Body Corporate 407798 v Maltby
[2023] NZHC 3064
•31 October 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-001058
[2023] NZHC 3064
UNDER the Unit Titles Act 2010 IN THE MATTER OF
an application for orders establishing a scheme under s 74 of the Unit Titles Act 2010
BETWEEN
BODY CORPORATE 407798
First Applicant
DAVID CYPRIAN BARKER EMMA BRONWYN BARKER
Second Applicants
AND
THE OTHER RESPONDENTS (as set out
in Schedule 1)
First to Twenty-Third Respondents
Hearing: 21 September 2023 Appearances:
K Wendt for the Applicants
No appearance by or for the Respondents
Judgment:
31 October 2023
JUDGMENT OF WALKER J
This judgment was delivered by me on 31 October 2023 at 4.30 pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
BODY CORPORATE 407798 & ORS v MALTBY & ORS [2023] NZHC 3064 [31 October 2023]
[1] This is an originating application by Body Corporate 407798 (the Body Corporate) for an order establishing a scheme under s 74 of the Unit Titles Act 2010 (the Act). It relates to a residential unit title development at 21 Birdwood Crescent, Parnell, Auckland (the Development).
[2] The Development comprises 24 townhouses (the principal units) in seven standalone buildings together with accessory units and common property. The Body Corporate manages the affairs of the Development under the Act.
[3] The Body Corporate discovered that parts of the Development have been damaged and require repair to an extent that this Court’s jurisdiction under s 74 of the Act is engaged.
[4] The proposed scheme is required to allocate the cost of applying for the scheme and for the remediation project amongst unit owners and to set out the rights, duties and obligations of owners in relation to the remediation project.
[5] The proposed scheme is annexed to the application. The applicants submit it is the same scheme that had “broad support” from owners at an Extraordinary General Meeting (EGM) held on 29 March 2023.
Preliminary
[6] All respondents have been served with the application. They are all affected parties, namely the registered unit owners, the registered mortgagees of units in the development and the Body Corporate’s insurer.
[7] All registered owners except for the twenty-first respondents were served pursuant to written service authorisations on 6 June 2023. The twenty-first respondents were served on 19 July 2023 pursuant to substituted service orders. No notices of opposition were filed.
[8] The Body Corporate’s manager has confirmed that on 17 July 2023, she notified all unit owners of the hearing date and circulated a minute of Moore J who
directed the owners be notified. Notification of all unit owners was circulated via email and the owners’ portal.
[9] Counsel for the applicants confirmed at the hearing that enquiries were made of the Body Corporate’s manager and chairperson who confirmed that no owner has made any contact with either to notify any opposition to the scheme application.
[10] No respondents appeared at the hearing. Accordingly, the applicants proceeded by way of formal proof with the application for an order settling a scheme.
Background
[11] The Body Corporate chairperson, David Barker, explains that construction of the Development started in about 2004. A Code Compliance Certificate (CCC) was issued by Auckland Council in 2010. A 2012 report by building surveyors, Prendos, identified defects and damage but the report was not circulated to all owners.
[12] In 2019, the owners passed a resolution tasking the Body Corporate Committee with planning a remediation to undertake Development-wide work to reinstate the overall integrity of the Development. This was in addition to work already undertaken by individual owners or groups of owners.
[13]The current repair estimate is $3,888,704.22 plus GST.
Legal framework
[14] Bodies corporate have an overarching obligation to repair and maintain building elements and infrastructure that relate to or serve more than one unit. 1 This includes exterior weatherproofing and roofs which can be contained in either common or unit property.
[15] Bodies corporate are also responsible for repairing and maintaining common property. The common property is owned by the Body Corporate with owners
1 Unit Titles Act 2010, s 138.
beneficially entitled as tenants in common in shares proportionate to their ownership interest.2
[16] Where a Body Corporate undertakes repair and maintenance under the Act, it can recover the cost of certain work directly from affected owners in circumstances specified in s 138 or s 126 but only after the work has been completed.3
[17] Section 74 of the Act provides that the High Court can settle a scheme on application by specified parties if any building or other improvement comprised in any unit or on the based land is damaged or destroyed. Specified parties includes the Body Corporate or owner. A scheme settled under s 74 may include provision for reinstatement for a building in whole or in part and the High Court has broad discretion to make any orders that it considers expedient or necessary for giving effect to the scheme.4
Relevant legal principles
[18] There are well established principles to be applied in the present context through cases such as Tisch v Body Corporate No 318596.5 The power of the Court under s 74 is discretionary and each application to settle a scheme is determined on its own factual circumstances.6
[19] The application for approval must show that a building has been, or is likely to be, damaged and that a scheme of repair is appropriate.7 The proposed scheme needs to balance the interests of all unit owners. The Court in Tisch outlined five factors to be taken into account when considering the terms of a proposed scheme:8
(a)A scheme with broad support is to be preferred.
2 Section 54.
3 Body Corporate 361945 v Westpac New Zealand Ltd [2014] NZHC 1336 at [11].
4 Section 74(7).
5 Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679 at [36]–[44].
6 Body Corporate 177519 v Lai [2014] NZHC 3381 at [18]; Body Corporate 194769 v Wheatley
[2016] NZHC 856 at [10].
7 Tisch v Body Corporate No 318596, above n 7, at [35].
8 At [45]–[49].
(b)The scheme should be appropriately detailed to enable unit owners and the Court to judge its effectiveness.
(c)The order could have retrospective effect so long as the Body Corporate has acted in accordance with the scheme prior to the Court’s approval.
(d)Remedial work is generally to be carried out to the same standard in relation to all units and at the same time.
(e)The terms of the scheme were not to depart from the Act and Body Corporate rules any more than is reasonably necessary to achieve fairness between unit owners in the circumstances.
[20] The overarching consideration in s 74 scheme applications is fairness. The Court in Tisch said:
The aim should be to balance the interests of each unit holder in a way that imposes terms that achieve the outcome fairest to all unit holders.
Should the Court sanction the proposed scheme?
[21] Building surveyors were engaged for the Body Corporate. They investigated and provided reports explaining the defects and damage. They are mainly uniform across all buildings, such as failing gutter membranes and poor joinery flashing. However, some units also have decks which have failing deck membranes and corroded deck steel posts.
[22] I am satisfied by the evidence presented that the Development in question has been damaged or destroyed and that such damage is sufficiently substantial.
[23] The key provisions of the proposed scheme were summarised in a document circulated to owners. I agree that the terms are similar to those used in schemes previously approved by this Court.9 I am satisfied that the scheme addresses the extent
9 See for example Body Corporate 169774 v Weerasinghe [2020] NZHC 3144 and Body Corporate 87945 v Marine Parade Holdings Limited [2019] NZHC 1311.
of the repairs in a level of detail commensurate with other applications approved by this court in recent decisions.10
[24] The next step is to analyse how it is proposed that owners share the costs of the remediation work. One commonly adopted approach is the ‘utility interest’ basis. This is adopted where buildings are reasonably uniform and where the defects and damage and repair work are similar across all units. Notwithstanding that the utility interest basis is commonly adopted, cost-sharing provisions can differ from scheme to scheme. The difficulty in this case is that the repair work required is not uniform. Some units require deck remediation so the proposed cost-sharing provisions have been tailored specifically for the remediation requirements of this Body Corporate.
[25] At an EGM on 13 December 2022, owners were presented with and discussed repair scopes and estimates setting out work to be paid for by all units and work that differentiated between unit types. At that meeting, owners approved a building contractor’s scope of repairs and estimate.
[26] Clause 7 of the scheme sets out the proposed cost-sharing approach. In summary, the cost of all remedial work be paid for by owners calculated by utility interest, except for the cost of exterior deck work and related internal repairs which is paid for by the owners of units with decks. The cost to each owner was calculated and circulated to owners in an email dated 9 March 2023. The approach is subject to exceptions listed such as where an owner wants additional work undertaken that falls outside the repair scope. In that instance, the owner would pay for that work themselves.
[27] A full explanation of the proposed cost-sharing approach was provided in a letter of advice to the Body Corporate. The essential gist is:
(a)the roof and exterior works are relatively uniform across all 24 units. Therefore, it is fair that those costs should be shared amongst all the
10 Body Corporate 205373 v Baltazaar [2015] NZHC 2827; Body Corporate 202692 v Jamac Holdings Ltd [2016] NZHC 1226; and Body Corporate 201161 v Keung [2016] NZHC 1827.
units according to utility interest. Scaffolding and shrinkwrap is required to facilitate this work;
(b)sharing the roof and exterior works cost based on unit boundaries would result in an arbitrary and unfair outcome for owners. All units in the complex have an exterior that is a mixture of unit property and common property;
(c)the units without decks have a higher utility interest but would not receive any physical or direct benefit from the deck or internal repairs;
(d)the preliminary and general, overheads and margin is not being added to the deck and internal repair costs. Instead, this cost will be shared amongst all units as it helps alleviate the financial burden to the unit owners with decks. It is difficult to quantify what indirect costs are for deck works specifically;
(e)the units with decks also have different deck types requiring different work and varied construction costs. Sharing deck costs using actual construction costs per unit creates a fairer outcome across those units;
(f)the internal works are only necessary due to the deck repairs. They should therefore be paid for in the same fashion as the deck repairs. The costs for the internal repairs are not yet known. It is therefore proposed that the cost is first shared across the owners with decks proportionally to their utility interests. This would then be retrospectively adjusted once the actual cost is known so that each unit owner pays the actual cost for the internal repairs;
(g)as all 24 units benefit from the implementation of a s 74 scheme, the cost of applying for one should be shared across all 24 unit owners.
[28]I am satisfied that this approach to cost apportionment is fair for owners.
Does the scheme have broad support?
[29] Owners have been regularly updated through the process of advice from building consultants and through the consideration of various remediation options including prioritising and stage work. Owners have discussed and voted on remedial steps at multiple Body Corporate general meetings.
[30] Lawyers engaged by the Body Corporate have also provided legal advice including an explanation of s 74 schemes to owners. Consequently, the owners resolved to engage those legal advisors to prepare a s 74 scheme. A detailed letter of advice was proposed. The legal advisor attended the EGM to explain the advice to owners on 29 March 2023.
[31] Ms Wendt, counsel for the applicants, set out the timeline by which owners were provided with scheme information to show the Court that there was sufficient time to consider the scheme before the EGM and vote on scheme resolution. She noted:
(a)Owners first received the proposed scheme terms on 3 February 2023 but without the cost-sharing provisions.
(b)On 9 March 2023, owners again received a summary of scheme terms and the scheme terms (this time with cost-sharing provisions) together with the EGM agenda, and the legal advisors’ advice on the cost- sharing; and owners were encouraged to take independent legal advice if they wished to do so.
[32] At the EGM, there were four scheme-related resolutions. The two most important were the approval of scheme terms and the proposed cost-sharing approach. The owners of 20 of the total 24 units participated in the EGM whether in person, by proxy or by postal vote. Of the 20 units represented, 18 units voted in favour of the proposed cost-sharing approach. Two units voted against. Nineteen voted in favour of the proposed scheme. One owner abstained from voting. Mr Barker in his affidavit evidence explains:
(a)the owner of unit 22 is generally in support of the scheme but considered that the cost sharing proposal needed some work. He was concerned that owners of units needing deck work were underrepresented on the committee. He believed that a cost-sharing approach where the majority of owners would have to pay more is unfair. His view was that the cost-sharing approach did not but should reflect that the work would reduce the costs to be paid by the Body Corporate for delayed maintenance. The committee noted that the Body Corporate part of the repair and maintenance amounts raised previously will be used to fund the remedial work.
(b)the owner of unit 24 voted against the cost-sharing provision but did not comment on why she was opposed to it.
[33] Although not all unit owners voted in favour of the scheme, I am satisfied that the resolutions represent the collective will of the majority of those who were sufficiently exercised about it to participate in the discussions. This, in my view, meets the broad support requirement. I note that none of the affected unit owners have filed a notice of opposition to this application.
[34] I am satisfied the scheme satisfies the Tisch criteria. I am satisfied of the robust consultation process with owners which led to approval of the scheme by the majority of owners at the 29 March 2023 EGM.
[35] Accordingly, I make the orders sought in the Originating Application to settle the proposed scheme. I am satisfied there is a clear need for repair which triggers the requirement for a scheme. I am satisfied the scheme is appropriate, fair and balanced in all the circumstances and that all five factors to be considered in accordance with the case of Tisch are met. The level of detail necessary has been provided within the scheme proposal and is substantially consistent with other schemes approved by this court on prior occasions.
[36]I therefore make the following order:
Settling a scheme for the reinstatement of the buildings in the unit title development at 21 Birdwood Crescent, Parnell, Auckland under s 74 of the Unit Titles Act 2010 (the Act) the terms of which are set out in Schedule 2 of the Originating Application dated 16 May 2023 as amended by the resolutions passed at the EGM dated 29 March 2023.
[37]As no party opposed the application, no order for costs is sought.
[38]Leave to apply for any consequential directions is granted.
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Walker J
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