Body Corporate 81340 v Knight
[2018] NZHC 2953
•14 November 2018
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2016-485-220
[2018] NZHC 2953
UNDER the Unit Titles Act 2010 IN THE MATTER
of an application by Body Corporate 81340, a duly registered Body Corporate under the Unit Titles Act 2010, for an order to settle a scheme under section 74
BETWEEN
BODY CORPORATE 81340
Applicant
AND
ZENA KNIGHT AND YEE GOOD FORTUNE INVESTMENTS LIMITED (IN LIQUIDATION)
Respondents
Hearing: 15, 16 and 17 October 2018 Counsel:
A J Knowsley and D W Hunt for Applicant N B Dunning for Respondents
J K Mahuta-Coyle for Interested Party
Judgment:
14 November 2018
JUDGMENT OF THOMAS J
Table of contents
Introduction [1]
Schemes under s 74 [8]
Is The Links damaged? [12]
Is the Scheme appropriate? [22]
Work proposed under the Scheme [22]
Discussion [24]
What should the terms of the Scheme be? [47]
Ownership issues [47]
BODY CORPORATE 81340 v KNIGHT [2018] NZHC 2953 [14 November 2018]
The 2010 Act [54]
Is a utility interest approach fair as between owners? [65]
Other considerations [81]
Result [86]
Introduction
[1] The apartment complex known as “The Links” is a 14 storey unit title development situated one street back from Paraparaumu Beach north of Wellington. It comprises 28 units.
[2] The Links suffers from weathertightness issues. From around 2010, the Body Corporate has attempted to deal with these issues. The Body Corporate acknowledges the real solution lies in recladding the building but, having decided this is too expensive to be carried out immediately, has resolved to undertake interim remedial repair work in the meantime.
[3] Some of the work has been undertaken and further work is required. The Body Corporate has applied for approval of a scheme under s 74 of the Unit Titles Act 2010 (the 2010 Act) to cover both the work already undertaken and that still outstanding (the Application). Although some of the work is to privately owned parts of The Links, the scheme would require all the work to be paid for on a utility interest basis.
[4] Ms Knight, an owner of one of the units, opposes the Application. The Body Corporate’s initial application, made in March 2016, was opposed by Ms Knight and Yee Good Fortune Investments Ltd, an owner of another unit. Earlier this year, Ms Knight and Yee Good Fortune Investments Ltd unsuccessfully applied to strike out the Body Corporate’s March 2016 application.1 Yee Good Fortune Investments Ltd is now in liquidation as a result of failing to meet a judgment against it for outstanding Body Corporate levies in respect of The Links.
[5] Although Ms Knight’s notice of opposition was relatively wide-ranging, her objection boils down to two principal issues. First, whether a scheme is required,
1 Body Corporate 81340 v Knight [2018] NZHC 2143.
given the nature of the work undertaken. Secondly, whether the proposed scheme is fair to owners, in particular by requiring payment for it on a utility interest basis.
[6] The Application was heard over two and a half days. Evidence on behalf of the Body Corporate came from its former chair, Rex Nicholls, the Body Corporate administrator, David Porter, the Body Corporate’s contract manager, Blair Murray, and two experts from Hampton Jones Property Consultancy Ltd (Hampton Jones). The latter investigated damage to The Links and are supervising the ongoing work. Ms Knight gave evidence, as did Ms Yee, sole shareholder in Yee Good Fortune Investments Ltd. Ms Knight also called expert evidence from a consultant who had previously given some advice in relation to repair of The Links.
[7] A preliminary issue arose in respect of a notice of appearance for ancillary purpose by an interested party, being the owner of unit 1A. While the owner supported the Application, she sought to be heard in relation to claimed compensation for loss of use of her unit while it underwent repair. Although not conceding the dispute, the unit owner and the Body Corporate have agreed to attempt to settle it.2
Schemes under s 74
[8]The starting point is s 74 of the 2010 Act, which provides:
74 Scheme following destruction or damage
(1)This section applies 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)The High Court may, by order, settle a scheme on the application of—
(a)the body corporate;
…
(3)A scheme under subsection (2) may include provisions—
(a)for the reinstatement in whole or in part of the building or other improvement;
2 The scheme may require some amendment to reflect any settlement reached, which would require a further application to the Court pursuant to s 74(8) of the Unit Titles Act 2010.
…
(6)On any application to the High Court under subsection (2), the following persons have the right to appear and be heard:
(a)any person having or claiming to have any estate or interest in any unit or in the whole or part of the base land; or
(b)any insurer who has effected insurance on the buildings or other improvements comprised in any unit or in the whole or part of the base land.
(7)In the exercise of its powers under subsections (2) and (3), the High Court may make any orders that it considers expedient or necessary for giving effect to the scheme, including orders—
(a)directing the application of any insurance money; or
(b)directing payment of money by or to the body corporate or by or to any person; or
(c)directing the deposit of an appropriate new unit plan; or
(d)imposing any terms and conditions that it thinks fit.
(8)The High Court may cancel, vary, modify, or discharge any order made by it under this section.
(9)The High Court may make any order for payment of costs that it thinks fit.
[9] In Tisch v Body Corporate No 318596, the Court of Appeal identified a three-step process for the purpose of settling a scheme:3
(1)The Court must be satisfied that the building has been damaged or destroyed.
(2)If so satisfied, the Court must decide whether to settle a scheme. That is, the Court must determine whether a scheme is appropriate in the circumstances.
3 Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679 at [35]. Although Tisch concerned the approval of a scheme under s 48 of the Unit Titles Act 1972, it was decided after the passage of the 2010 Act. The Court noted, at [26], that s 74 is “essentially the equivalent” of s 48.
(3)If the Court considers a scheme is appropriate, it must then determine what the terms of the scheme should be.
[10] As far as the third step is concerned, the overall aim must be to balance the interests of each unit holder and to arrive at terms which achieve the outcome fairest to all. The Court in Tisch identified five factors which are likely to be relevant to an assessment of appropriate terms. It noted:4
(1)a proposed scheme with broad support is preferred because the greater the level of support from owners, the more likely it is that the scheme does justice between them;
(2)the scheme should be appropriately detailed because the more detailed it is the less scope there will be for future misunderstanding and disagreement;
(3)the scheme should have retrospective effect, provided the Body Corporate has acted in accordance with it prior to the Court’s approval;
(4)generally speaking, the scheme should be aimed at enabling the necessary repairs to be done to the same standard at the same time because that approach is most likely to:
(i)be fair as between unit holders;
(ii)maximise efficiency; and
(iii)minimise cost and disruption; and
(5)the terms of the scheme should not depart from the Act and the relevant body corporate rules any more than is reasonably necessary to achieve fairness between the unit holders in the particular circumstances.
4 At [44]–[49].
[11]My analysis follows the three-step process of Tisch.
Is The Links damaged?
[12] The Links was constructed in 1995–1996 by McKee Fehl Construction Ltd and developed by an associated company, Leading Investments Ltd. It is a reinforced concrete and steel framed structure, with the central stairway acting as a shear wall core. The building is comprised of a podium, a tower and penthouse apartments.
[13] The basement level contains carparking and the ground level contains apartments. Together, these form the podium, which is clad in fibre cement sheet over timber framed walls. Levels one to nine form the bulk of the tower and are clad in curtain wall glazing and glass reinforced concrete (GRC) panels. Decks on level one act as the rooves of the ground floor, whereas levels two to nine have protruding balconies. Levels 10 to 12 contain the penthouses and are of a “wedding cake” construction: their external walls step back from those of the levels below, creating decks that form the rooves of the apartments beneath. Balconies and decks throughout the building are clad in ceramic tiles, plaster screed and a waterproofing membrane. A separate swimming pool building is constructed of timber framing and clad in fibre cement sheet.
[14]The leaks can be summarised as follows:
(1)Through the glazed curtain wall forming the tower faces of The Links, the quality of which is unsuitable for a multi-storey building in this location.
(2)Through the decks of the penthouse apartments on the upper levels at least one cause of which was the installation of abseil anchors on the decks of the upper units which I infer allowed water ingress.
(3)Through the level one decks, which also form the rooves of the ground floor apartments G1, G2, G3 and G4 and the recreation room, the latter being common property. These leaks are apparently due to defects in
construction of the decks and their interfaces with the ground and level one walls and decks.
[15] There is some debate as to whether The Links is correctly described as a “leaky building”. The Body Corporate eschews that description on the basis that term is commonly understood to refer to specific defects in buildings with timber framing and monolithic cladding. The Body Corporate prefers to describe The Links as a building which suffers from leaks.
[16] Prior to 2010, any maintenance work to The Links had been done in an ad hoc manner, generally by the owner of the original development company.
[17] From 2010, the Body Corporate sought advice about the leaks from a number of different parties. A recurrent theme in the various reports was that The Links had not had an active maintenance programme and that was of considerable concern to the various experts.
[18]The damage to The Links is described as:5
·Damaged and decayed wall framing and failed cladding to the ground and first floor.
·Damaged internal linings and floor coverings on levels G, 1, 2, 11 and 12;
·Ceiling damage in Unit 21 from leaks entering from the unit above.
·Water entering the building due to inadequate glazed joinery, particularly glazed external doors/ranchsliders.
·Failed pressure bars and liquid applied membranes causing ceiling damage to unit above (sic).
·Failed sealants to GRC panel junctions causing internal lining damage.
·Water ingress into Unit G1 from leaks to the unit above causing damage to internal linings.
5 Mark Lynch, Hampton Jones Report, November 2015.
[19] The damage to The Links as a result of the leaks is not considered to have affected the building’s structural performance. It is described by Hampton Jones as a nuisance, although Hampton Jones recognises some damage may be causing the development of moulds which could be harmful to the health of occupants. Internal damage is limited to certain apartments.
[20] The damage to the structural frame in the swimming pool is considered as likely to be extensive. It has been put to one side by the Body Corporate and does not form part of the work covered by the Application.
[21]There is no doubt The Links is damaged.
Is the Scheme appropriate?
Work proposed under the Scheme
[22] The Application seeks authorisation to repair the leaks generally in accordance with the Links Apartments Remediation Programme (LARP), as updated from time to time (the Scheme). There are three components:
(1)Work completed prior to the involvement of Hampton Jones. This work is described in the report of Wojoski Architects Ltd (dated 22 April 2014). The report identified work done prior to the date of the report and work yet to be done. The report stated that the work carried out to date had been done in best trade practice and a good and workmanlike manner, given the age of the building. It noted, however, that new leaks would be discovered and ongoing maintenance was required.
(2)The work listed as option 2 in Hampton Jones’ November 2015 report, being:
·replacement of paved/tiled areas to the ground level and level one;
·repair and/or replacement of cladding and wall framing to the ground level and level one;
·replacement of aluminium joinery where it is not performing;
·repairs to Kapiti Road tower face remediation/re-glaze; and
·remediation works, particularly on levels 11 and 12.
Some of this work has been completed and some remains outstanding. Further details of this work are set out in Hampton Jones’ letter of 5 September 2018 attached to the Application.
[23] The work as described cannot be considered an exhaustive list. Work carried out to date frequently revealed problems previously unsuspected and additional work has been required as a consequence. This issue is likely to continue. The Scheme is therefore framed to include work required as a result of any further damage to The Links identified during the course of the repairs.
Discussion
[24] Over the years, the Body Corporate engaged a number of building specialists to investigate and advise on the defects in and damage to The Links. Unsurprisingly, there has been some variation in those reports as to the extent of work required and when it should be undertaken.6 Long and short-term options have been considered.
[25] Janus Façades, an Australian-based façade company, was requested to assess the curtain wall. Its report concluded:
The curtain wall is a 3rd quality curtain wall, made from a flushglaze shopfront system, which has inadequately sized panel joints compared with the requirements of a multi-storey building. The mullion and transom joints are all virtually closed, which means that building movements (wind-sway,
6 Reports have been prepared by: HBC (2004) Ltd; Fletcher Aluminium Ltd; Janus Façades; Maltbys Ltd; Wojoski Architects Ltd; Sawrey Consulting Engineers Ltd; Holmes Wellington Ltd; The Glass is Greener Ltd; Prendos New Zealand Ltd; Maynard Marks Property and Building Consultants; and Hampton Jones Property Consultancy Ltd.
seismic and thermal movements) will tend to flex the curtain wall panel joints and break the seals, leading to further water ingress.
Many features of the curtain wall, including brackets and mullions, have questionable structural adequacy.
The curtain wall has no strategy to control water which penetrates behind the spandrel glass, ie no back-pans or flashings. This water will continue to drop onto the ceiling inboard of the spandrels and into the room below. There is also no insulation in the spandrels.
Suggested repairs will not address the main issues of the curtain wall indicated above. Such repairs may be partially successful in the short term. With such repairs being carried out, a seismic shake of the building will break seals with subsequent continued water ingress.
[26] Janus Façades recommended that the curtain wall should be replaced with a properly engineered one with adequate joints and weatherproofing capability which ought to satisfy the requirements of the building code.
[27] The evidence from the Body Corporate was that, at the time repairs were first given serious consideration, the Body Corporate simply did not have the money to pay for a full reclad of the building. It therefore engaged other experts to advise on a staged approach to repairs.
[28] It is also apparent that the full extent of the repairs and damage was not appreciated at the outset. For example, in July 2011, on the basis of expert advice, the Body Corporate resolved to spend $1,466,000 on repairs to the curtain wall, decks and balconies. By the time of the 2015 Hampton Jones report, the estimated cost of work then outstanding was $2,029,189.
[29] As at 31 August 2018, the Body Corporate has expended $2,704,040 on the LARP. The budget to complete the works (based on 2016 estimates) is $1,549,503. This will bring the total cost to $4,253,543. When one considers that the estimated cost to reclad the building was at some stage said to be around $7.5 million, in hindsight the Body Corporate might have been better advised to have proceeded with a full reclad at the outset. Given the current position of the Body Corporate, the work undertaken to date and that which remains outstanding, that hindsight is not particularly helpful.
[30] In this regard, I note the evidence of Mark Lynch, building surveyor and licensed practitioner employed by Hampton Jones. Hampton Jones’ involvement began in October 2015. Mr Lynch explained that investigations identified a number of areas where previous repairs to The Links had been of poor quality, for example poorly installed pressure bars, poorly sealed and installed flashings and poor repairs to GRC panels. That is indeed unfortunate. That poor quality work and the cost of it is covered by the LARP. While this is clearly not optimal for the Body Corporate, it needs to make the best of its situation and progress with the LARP as it is doing.
[31] The general flavour of Mrs Knight’s criticisms and opposition to the Application is that the work done to date could be considered a waste of money. In saying that, however, Ms Knight accepted that the Body Corporate cannot at this stage afford to fund the recladding of the building.
[32]Mr Lynch’s expert evidence succinctly explained:
… in our view Option 2 allows the Body Corporate to manage and reduce the effects of the identified weathertightness failures in the Links building so that it remains liveable for the occupants and owners. Given the Body Corporate’s financial position, we consider that Option 2 is the most appropriate way forward for the Body Corporate to maintain the Links building in some degree of repair until such time as the building can be subject to a more extensive scope of remediation.
In simple terms, if the Body Corporate had not undertaken the current and planned work the affected apartments would deteriorate and could potentially result in some apartments becoming unfit for habitation.
[33] Mr Lynch’s evidence canvassed the investigations undertaken by Hampton Jones to support that conclusion, which he explained had been undertaken to the extent practically possible. He acknowledged some defects remained hidden, considering that no level of practical invasive investigations was likely to identify those defects.
[34] In this regard, Ms Knight issued a subpoena to a consultant previously used by the Body Corporate, Mark Radcliffe, managing director of HBC (2004) Ltd, which has since ceased trading and been wound up. In 2011, he advised the Body Corporate of a need to carry out window field testing. He was concerned at the comments in the Janus Façades report (which he had arranged) and considered the concerns raised in
that report needed to be addressed. The Body Corporate was of the opinion that the cost of what it considered invasive testing was not warranted in the circumstances.
[35] That remained the approach of the Body Corporate at the time it instructed Hampton Jones. In his evidence, Mr Lynch agreed it was both cost prohibitive and impractical to undertake invasive testing. In support of that, he noted the difficulties in collecting accurate data through invasive investigations by reference to the defects in The Links and their complexity. He noted, for example, that when leaks in the GRC panels occur, the evidence of the leaks does not appear in the locality of the source of the leak but tracks through the building and appears elsewhere. In his opinion, it would be costly and futile to open up certain parts of the building to confirm what is already known about the leaks and, indeed, it could potentially create further leaks and accelerate the damage.
[36] In Mr Lynch’s opinion, the Body Corporate has properly scoped and estimated a budget cost for the LARP. He said the completed and planned works were being done with appropriate investigation and will address, albeit not permanently, the causes of the damage.7
[37] Mr Lynch concluded that, until the Body Corporate is able to reclad the entire building and undertake the necessary associated remediation works, the LARP repairs are essential to ensure the liveability of The Links and the only viable way to safeguard the building. Furthermore, in his opinion, failure to complete the temporary works would be irresponsible and would contravene the Building Act 2004 requirements to ensure a building is maintained to a standard which addresses the occupants’ health, wellbeing and safety.8
[38] Mr Lynch is satisfied that the Body Corporate instructed professionals with the appropriate qualifications to carry out the works, including architects, weathertightness experts, chartered engineers, rain screen cladding experts and fire consultants. He acknowledged the failures by some of these contractors to perform.
7 Mr Lynch’s evidence was supported by that of Andrew Hyett, chartered building surveyor and director of Hampton Jones, again in his expert opinion.
8 See for example Building Act 2004, ss 3, 123 and 128.
However, he said Hampton Jones has ensured that quality and non-compliance issues have been addressed to ensure the works are progressed and the building code is met.
[39] The position as to building consent for the LARP works is somewhat mixed. In 2011, the Body Corporate obtained confirmation from Kapiti Coast District Council that the remediation works proposed at that stage would not require building consent as they were in the nature of repair. Subsequently, the Body Corporate decided it would obtain building consent for later works. This has been attended to by Hampton Jones. Building consent was not obtained for some work, however, because of the inherent defects in the cladding system which prevented repairs from meeting the building code unless the building was fully reclad. Hampton Jones’ opinion is that this was the most appropriate action as the work could be categorised as temporary emergency repairs undertaken in order to safeguard the building until a permanent repair can be carried out.
[40] Kapiti Coast District Council has granted a waiver in respect of one aspect of the LARP involving work to the deck membrane in certain areas.
[41] As already observed, the LARP process and works has been an imperfect process. It has been undertaken under the management of the Body Corporate on the basis of expert advice, some of which it has decided not to follow, as is the Body Corporate’s right. It cannot be said, however, that the works undertaken to date have been done without expert advice. Some of the work has been carried out to a less than optimal standard, with the result that further remedial action has been required. The LARP does not provide a permanent solution and this is recognised by the Body Corporate.
[42] The Body Corporate has done its best in light of its financial constraints and the information known at the time. The Body Corporate chair at the time most of the work was undertaken took what could be considered a robust and slightly combative approach. Nonetheless, there is no doubt he was acting in what he considered to be the best interests of the Body Corporate.
[43] Mr Dunning, for Ms Knight, submitted that s 74 and the scheme approach had no application in the circumstances of this case because the repairs and maintenance will not fully remediate the building. I do not read s 74 as imposing any such limitation. The consequence of Mr Dunning’s approach would be that the LARP works would have to be carried out by the Body Corporate under its general obligation to maintain the common areas and building elements, as discussed in more detail below. That would impede how and the extent to which the LARP could be undertaken. In this case, the work to The Links clearly goes well beyond routine repairs and maintenance. It is required to address significant defects in the building’s construction.9 Furthermore, a comprehensive approach is clearly required. The LARP will “remediate” parts of the building. The fact the LARP is not a permanent solution does not, in my assessment, preclude the application of s 74.
[44] I also reject Mr Dunning’s submission that s 74 applies only if the alternative is cancellation of the unit plan. Section 74 does not provide that. As noted in Tisch, schemes are appropriate where the best interests of all owners warrant a departure from the Act. This is clearly required in the case of The Links, as discussed further below.
[45]This approach is supported by the purpose of the 2010 Act which includes:10
(c)to establish a flexible and responsive regime for the governance of unit title developments; and
(d)to protect the integrity of the development as a whole.
[46] I am satisfied the Scheme is appropriate. This is not to be taken as any endorsement of the work undertaken to date, which clearly has at times been less than perfect. It does, however, reflect the reality of the situation and a practical solution to it.
9 Issues arising out of the Limitation Act 2010 mean the Body Corporate and owners have no redress against others in respect of these defects.
10 Unit Titles Act 2010, ss 3(c) and (d).
What should the terms of the Scheme be?
Ownership issues
[47] The Body Corporate took professional advice as to the ownership of various parts of The Links.
[48] The advice was that on levels 2 to 12 the balconies and decks are included as part of the adjacent unit. Where an external wall of an apartment abuts a balcony or deck and the whole area is within the unit, the whole of the wall is within the ownership of the individual unit owner. This means that parts of the external walls of the building fall within the ownership of individual owners. There is incomplete evidence as to whether the remainder of the glazed curtain wall is common property or in private ownership.
[49] While the balconies and decks are in private ownership, some of them form part of the rooves of the apartments below. The leaks through the upper level decks are considered to be a significant source of water ingress into the structure of the level below, adversely affecting the lower units and common property. The water ingress tracks downwards away from the units with the decks, therefore not greatly affecting the units with the decks themselves. Similar issues apply to the external walls.
[50] How the costs of the LARP were to be apportioned has been the subject of much consideration by the Body Corporate. At its extraordinary general meeting (EGM) of 16 July 2011, the Body Corporate unanimously resolved to spend
$1,466,000 to carry out repairs to the curtain wall, decks and balconies. It also resolved that the costs would be paid by unit holders by way of a special levy calculated in accordance with their utility interest. Utility interest (sometimes referred to as unit entitlement) means the utility interest assigned to a particular unit. It is also the same as the ownership interest.11 Section 39 of the 2010 Act provides:
39 Utility interest (other than for future development units)
(1)Before a unit plan is deposited under section 17(1), 21(1), or 24(2)(a), the registered proprietor or owner (as the case may be) must assign a utility interest to every principal unit and every accessory unit.
11 Unless the Body Corporate resolves otherwise: Unit Titles Act 2010, s 41.
(2)The utility interest assigned to a unit is the same as the ownership interest assessed for the unit under section 38(2).
(2A)Alternatively, the registered proprietor or owner may assign to a unit a different utility interest if that different utility interest is—
(a)fair and equitable, in the view of the registered proprietor or owner, having regard to the relevant benefits and the costs to units; and
(b)shown on the documentation lodged with the unit plan.
(3)The utility interest is used to determine a range of matters including, but not limited to,—
(a)the extent of the obligation of the owner of the principal unit in respect of contributions levied by the body corporate under section 121 in respect of the long-term maintenance fund, the optional contingency fund, and the operating account:
(b)the rights of the owner of the principal unit in relation to a distribution of any surplus money in the long-term maintenance fund, the optional contingency fund, or the operating account, or personal property of the body corporate under section 131.
[51] The complex blend of ownership in The Links meant there was a problem with the Body Corporate’s 2011 special levy resolution. In subsequent Tenancy Tribunal proceedings between the Body Corporate and Ms Yee over unpaid levies, the adjudicator held that the Unit Titles Act 1972 still applied. Under its provisions, the adjudicator found the Body Corporate could only impose levies on a utility interest basis in order to meet the cost of repairs to common property.12 Any responsibility for repairing individual units (which, as I have said, included in large part the decks and balconies) and any power to levy for such repairs was limited to cases in which the need for the repairs could fairly be seen as incidental to the Body Corporate’s obligations to maintain and repair common property.13 The adjudicator held that the special levies were ultra vires and that Ms Yee had no obligation to pay them, to the extent they related to repairs to the decks on the podium.
12 Body Corporate 81340 v Yee Good Fortune Investments Ltd TT Wellington 12/00048/UT, 6 March 2013. See also ss 15(2) and 33 of the Unit Titles Act 1972. Although the Tenancy Tribunal proceedings arose after the commencement of the Unit Titles Act 2010, the Adjudicator held that, due to the transitional provisions in the 2010 Act, it was the 1972 Act that continued (at that time) to apply.
13 No evidence was adduced in the Tenancy Tribunal to suggest it could not be determined which repairs related to common property and which related to the individual units.
[52] The refusal of some owners to pay the special levy also had implications for implementation of the LARP. For example, work to the curtain wall had to be stopped, with the consequence that the Kapiti Road frontage remediation works remain outstanding. One particular dispute contributed significantly to the Application. In settling the claim in relation to earlier levies, the Body Corporate agreed to make the Application.14
[53] Importantly, changes to the Unit Titles Act 1972 assisted the Body Corporate’s position both in terms of levying for the cost of the LARP and its ability to undertake work on privately owned parts of the building.
The 2010 Act
[54] The purpose of the changes wrought by the 2010 Act have been discussed by this Court in a number of decisions, most notably in Muir J’s judgment in Wheeldon v Body Corporate 342525.15 There, he said:
[36] The UTA 2010 was passed against a background of tension within the authorities about the powers of a body corporate to undertake work within unit boundaries. In Body Corporate 188529 v North Shore City Council (Sunset Terraces) Heath J identified a clear distinction between common and private property rights, holding that the Unit Titles Act 1972 contemplated corporate responsibility for the maintenance and repair of common property only. In that case the relevant plan had identified the boundary between private and common property as the “external face of exterior walls and glass adjoining common property in accessory units and to the centre line and walls between adjoining units”. So the outside face of each exterior wall was part of an individual unit. On that basis Heath J found that an amendment to r 2(b) of the default rules, whereby the Body Corporate assumed an obligation to keep in a good state of repair the exterior and roof of the building, was ultra vires the 1972 Act.
[37] By contrast, Harrison J in Young & Ors v Body Corporate 120066 adopted a more expansive role for the Body Corporate. In circumstances of disunity among the owners (which closely mirror those in the present case) and where a majority of owners contemplated a “complete and bespoke upgrade of the whole complex”, whereas the plaintiffs favoured “targeted repairs based on the individual needs of each unit”, his Honour held that the unusual configuration of the complex (a “wedding cake” structure again emulated in the present case) required the Body Corporate to repair parts of the exterior that were not common property. His Honour based that decision
14 Body Corporate 81340 v Newland CIV-2013-091-210, 23 October 2014 (oral minute of Judge Kelly) at [8(i)].
15 Wheeldon v Body Corporate 342525 [2015] NZHC 884, (2015) 16 NZCPR 829 (citations omitted). Upheld on appeal: Wheeldon v Body Corporate 34525 [2018] NZCA 20.
on the fact that leakage through a failure to keep the exterior in good condition placed at risk the development as a whole including the common property.
[38] I accept Mr Allan’s submission that the purposes and effect of the 2010 Act was to enshrine the more flexible position contended for by Harrison
J. To the extent necessary, there is ample support for that proposition in the legislative history of the Act. When introducing the then Unit Titles Bill to Parliament for its first reading, the Minister for Housing noted that the Bill proposed a “fundamental rewrite of the existing legislation” and that its “key changes include promoting sound property management practices”. He observed that “a body corporate needs to be able to act quickly and decisively on behalf of all unit owners and for the good of the development as a whole when repairs and maintenance need to be done”. He then noted that the responsibilities of the Body Corporate for repair and maintenance “will be widened to include building elements and infrastructure that affects more than a single unit” and that “this will mean, for example, that if an apartment block has a leaky roof, it will be the Body Corporate’s responsibility to fix it rather than the responsibility of the owner of the top floor apartment”.
[39] At the Committee stage of the Bill there was specific reference to the divergence in approach of the High Court authorities and to the fact that cl 122 (which became s 138 in the Act) followed the approach that the High Court took in the Young case. Reference was made to the clause being a “practical, fair and pragmatic contribution to solving the problem of leaky homes” and of it taking a “common-sense and pragmatic approach”.
[55] Section 138 of the 2010 Act assumes some importance in the present case. It imposes expanded repair and maintenance obligations on bodies corporate. As well as requiring them to repair and maintain common property and any assets designed for use in connection with the common property, it imposes similar obligations in relation to “any building elements and infrastructure that relate to or serve more than 1 unit”.16
[56]The term “building elements” is defined in s 5 as including:17
… the external and internal components of any part of a building or land on a unit plan that are necessary to the structural integrity of the building, the exterior aesthetics of the building, or the health and safety of persons who occupy or use the building and including, without limitation, the roof, balconies, decks, cladding systems, foundations systems (including all horizontal slab structures between adjoining units or underneath the lowest level of the building), retaining walls, and any other walls or other features for the support of the building.
[57]Section 138 goes on to provide:
16 Unit Titles Act 2010, s 138(1)(d). The issue of when a building element can be said to “relate to or serve more than 1 unit” was discussed by the Court of Appeal in Wheeldon v Body Corporate 342525 [2016] NZCA 247, (2016) 17 NZCPR 353.
17 The term “infrastructure” is also inclusively defined in s 5, but is not presently relevant.
(3)The body corporate may access at all reasonable hours any unit to enable it to carry out repairs and maintenance under this section.
(4)Any costs incurred by the body corporate that relate to repairs to or maintenance of building elements and infrastructure contained in a principal unit are recoverable by the body corporate from the owner of that unit as a debt due to the body corporate (less any amount already paid) by the person who was the unit owner at the time the expense was incurred or by the person who is the unit owner at the time the proceedings are instituted.
[58] The position set out in s 138(4) is largely consistent with the more general position in relation to the recovery of the costs of repairs set out in s 126, which (like s 33 of the 1972 Act, before it) provides:
(1)This section applies where the body corporate does any repair, work, or act that it is required or authorised to do, by or under this Act, or by or under any other Act, but the repair, work, or act—
(a)is substantially for the benefit of 1 unit only; or
(b)is substantially for the benefit of some of the units only; or
(c)benefits 1 or more of the units substantially more than it benefits the others or other of them.
(2)Any expense incurred by the body corporate in doing the repair, work, or act is recoverable by it as a debt in any court of competent jurisdiction (less any amount already paid) in accordance with the following:
(a)so far as the repair, work, or act benefits any unit by a distinct and ascertainable amount, the owner at the time when the expense was incurred and the owner at the time when the action is instituted are jointly and severally liable for the debt; or
(b)so far as the amount of the debt is not met in accordance with the provisions of paragraph (a), it must be apportioned among the units that derive a substantial benefit from the repair, work, or act rateably according to the utility interest of those units, and in the case of each of those units, the owner at the time when the expense was incurred and the owner at the time when the action is instituted are jointly and severally liable for the amount apportioned to that unit.
(3)Despite subsection (2)(b), if the court considers that it would be inequitable to apportion the amount of the debt in proportion to the utility interest of the unit owners referred to in that paragraph, it may apportion that amount in relation to those units in the shares as it thinks fit, having regard to the relative benefits to those units.
[59] In Wheeldon, Muir J held that the obligation placed on bodies corporate by s 138 is superior to that contained in s 80(1)(g), which requires the owner of a principal unit to:
… repair and maintain the unit and keep it in good order to ensure that no damage or harm, whether physical, economic, or otherwise, is, or has the potential to be, caused to the common property, any building element, any infrastructure, or any other unit in the building …
[60] The 2010 Act significantly changed the position so far as the Body Corporate was concerned, requiring it to repair damage to building elements such as decks and balconies regardless of whether they form part of a principal unit in private, as opposed to common, ownership. The perceived difficulty, however, was that, absent a s 74 scheme, it:
(1)could not levy in advance to pay for such repairs; and
(2)could only recover those costs from the individual unit owner(s) of whose property the decks and balconies form part, regardless of the importance of the repairs to the integrity of the building as a whole or to the owners as a group.18
[61] Despite Mr Dunning’s submission, I am in no doubt that those parts of the exterior walls and decks/balconies of The Links within private ownership constitute relevant building elements. First, the 2010 Act expressly includes balconies, decks and cladding systems in the statutory definition of building elements when they relate to structural integrity, exterior aesthetics or the health and safety of occupants.
[62] Secondly, I am satisfied the weathertightness of the decks, balconies and external walls relates to the health and safety of occupants in more than one unit. The experts agree that the leaks affecting a particular unit are coming from outside that owner’s private property so that repairing that owner’s private property will not fix the leaks entering it. Mr Hyatt’s evidence was that there is evidence of water entering the building higher up and tracking down through the building. Mr Redcliffe agreed there
18 A recent Court of Appeal decision suggests this was a misconception. See Gu v Body Corporate 211747 [2018] NZCA 396, at [44]–[48] and [50]. This decision was brought to the Court’s attention following the hearing and was subject to further written submissions from Mr Dunning.
was cross-contamination in the leak issues affecting the building. The leaks in the podium decks flow down to the carpark and recreation room. Thus it is clear that, while parts of the exterior wall, balconies and decks might be in private ownership, their integrity is necessary for the building’s weathertightness and, consequently, the health of occupiers.
[63] In circumstances where the construction of a building element, such a balcony or deck accessible via one unit only, has an effect on the weathertightness of other units, the fact such an element is private property is insufficient grounds on which to argue that it does not relate to more than one unit. For the same reasons as discussed above at [62], in the context of attempting to remedy weathertightness issues these building elements clearly relate to more than one unit.
[64] It is also clear that the issues facing The Links are not isolated or recent. The issues are pervasive, pertaining to both poor detailing and/or construction of significant elements of the building and poor attempts to maintain and repair those elements. That the effects of the issues are not uniformly experienced but are concentrated in particular areas is not, in my assessment, a reason to depart from the view that the building elements concerned relate to more than one unit. Indeed, that the damage stems from pervasive problems with construction and maintenance indicates the issue is one affecting all units to a not insignificant degree.
Is a utility interest approach fair as between owners?
[65] Given my assessment as to whether The Links is damaged and whether the Scheme is appropriate, the crucial question in this case is whether the allocation of the costs provided for in the Scheme is fair. The primary concern of the respondents is that the utility interest approach results in a very different allocation than would arise under either ss 126 or 138, the latter of which they consider to be a preferable outcome.
[66] Over the years following the 2011 EGM, the Body Corporate debated various options for the appropriate allocation of the LARP costs. Eventually, at an EGM on 31 October 2015, the Body Corporate agreed to engage Mr Roger Levie of the Home Owners and Buyers Association Inc (HOBANZ) to make a recommendation. His
report (dated 10 February 2016) recommended that costs be allocated on the basis of utility interest.
[67]This resulted in the following resolution by majority support from owners at
an EGM on 19 March 2016:
That the Links Body Corporate No 81340 applies to the High Court to settle a scheme pursuant to Section 74 of the Unit Titles Act 2010, the terms of which provide for the allocation of the costs of the Deferred Maintenance Project on the basis of Utility Interest.19
[68] Neither Ms Knight nor Ms Yee was eligible to vote at this meeting due to their historic refusal to pay levies. Sixteen of the 19 eligible voters agreed with this resolution.
[69] The practical difference in money terms of a levy based solely on utility interest rather than on a combined approach, whereby utility interest determines only the cost allocation for common property (with actual ownership of the building elements determining the remainder), was suggested by a 2013 schedule prepared by Maltbys, which showed the cost for each unit on both approaches. On the basis of the then projected expenditure of $1,883,002, the following was indicated (taking Ms Yee, Ms Knight and one other unit as examples):
(1)Under the unit utility interest approach:
(i)Unit 6 (Ms Yee) would pay $52,103;
(ii)Unit 13 (Ms Knight) would pay $79,453; and
(iii)Unit 19 would pay $85,968.
(2)Under the combined approach:
(i)Unit 6 (Ms Yee) would pay $49,172;
19 The Deferred Maintenance Project has now been renamed the LARP.
(ii)Unit 13 (Ms Knight) would pay $66,086; and
(iii)Unit 19 would pay $70,115.
[70]In other words, under a utility interest approach:
(1)Unit 6 (Ms Yee) would pay $2,931 more than under the combined approach;
(2)Unit 13 (Ms Knight) would pay $13,367 more than under the combined approach; and
(3)Unit 19 would pay $15,853 more than under the combined approach.
[71] By contrast, the owners of Units 1, 2, 3, 23 and 24 (all of which have large decks) would be considerably better off – by $51,266, $33,262, $48,772, $26,344 and
$39,529 respectively – under a utility interest levy.
[72] It is notable that there were a number of other owners who voted in favour of the proposed scheme who would also be worse off under a utility interest levy. Included in these is the owner of Unit 18 for whom the difference amounts to $6,005 (in relation to the expenditure anticipated in 2011). And it seems none of the owners of Units 15, 17 and 21, whose disadvantage is the most severe (on a par with that of the owner of Unit 19), voted against the resolution.20
[73] Whether or not the LARP should be paid for on a utility interest basis is, as I understand it, the real crux of Ms Knight’s opposition to the Application.21 Ms Knight’s objection boils down to this:
20 The minutes of the 19 March 2016 EGM suggest that Unit 15 voted in favour, Unit 17 did not vote and Unit 21 voted in favour but was ineligible.
21 Ms Knight also appears to dispute the various EGM resolutions, maintaining that the information provided to owners was misleading or incomplete and that they did not vote for a utility interest allocation as the Body Corporate contends. She says the vote was only to the effect that owners should be levied on that basis but there should be a subsequent reallocation of costs apportioning them to those owners whose units had work carried out on them. That contention is not supported by the various EGM resolutions, nor by any other owner (save for Ms Yee).
I simply do not think it is fair that I pay for the cost of repairing someone else’s apartment, on whatever basis. These apartments are people’s homes, and I would never ask or expect anyone else to pay for repairs to my home, and they would not expect to have to. To me, it makes no difference if all our homes are in the one building: the same principles applies unless the law says otherwise.
That is what I have always understood to be the case. The law tells us what is fair and I understand it was not intended that the legislation would change existing law, unless some part of the building was shared.
[74] The recommendation of HOBANZ is important. While I note Ms Knight criticised Mr Levie in her evidence, she did engage him to advise her initially and it was that involvement which resulted in his engagement by the Body Corporate. It is worth quoting extensively from Mr Levie’s report, which said:
16.When dealing with a multistory apartment block such as The Links we think it is reasonable to assume that all components that make up the exterior envelope are building elements as defined by the Act and that in most, if not all cases, the failure of any one of these elements has the potential to affect more than one unit in the complex.
…
18.We would argue that the integrity and value of the individual apartments is as closely linked to the overall performance of the exterior envelope as it is to the discrete elements that make up the skin of the building. Further to this, we consider that where a multistory apartment building is found to be non-compliant in terms of weathertightness, fire safety and/or structure, this is likely to have an impact on the value of all units irrespective of the location of the defect.
19.The main goal of the remedial project being undertaken at The Links must be to restore the value of every apartment in the complex. Following our reasoning, this can only be achieved by bringing the entire building up to a standard where it performs in accordance with the building code. The need for this, we think, is demonstrated by the inability to sell apartments in the building at present despite the amount of remedial work that has been undertaken to date.
…
22.Due to the relatively small number of apartments in The Links building there is a significant variance between their utility interests which range from 1.169% up to 8.580%. Therefore, an approach based on utility interest will result in the owners of the larger more valuable apartments contributing significantly more toward the costs of the project than the owners of the smaller lower value apartments. For example, the owner of the large apartment at level 10 occupying a whole floor will pay just over 8% of all costs whereas the owners of the two smaller apartments that share level 6 will pay around 4.4%
each. This distribution should fairly reflect the relative benefit that each unit receives as, in our view, this is linked to the restored value of the apartment once the entire building has been repaired rather than the actual cost to repair each building element associated with an apartment.
23.It is also relevant to highlight that none of the work under discussion is elective. In other words, no owner has chosen to have this work undertaken on their apartment. Instead, it is required due to the failure of various building elements and is necessary to reinstate the building to a standard where it meets the performance requirements of the building code. From this perspective every owner is in the same boat so to speak and so the actual cost of the work associated with each individual apartment or building element is of little relevance. Attempting to allocate costs based, for example, on the number of external walls an apartment has would fail to capture the benefit that all unit owners receive from the restoration of the building as a whole.
24.Taking these factors into consideration we believe that the allocation of project costs in proportion to utility interest should, in general, result in a fair and equitable outcome with some provisos as discussed later in this paper.
…
27.The locations that appear to have caused the most controversy to date are the large balconies attached to apartments 23 and 24 (levels 10, 11 and the roof); the walls and window/door joinery facing on to these balconies; and the large accessory units on the ground floor and at level 1 that form the roof of apartments, parking areas and common property below. Given the circumstances under which the work in these locations is required we consider that it would be difficult to prove a substantial benefit to the specific apartments involved over and above the general benefit all owners will enjoy once the integrity of the entire building is restored. Further to this, and particularly in relation to the work required within the principal units of apartments 23 and 24, we feel the proportionately higher contributions these owners would be required to make based on utility interest would negate any argument related to the cost to repair specific building elements.
28.It is also particularly important to keep in mind that the owners of apartments 23 and 24 will contribute toward the costs to properly repair the curtain-wall when the time comes, despite the fact that this element of the building has no direct connection to their units. The curtain-wall is mostly common property and it is also undoubtedly a building element that relates to or serves more than one unit. We think it is unlikely a Court would approve a scheme where the owners of apartments 23 and 24 were not contributing toward the work on the curtain-wall. However, the approach where costs are allocated purely based on utility interest for work that is required to be undertaken to restore the integrity of the building avoids the need to consider this matter further.
…
30.An alternative approach the body corporate could take to the allocation of repair costs is to strictly apply the cost recovery provision in s 138(4). This allows a body corporate to on-charge for work on building elements and infrastructure contained in a principal unit. Although this would be valid, we are of a view that it would result in an unfair and somewhat random outcome. For example, the owner at level 10 would end up paying for the repair to 3 of the 4 elevations related to their apartment while at the same time having to contribute toward the repair of the entire curtain-wall facade on the main tower. This approach is further undermined by the fact that the cost recovery provision does not provide for the on-charging of work on accessory units (such as the podium decks and adjacent curtain wall).
31.Another aspect that supports a utility interest approach is the fact that many of the costs incurred during a remedial project are not directly attributable to a specific piece of work. This holds true for indirect construction costs (such as site management, scaffolding and weather protection), professional fees (such as those associated with the activities of engineers, architects and quantity surveyors) and other fees (such as building consent fees and the cost of contract works insurance). Although some of these costs could possibly be allocated in proportion to the direct repair costs, the Courts have found it appropriate on a number of occasions to approve schemes where indirect costs are allocated in proportion to utility interest. This would appear to be in line with the requirement to protect the integrity of the development as a whole and is an approach we would support.
[75] The Body Corporate accepted that report, in my view for good reason because it is compelling. Ms Knight’s analysis is appropriate to ownership of a stand-alone dwelling. However, it is simply not possible to equate the situation pertaining to The Links with a stand-alone dwelling. The particular construction style of The Links, coupled with the pervasive defects, means it is not possible to attribute costs of repairs on the basis of the location where the work is in fact carried out. Indeed, it would be unfair to do so.
[76] It is also somewhat disingenuous to suggest that a departure from the provisions of the 2010 Act (if that is the case) ipso facto means there has been unfairness. The 2010 Act cannot meet the individual requirements of every unit title development. Recently, in determining whether a s 74 scheme should be amended, the Court of Appeal confirmed there is no presumption that work carried out by a body corporate is paid for (as opposed to levied) on a unit entitlement basis.22 In the circumstances of a s 74 application, the primary concern is whether the proposal is fair
22 Gu v Body Corporate 211747, above n 18, at [56]–[57].
given the choices available.23 The benefit of s 74 is that it enables the particular circumstances of a unit title development to be considered in the context of the damage and repairs needed to that particular unit title development. In that light, what is fair can then be properly assessed.
[77] In Mr Dunning’s submission, and relying on Tisch, the Scheme had to be fair to all owners, the inference being it could not be fair to those owners who would have to pay more under the utility interest cost allocation than otherwise.
[78] Fairness to all owners must necessarily be considered in the round. I am satisfied that the leak issues affecting The Links are complex and interrelated, and a leak to one area or unit has ramifications for owners of other units. The LARP therefore benefits all unit owners and it is therefore fair in the circumstances that the cost is shared on a utility interest basis. As the Body Corporate chairman said, as far back as 2011, the owners decided they were “all in it together”. That approach was again demonstrated by the 2016 EGM where 16 of the 19 owners entitled to vote, and 16 of the 16 eligible voters in attendance, voted to allocate the cost of the LARP on a utility interest basis. That included owners who would pay more than if the costs were allocated by a common property/private property split.
[79] The owners of The Links have a mutual interest in keeping the building weathertight and in good repair. Repairs to building elements in this case do not benefit one or more units substantially more than others, as discussed. The integrity and value of each apartment is closely linked to the overall performance of the building. Approaching cost allocation under s 138(4) would result in a somewhat random outcome and would be unfair.
[80] The owners of apartments in The Links have been, and continue to be, in a very stressful situation (both emotionally and financially). They deserve a great deal of sympathy for their plight. I am satisfied that approving the Application achieves an outcome which is fairest to all.
23 At [60].
Other considerations
[81]Turning to address the five factors identified by the Court of Appeal in Tisch,
I am satisfied:24
(a)The LARP has broad support.
(b)The LARP is detailed to the extent reasonably practicable in all the circumstances as discussed above. Because of the iterative nature of the works, there will necessarily be works required in the future which have not as yet been identified.
(c)The Scheme needs to have retrospective effect in the circumstances, noting in particular the Body Corporate support for the works already undertaken, warts and all.
(d)There is some discrepancy between the standard of some of the works. For example, the works to the decks at the podium level have been carried out to a more exacting standard than on some of the higher decks where retiling has taken place on top of existing tiling which, on the basis of the expert evidence, would seem to be less than ideal. Again, however, the circumstances explain this and the Body Corporate has accepted it.
(e)If the terms of the Scheme do indeed depart from the 2010 Act, that is to the extent required to enable a comprehensive repair of The Links and fairness between owners.
[82] As a result of some of the issues discussed during the course of the hearing, the Body Corporate volunteered some amendments to the Application set out in the following paragraphs.25 In respect of funds held for the LARP, the following is to be added:
24 Tisch v Body Corporate No 318596, above n 3.
25 Pursuant to the Unit Titles Act 2010, s 120.
11.1 All funds in relation to the LARP are to be held and disbursed in the Body Corporate’s bank account in a separate named sub-account to ensure the funds are kept entirely separate and able to be identified.
[83] The duties of the Body Corporate are to be clarified, in respect of how the cost of various sections of the LARP work is to be ascertained, by an amendment which reads (the amendment being in bold):
Seek advice from suitably qualified advisers that relate to its powers and duties under this Scheme or carrying out or managing the Repairs where it determines necessary or appropriate including on whether tenders should be sought for any particular repair contract.
[84] In my view, the Scheme should at least recognise the need for recladding of the whole building in order properly to remediate it. It is accepted that the Body Corporate will not begin to levy for this future cost until the LARP works are completed. The Scheme is to provide:
It is recognised that the Repairs will not fully remediate the building and that it requires full recladding at some stage in the future. The Body Corporate will ensure that it takes expert advice as to when the reclad should occur and what the estimated cost of it will be. The Body Corporate shall then put in place levies on a utility interest basis to collect the estimated cost over the expected duration between completion of the LARP works and the date expert advice provides that the reclad should be done.
[85] Given my conclusion that the LARP cost should be borne on a utility interest basis, it follows that the full reclad should be borne on the same basis. Any alternative approach would be unfair.
Result
[86] For the reasons given, the Application is granted. The Scheme shall be in the terms set out in the Application, amended in accordance with [82]–[85] above.
[87] If the Body Corporate seeks costs, any memorandum is to be filed and served within 28 working days, with any response 14 days thereafter. Costs will be decided on the papers.
Thomas J
Solicitors:
Rainey Collins, Wellington for Applicant
Nat Dunning Law, Wellington for Respondents
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