(i)to discharge any mortgages or other encumbrances registered against the existing Unit Titles (in the sums advised by the mortgagees and/or encumbrancees prior to the settlement date);
(ii)to make any deductions for payments that would be required (such as payment of any rates or unpaid Body Corporate levies as at the settlement date) had the Unit owner entered into the relevant sale agreement applicable to their unit type (being either a Hotel Unit, Commercial Unit or Retail Unit); and
(iii)to hold the balance of funds in Buddle Findlay’s trust account to the order of the Court with the Unit owner’s share to be paid to the Unit owner as soon as they have completed all statutory anti-money laundering requirements, or as otherwise directed by the Court.
(e)To give effect to orders (a)-(d) above, an order authorising the Registrar of the Court (on the request of the solicitors for the Applicant) to sign any relevant documents that are necessary to effect the sale and transfer of any unit for and on behalf of any Unit owner(s) where the Unit owner(s) has/have either refused or neglected to:
(i)sign the documents after being requested by the solicitors for the applicant to do so; or
(ii)return the signed documents within the timeframe required by the solicitors for the applicant in order to be able to complete the sale on the settlement date.
For the avoidance of doubt, relevant documents include (but are not limited to):
·an Authority and Instruction Form (which authorises the applicant’s solicitors to surrender the leases registered against the existing unit titles in the Unit Plan and to implement the sale (including by way of discharge of any mortgage and the transfer of any interest in the relevant unit)); and
·a Land Transfer Tax Statement (which form is required to be filled out by any vendor of property).
(f)That the Body Corporate may apply to the Court (without notice) for further orders or directions as may be necessary to complete the sale and give effect to the orders of the Court.
Gwyn J
Solicitors:
Buddle Findlay, Auckland for applicant
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