Landmark Property Holdings Limited v Shen Empire Limited
[2022] NZHC 60
•1 February 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2019-404-1578
[2022] NZHC 60
UNDER the Property Law Act 2007 BETWEEN
LANDMARK PROPERTY HOLDINGS LIMITED
First Plaintiff/First Counterclaim Defendant
AND
SGA INVESTMENTS HOLDING PTE LIMITED
Second Plaintiff/Second Counterclaim Defendant
PURE CARE NEW ZEALAND LIMITED
Third Plaintiff/Third Counterclaim Defendant
(Continued over)
Hearing: 12 & 13 April 2021 Appearances:
D J Chisholm QC for Plaintiff
M C Harris for Fourth and Fifth Defendants
T Bellingham for 10th Defendant (abides decision of the Court)Judgment:
1 February 2022
JUDGMENT OF DUFFY J
This judgment was delivered by me on 1 February 2022 at 11 am pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors/Counsel: Burton Partners, Auckland Gilbert Walker, Auckland
LANDMARK PROPERTY HOLDINGS LIMITED v SGA INVESTMENTS HOLDING PTE LIMITED [2022]
NZHC 60 [1 February 2022]
(continued from previous)
SHEN EMPIRE LIMITED
First Defendant
NUZCORP INDUSTRIES LIMITED
Second Defendant
ELLETT INVESTMENTS LIMITED
Third Defendant
KEGG 187 LIMITED
Fourth Defendant
BALMERE CAPITAL LIMITED
Fifth Defendant
ALLEY VIEW LIMITED
Sixth Defendant
QUINN COMMERCIAL HOLDINGS LIMITED
Seventh Defendant
LUKE RUSSELL NOLA and SANDRA MIRIKO BURGHAM
Eighth Defendant
DONG LENG and THU CHAN LENG
Ninth Defendants
BODY CORPORATE 327853
Tenth Defendant
[1] Landmark House is an historic building located in the Auckland City central business district.1 In 2004, Queen Street 185 Ltd undertook a unit title subdivision of the property, which created 18 separate units.2 Three of the units are situated on the ground floor of Landmark House, and they are known respectively as Unit A, Unit B and Unit C.
[2] The owners of Units A, B and C are the plaintiffs in this proceeding. The defendants are owners of units situated on other floors of Landmark House.
[3] A separate legal question is before me for determination ahead of the hearing of the substantive matter. It is concerned with the enforceability of land covenants that are registered against the titles of the 18 owners (the covenants). The plaintiffs maintain the covenants are enforceable, whereas, the defendants maintain they are not.
Separate legal question
[4] The separate legal question was approved and outlined in the minute of Associate Judge Gardiner dated 22 September 2020:3
(a)Whether the land covenant pleaded in paragraph [13] of the plaintiff’s amended statement of claim is enforceable against the first to ninth defendants as registered proprietors of the unit title subdivision.
(b)If the land covenant is found to be unenforceable, whether:
(i)an order should be made extinguishing the land covenant, and
(ii)an order be made that the District Land Registrar be directed to remove the land covenant from the titles to the units in the Body Corporate.
The parties’ respective positions
[5]Paragraph [13] of the plaintiff’s amended statement of claim is as follows:
13.By registered Transfer Instrument 5891151.6 dated 29 January 2004 (“the land covenant”), the then registered proprietor of all the units in the building, Queen Street 185 Limited, created a scheme of
1 At 185–189 Queen Street, Auckland.
2 This was done under the Unit Titles Act 1972, which has since been repealed and replaced by the Unit Titles Act 2010.
3 Landmark Property Holding Ltd v Shen Empire Ltd Auckland HC CIV-2019-404-1578 (Minute of Gardiner AJ) at [7].
arrangement in relation to the building by means of positive covenants running with the titles pursuant to section 126A of the Property Law Act 1952 (now s307 of the Land Transfer Act 2007 [sic]) so as to achieve the objectives stated in clause 3:4
Particulars
(a)The registered proprietors authorised the Body Corporate and its committee to allocate outgoings with a view to ensuring that proprietors of units receiving the benefits accruing from outgoings should bear the corresponding financial obligations.
(b)The registered proprietors resolved to regulate the respective rights and obligations of proprietors in accordance with the defined “Rules” so that to the extent that any of the Rules or the application thereof were not authorised by or enforceable pursuant to the [Unit Titles Act 1972] UTA72 (then in force), the registered proprietors were nevertheless bound by the Rules by virtue of the covenants set out in the transfer instrument.
(c)Clause 3.3 stated:
“The covenants set out in this Transfer are created for the purposes of
a)ensuring that units and the common property are controlled, managed, administered, used and enjoyed in a manner which is necessary, expedient or appropriate having regard to the nature and size of the Building.
b)fairly and directly reflects the relevant benefits arising from the contributions made to the Body Corporate than would be the case if all outgoings were pooled and contribution levied solely by reference to unit entitlement.
c)binding the proprietors of the units from time to time”.
[6] The purpose of the land covenant is pleaded at [14] of the plaintiff’s amended statement of claim:5
The land covenant was to ensure an equitable allocation of outgoings by contract between all unit owners outside of the UTA 72. In particular the raising of levies under unit entitlement as fixed by a registered valuer pursuant to s 6 of the UTA 72 would have been unfair to the plaintiff owners of retail units on the ground floor inter alia because:
4 Section 307 of the Property Law Act 2007 mirrors the effect of s 126A of the Property Law Act 1952.
5 The relevant terms of the covenant are set out in sch 1 of this judgment.
(a)The value of their units was substantially greater on a rentable or per metre [squared] basis than the residential or office units on the upper floors of the building. For example unit B comprises approximately 3.66 [per cent] of the total area of the building but its ownership interest is 19.14 [per cent].
(b)The owners of ground floor retail units do not obtain the benefit of stairwells, lifts, lift maintenance, the office air conditioning system or the maintenance costs of common areas on the other floors.
[7] The plaintiffs contend the covenants are positive covenants, which by virtue of registration against the relevant titles run with the land and bind the successors of the original covenantor and covenantee.
[8] On the other hand, the defendants contend the covenants are covenants in gross. If they are correct this would render the covenants unenforceable, because when the covenants were created the law did not provide for registration and enforcement of covenants in gross.6 The law permitting their enforcement did not come into effect until 12 November 2018.7
Relevant law
[9] Section 367(4) of the Property Law Act 2007 (PLA 2007) provides that covenants that came into operation before 1 January 2008 are to be read and construed as if the law before 1 January 2008 continued to have effect, and they must be given only the effect and consequences that they would have had under that law. Accordingly, the relevant law for these covenants remains the Property Law Act 1952 (PLA 1952) as it stood on 29 January 2004 when they were created.
[10] As at the date the covenants were created (29 January 2004), s 126A of the PLA 1952 allowed registration of positive covenants. Section 126 of the PLA 1952 defined a “positive covenant” as meaning a covenant whereby the covenantor undertakes to do something in relation to the covenantor’s land that would beneficially affect the value of the covenantee’s land or the enjoyment of that land by any person occupying it.
6 A covenant in gross is where there is no land owned by the covenantee that benefits from the covenant.
7 Property Law Act 2007, ss 307A–307F.
[11] The Unit Titles Act 1972 (UTA 1972) provided for the creation of stratum estates of land. Section 3 permitted the registered proprietor of a fee simple estate or a leasehold estate in land registered under the Land Transfer Act 1952 (LTA 1952) to subdivide that parcel of land into two or more principal units, accessory units and common property in accordance with the provisions of the UTA 1972. These subdivisions were effected by deposit under the LTA 1952 of a plan (known as the unit plan) specifying the units in relation to an existing building/s.8 The deposit of a unit plan created either a freehold or leasehold stratum title for each unit.9 The creation of a stratum estate in a unit enabled this estate to be transferred, leased, mortgaged or settled, and those actions had the same consequences as if the stratum estate were an estate in fee simple in land or a leasehold interest in land as the case may be.10 Further, s 4(6) of the UTA 1972 expressly provided that, subject to any provisions it contained to the contrary, the provisions of the LTA 1952 applied to every stratum estate in freehold and leasehold land and to every dealing with and instrument affecting such estate.11 Accordingly, provided nothing in the UTA 1972 expressly prohibited such action, the holder of a unit title could deal with it in the much the same way and with much the same legal effect as a registered proprietor of a fee simple or leasehold estate could deal with their interest in land.
[12] It follows that within a stratum subdivided building the registered proprietor/s of unit titles could execute legal arrangements with one another in the same way as registered proprietors of neighbouring parcels of land registered under the LTA 1952. Therefore, it was legally possible for unit holder A in a stratum estate to covenant with unit holder B in the same estate on terms whereby unit holder A would do something that would beneficially affect the value of unit B’s holding or the enjoyment of unit B’s holding by any occupant of unit B.
Application of law to present case
[13] The next questions are whether the contractual arrangements that were initially executed and registered as covenants on the unit titles of the subject subdivision satisfy
8 Unit Titles Act 1972, s 4(1).
9 Section 4(2).
10 Section 4(3).
11 Section 4(6).
the requisite legal form for land covenants, and if they do, whether they qualify as positive covenants.
The legal form of the covenants
[14] At the time the covenants were executed, all unit titles in this unit title subdivision were owned by the developer Queen Street 185 Ltd. A memorandum of transfer that included the covenants as an annexure was executed by this company as both the transferor and transferee (the annexure).12
[15] The UTA 1972, schs 2 and 3 provided a set of default rules for the management of unit title subdivisions. The Act also permitted unit title owners to adopt their own rules in substitution for the default rules.13
[16] Clause 2 of the annexure sets out the background to the covenants, which includes a reference to the transferor adopting rules in substitution for the default rules (the substituted rules). The substituted rules are intended to provide for the control, management, administration, use and enjoyment of the units and the common property and the funding of outgoings for this purpose. Further, cl 2 provides that the transferor wished to use positive covenants that run with the title to create a scheme for the building and to achieve the objectives specified in cl 3. Accordingly, it is clear from the background section of the covenants that the transferor/owner wanted to achieve an outcome where the control, management, administration, use and enjoyment of the units and the common property, and the funding of outgoings for this purpose was provided for by positive covenants that ran with the title rather than simply by rules adopted under the UTA 1972.
[17] This outcome is expressly stated in cl 3 of the annexure. This clause makes it clear that liability of unit owners to make contributions to outgoings is to be determined by a formula different from that provided for in the UTA 1972 and the default rules. Clauses 3.2 and 8.5 both reinforce this scheme.
12 The annexure is attached as a schedule to this judgment.
13 Unit Titles Act 1972, s 37.
[18] Clause 3.2 expressly recognises that the substituted rules are to prevail as terms of the covenants even if they are not authorised by and enforceable pursuant to the UTA 1972. Clause 8.5 provides that if contributions are instead levied as provided for in the legislation, the payments of contributions levied in this way are then to be adjusted to ensure they conform with the annexure’s requirements for ascertaining contributions.
[19] The overall effect is to ensure the covenants’ requirements for ascertaining contributions (commonly referred to as levying by scales) trumps the relevant provisions in the UTA 1972. There is nothing to suggest the parties intended that this effect would be nullified by any replacement legislation.
[20] The Unit Titles Act 2010 (UTA 2010), now in force, provides a mechanism for unit title owners to adopt the rules existing prior to its enactment. However, that mechanism does not allow rules that were ultra vires the UTA 1972 to be adopted if their effect is also not authorised by the UTA 2010. It is common ground that from the outset the relevant substituted rules were ultra vires the UTA 1972.
[21] The annexure specifically refers to several of the substituted rules in a way that includes those rules as the terms of the covenants. Thus, the terms of the covenants are not all to be found in the one document and one of the documents from which the terms are drawn is ultra vires the legislation. Does this adversely affect the legal status of the covenants? I do not consider it does.
[22] Clause 3.2 of the annexure expressly recognises that the substituted rules may be ultra vires the legislation under which they were made. Thus, the original parties to the covenants intended to include in their terms the content of rules that exceeded the rule-making authority in the UTA 1972. The objective of registering positive covenants against the unit titles of this stratum title subdivision was obviously to ensure that the means provided in those covenants for the control, management, administration, use and enjoyment of the units and the common property and the funding of outgoings for this purpose was and would always be legally enforceable irrespective of whether authorised by the UTA 1972. This means that any change to the terms of the covenants that subsequent unit title owners might wish to effect could
only be achieved under the general law that applies to the variation or extinguishment of land covenants.
[23] The defendants argue that the default rules of the UTA 2010 would supersede the substituted rules because the s 220 transitional mechanism cannot bring forward ultra vires rules. However, the legal standing of the substituted rules vis-à-vis the UTA 1972 or the UTA 2010 is irrelevant. What matters is whether the language and content of the substituted rules specifically referred to in the annexure are through this means made part of the terms of the covenants.
[24] The clauses of the annexure sometimes refer to specific rules in the substituted rules. It would have been possible for the drafter of the covenant to spell out the content of those specific rules. The fact this was not done, however, is not fatal to the covenants’ enforceability. At the time, the Contracts Enforcement Act 1956 required land contracts (which includes positive covenants) to be in writing. However, there was no requirement that the written terms be incorporated in a single written document. It was always possible for the written terms to be contained in more than one written document. The requirements of the Contracts Enforcement Act were satisfied provided that: (a) it was clear which documents together formed the written contract; and (b) the requisite written terms were identifiable from within the component documents. The requisite terms were identified in Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd.14 In this regard I endorse the findings of Collins J in ABCDE Investments v Van Gog as to the law regarding the legal effectiveness of an amalgamation of documents forming a written contract before and following the passing of the Property Law Act 2007.15
[25] Here there is no doubt as to the identity of the substituted rules that form part of the covenants.16 Those rules are still available in written form. So, when the annexure is read together with the written form of the specified substituted rules there is no doubt as to what the terms of the covenants are. The amalgam of those documents forms a sufficiently complete contract. The references to specific rules in the annexure
14 Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2002] 2 NZLR 433 (CA) at [53].
15 ABCDE Investments v Van Gog [2012] HZHC 1131 at [53]–[57].
16 The relevant substituted rules are set out in sch 2 of the judgment.
operate as a shorthand way of incorporating the content of those rules into the terms of the covenants. I am satisfied, therefore, that the terms of the covenants are properly and completely expressed in written form. Accordingly, the fact the terms of the covenants are to be found in two documents (the annexure and the various specified substituted rules) does not diminish the legal effectiveness of the covenants.
[26] The defendants also argue that the terms of the covenants in the annexure refer to a committee constituted under the substituted rules, which no longer exist given the enactment of the UTA 2010. I acknowledge these rules no longer exist in this context. However, the effectiveness of the substituted rules as terms of the covenants does not hinge on them being legally recognisable and existing rules under the relevant unit title legislation. All that is required for the rules to function as terms of the covenants is for them to be in written form and readily identifiable. Here the written form of the substituted rules exists, and the terms of the annexure which incorporate certain substituted rules specifically identify those rules. There is no uncertainty as to which of the substituted rules are terms of the covenants. I do not accept therefore that the fact the substituted rules no longer operate as rules for the purposes of unit title legislation (former or current) detracts from their legal effect as terms of the covenants.
[27] The terms of the covenant set out in the annexure refer to a committee which means the committee of the Body Corporate as constituted from time to time in accordance with the substituted rules. The defendants argue this committee no longer exists and therefore the terms of the covenants cannot be sensibly applied. The relevance of a committee arises in relation to cls 3.1 and 8.2 of the annexure. However, the terms alternatively give the committee’s role to the Body Corporate. There is no doubt as to the existence of the Body Corporate. It is defined in the annexure as meaning the Body Corporate 327853 (North Auckland Registry). Insofar as a committee may no longer be able to be formed under the substituted rules and therefore not be capable of carrying out the roles given to it by the terms of the covenants, the Body Corporate can also carry out such roles. There is no possibility therefore of the terms of the covenants being frustrated by a designated actor being unable to perform its role. Further, it may well be possible for the unit title owners to constitute a committee under the substituted rules for the purposes of implementing the role given to the committee by cls 3.1 and 8.2 of the annexure.
[28] The covenants intentionally impose a management scheme for this unit title subdivision that sits outside the UTA 1972 or the later legislation and which could not have been created under that legislation. The scheme was intended to bind successors in title hence the use of positive covenants registered against the affected unit titles. There is nothing in either the UTA 1972 or the UTA 2010 that expressly prohibits using positive covenants to this end. This was recognised in Myers Park Apartments Ltd v Sea Horse Investments Ltd.17 Nor is there anything in the UTA 1972 or its successor that implicitly imposes such prohibition. Accordingly, all that matters is that the terms of the covenants meet the requirements for a positive covenant. If they do, like any other positive covenant they will be enforceable.
Whether the covenants are positive covenants
[29] The remaining question is whether the covenants operate as positive covenants. The PLA 1952 and the subsequent legislation permit covenants with oneself and between multiple covenantors/covenantees. Here the developer, Queen Street 185 Ltd, contracted with itself and registered its contract on the various unit titles as interests for the purposes of s 62 of the LTA 1952. Queen Street 185 Ltd’s intention was obviously to create an enforceable scheme separate from the statutory scheme in the UTA 1972 that: (a) provided a set of reciprocal rights and obligations as between the unit title owners; and (b) bound successors in title. Both in form and in substance I consider the covenants meet this end.
[30] The defendants acknowledge in their submissions that the “sole focus in this proceeding is on the covenants that purport to impose a different scheme for allocating outgoings as between unit owners”. These are referred to as the “levy covenants”. The defendants have not raised any concerns about other covenants. Accordingly, I shall focus on the levy covenants for the purpose of ascertaining whether they function as positive covenants.
[31] The defendants argue that the levy covenants do nothing in relation to land and instead are simply positive covenants to make payments to the Body Corporate in
17 Myers Park Apartments Ltd v Sea Horse Investments Ltd (2006) NZCPR 454 at [41]–[45].
accordance with the management scheme.18 In the defendants’ submission a covenant must relate to undertaking some activity on the covenantor’s land and a levy covenant does not relate in their view to any relevant activity on the covenantor’s land. However, this overlooks the statutory requirements for a positive covenant.
[32] To establish a positive covenant, a covenantor is required to undertake to do something in relation to the covenantor’s land that would beneficially affect the value of the covenantee’s land or enjoyment of that land by any person occupying it.19 The defendants give examples such as requiring the covenantor to prune trees or maintain a fence. However, I see these examples as overly simplistic and limited to examples relevant more to fee simple holdings than to unit titles. I see no reason why the actions required to beneficially affect the covenantee’s land should be limited to the type of physical interactions with the land for which the defendants contend. Expenditure of funds underlies most actions that benefit the value or enjoyment of land. Here the levy covenants prescribe a contribution formula for how the various owners of a unit title subdivision will provide for outgoings relating to that subdivision. Such contributions benefit all owners because they are part of the one collective when it comes to the outgoings related to a unit title subdivision, which includes the building and the land it stands on.
[33] Levy obligations arise from the character of a unit title subdivision and are therefore part of the ownership of a unit title. In general, the owners of a fee simple title are free to determine the level of outgoings they will spend on the land. However, unit title owners are in a different position. The unit titles they own bring with them various obligations to contribute to outgoings related to the unit title subdivision. The existence of a statutory scheme in the UTA 1972 and its successor shows that Parliament has recognised that owners of unit titles should be compelled to make contributions towards the outgoings of the unit title subdivision. It follows that levy obligations must necessarily run with the land; they are not something that can be divorced from the ownership of a unit title and viewed as personal financial obligations entered into as between the original parties to a land covenant.
18 This is set out in the annexure at cls 6.1(b), 7.1, 8.4 and 8.5.
19 Property Law Act 1952, s 126.
[34] Therefore covenants that affect and determine the quantum and type of levies that unit owners in a particular unit title subdivision are legally obliged to make are something that relates to each owner’s legal interest and the enjoyment of that interest by them or any person enjoying occupancy rights. If no levy contributions could be demanded of unit title owners, the value and the enjoyment of the unit title holding overall would be detrimentally affected, possibly to a substantial degree.
[35] Accordingly, I consider that levy covenants that prescribe the manner in which levies will be paid by the unit title owners affect the value of their unit title and the value of other unit title owners in the subdivision. Depending on the effect of the particular levy covenant there is no reason why such a covenant could not beneficially affect the value of the covenantee’s unit title or the enjoyment of that unit title by any person occupying it.
[36] Here the express language of the covenants (cl 3.2) recognises that the covenants were intended to regulate the respective rights and obligations of owners in accordance with the substituted rules. To the extent the substituted rules were not authorised or not enforceable under the UTA 72, the owners of the units would nevertheless be bound by the substituted rules by virtue of the covenants. Thus, by the terms of cl 3.2 of the annexure, unit owners have recognised the levy covenants generate the benefits required by s 126 of the PLA 1952.
[37] Secondly, in cl 5.1 of the annexure the transferee acknowledged and agreed the covenants were for the benefit of all the benefiting units and that the owner of a benefiting unit can enforce the transferee’s observance of the covenants. The transferee also acknowledged that the covenants were intended to bind successors in title and assigns. Thus, the transferor and transferee agreed as between themselves (albeit they were one legal personality) that these levy covenants have the requisite beneficial effects required by s 126 of the PLA 1952. This agreement forms part of the covenants.
[38] Thirdly, sch 1 to the annexure defines the covenanting units and the benefiting units, which reinforces that the covenants provide mutual benefits as between all registered owners.
[39] In his article, “Unit Titles Act 1972: Recovery of Outgoings for Office Tower Complexes,” Alan Stones referred to what he described as the practical implications of the funding regime under the UTA 1972.20 He explained that a modern high-rise building complex provided multiple different use areas, which might typically include an office tower, a car parking area and a retail area and perhaps also recreational areas such as gymnasiums, squash courts and tennis courts. He recognised that lift services to an office tower complex may not provide a service at all to the ground floor retail areas. He surmised that occupiers of retail areas which are independent of the office tower areas may consider it is not fair for them to contribute to the cost of operating and maintaining lifts. I would add that air conditioning may be supplied to some units only but units which do not enjoy such supply may still be levied to pay towards the outgoings. However, the UTA 1972 did not permit outgoings relating to a building complex to be determined and levied other than on a pooled basis and by reference to unit entitlements. Mr Stones considered such an approach did not, in the context of a high-rise multi-use office tower complex, accord with ordinary commercial expectations of fairness and established practice.
[40] Landmark House falls within the parameters of the complex commercial buildings described by Mr Stones. At the time of the hearing the basement accommodated a restaurant. The ground floor is divided into three unit titles that are entirely retail use; the upper floors are commercial/office use and some residential. Gregory Scott Wilkinson was a director of 185 Queen Street Ltd and was instrumental in the unit title development of Landmark House. He deposes that at the time the unit title subdivision was undertaken he was aware the UTA 1972 provided that levies could only be collected by the Body Corporate and in proportion to the unit entitlement of the units in the subdivision. In his opinion this was unfair because it meant the higher value retail units fronting Queen Street would be making contributions to the maintenance and other outgoings of other unit owners without regard to the use or benefit flowing from the cost incurred. The ground floor retail units collectively account for 34.5 per cent of the unit title interest in the building. This is high in relation to the area of the unit title subdivision that is occupied by these units. With other unit owners their unit entitlement is significantly less than the respective sizes of their
20 Alan Stones “Unit Titles Act 1972, Recovery of Outgoings for Office Complexes” (1992) 6 BCB 53.
units. Accordingly, levies based on the scales formula are significantly different from those provided for in the UTA 1972 and now in the UTA 2010. For this reason, Mr Wilkinson considered it was reasonable to utilise a user pays regime. He explained as an example that contributions in accordance with the legislation would see the ground floor retail units contributing to lifts and air-conditioning when those units had no need of the lifts and they had their own separate air-conditioning system.
[41] The costs of the unused services for the ground floor retail unit owners would of course vary depending on whether they were for general maintenance or whether major overhaul or replacement of the unused services was required. The imposition of the latter costs on the ground floor retail unit owners could turn out to be a costly burden.
[42] None of the parties adduced expert opinion evidence on value that identified how the value of the covenantee’s unit title interest, or the occupation thereof was beneficially affected by the application of the scales formula for ascertaining levies rather than the legislative formula. Obviously for every unit owner who pays a lower levy under the scales formula than under the legislative formula, some other unit owner is paying a higher levy in their stead. So, in that sense the scales formula gives a benefit to some of the owners at the expense of others. Provided those owners who seek to rely on the scales formula can show their titles enjoy a benefit as required by s 126 of the PLA 1952, they can enforce the covenants on the basis they are positive covenants that benefit their titles. Those who under the scales formula would pay more than under the legislative scheme may consider they derive no benefit from the covenants. However, because those who do benefit from the scales formula can enforce its application the remainder are left with little option but to follow it as well.
[43] On the other hand, the scales formula may be viewed as a mutually beneficial and reciprocal system of levy allocation if it results in an outcome that is seen as more fair and equitable for all the unit owners. In this regard it can be said that units in a unit title subdivision that allocates levies in a fair and equitable way which is individually tailored to the particular use of a unit will command a higher value and be more enjoyable to occupy than one that is locked into a “one size fits all” statutory scheme. The latter approach to fixing levy contributions could over time lead to more
dissent and disputes between unit owners about whether it was necessary to incur the level of costs involved in a project under consideration. A history of dissention between owners (recorded in body corporate minutes) could deter new purchases and therefore adversely affect the value of the units. A levy scheme that was objectively seen to be fair and equitable could more readily result in unit owners being willing to shoulder their respective financial burdens whenever a project required levies to be fixed.
[44] The attitude of the respective unit title owners over time is consistent with the scales formula for allocating levies being viewed as fair and equitable and a benefit to all unit owners in this unit title subdivision. There is undisputed evidence that at all times from 2004 until 31 March 2019 the Body Corporate and individual owners have recognised the validity of the covenants as between the owners and set levies in accordance with the scales formula. The attempt to introduce a contributions formula based on the provisions of the UTA 2010 is relatively recent.
[45] Accordingly, I find that it is more probable than not that the application of the scales formula to levy allocation in the case of Landmark House provides the necessary benefits required by s 126 of the PLA 1952. It follows that I find the covenants are positive covenants; and their registration against the unit titles causes these covenants to run with the land.
[46] The defendants argue that the covenants are not enforceable because they are contrary to public policy and the UTA 2010, and should therefore be modified or extinguished by s 317(1)(e) of the PLA 2007. However, this argument is based on circular reasoning. The defendants say that the levy covenants are contrary to public policy because they “purport to do something the UTA 2010 expressly prohibits, namely, the raising of levies other than by ownership interest or by a utility interest reassessed in accordance with the statutory mechanism”. However, I have found: (a) the levy covenants are positive covenants in terms of s 126 of the PLA 1952; and (b) there is nothing in the UTA 1972 that prohibited the use of covenants recognised by either the LTA 1952 or the PLA 1952. This is made clear by s 4(6) of the UTA 1972. Further, there is nothing in the UTA 2010 that would prohibit unit title subdivisions formed under that legislation from utilising a scheme of positive covenants to impose
a formula for levy allocations rather than following the legislative scheme.21 Thus the defendants’ public policy argument is based on a flawed premise that I have already rejected.
[47] The defendants further argue that even if the scales levy regime was originally enforceable it cannot continue after the passing of the UTA 2010. However, this argument is also based on a false premise that has already been rejected, namely, that the Body Corporate Rules 2004 no longer exist following the repeal of the UTA 1972. That argument relies on the Court finding that for these rules to form part of the covenants they must be live intra vires rules in relation to the current legislation governing unit title subdivisions. This argument has already been rejected. The effect of making the 2004 rules part of the covenants is that the text and therefore the substance of those rules became part of the covenants. To be legally effective and operative they do not depend on their character as it relates to either the UTA 1972 or the UTA 2010.
Result
[48] I find the answer to the first question to be determined is that the covenants are enforceable against the first to ninth defendants.
[49] There is no basis for answering the second question to be determined because it depended on me first finding that the covenants were unenforceable.
[50] The parties have leave to file memoranda on costs within 20 working days after delivery of this judgement, with a memorandum in opposition filed 10 working days thereafter.
Duffy J
21 Unit Titles Act 2010, s 72.
SCHEDULE 1
1.DEFINITIONS AND INTERPRETATION
1.1Definitions
In this covenant:
“Benefiting Units” means all of the benefiting units described in Schedule 1 and comprised in the Building and Unit Plan.
“Body Corporate” means Body Corporate 327853 (North Auckland Registry) and, unless the context otherwise requirements, includes the Committee.
“Body Corporate Fund” means the fund referred to in Rule 3.2 of the Rules.
“Building” means the Building and other improvements erected on the land.
“Building Manager” means the company or other legal entity contracting with the Building Manager to manage and administer the Building and the Body Corporate Fund.
“Committee” means the committee of the Body Corporate and constituted from time to time in accordance with the Rules.
“Covenants” means the covenants contained in this Transfer.
“Covenanting Units” means all of the covenanting units described in Schedule 1 and comprised in the Unit Plan.
“Land” means land on which the building has been erected as more particularly described in Certificate of Title 122242 (North Auckland Registry) being the underlining Certificate of Title cancelled pursuant to Section 8(1)(c) of the Unit Titles Act 1972, on the deposit of the Unit Plan.
“Office Areas” means those parts of the Building described as Office Areas in the Rules.
“Outgoings” means the “outgoings” as defined in the Rules.
“Rentable Areas” means all parts of the Building capable of being leased (excluding common property) as determined in accordance with BOMA/PMI guide for the measurement of rentable areas published in September 1981 and revised in 1996. For the purposes of this land covenant and the Rules, the
Rentable Areas for the Residential Areas shall be measured and calculated as if they were commercial office space under the BOMA/PMI guide.
“Residential Areas” means those parts of the Building described as Residential Areas in the Rules.
“Retail Areas” means those parts of the Building described as Retail Areas in the Rules.
“Rules” means the rules adopted by the Body Corporate in substitution for the rules specified in the second and third schedules to the Unit Titles Act 1972.
“Transferee” means the transferee for the time being of a Covenanting Unit.
“Unit Plan” means Unit Plan No. 327853 (North Auckland Registry).
1.2Interpretation
Words (including defined words) importing the singular number shall include the plural and vice versa.
References in this Transfer to a “Rule” – means the relevant rule of the Rules.
The terms “proprietor”, “units”, “common property” and “unit entitlements” shall have the same meaning as defined in the Unit Titles Act 1972, the term “unit entitlement” means the principal and accessory units as defined by the Unit Plan.
2. BACKGROUND
The transferor is the proprietor of the stratum estates in freehold created on the deposit of the Unit Plan.
The transferor is also pursuant to section 12(1) of the Unit Titles Act 1972, the Body Corporate.
The transferor acting in its capacity as proprietor of all the units comprised in the Unit Plan has by unanimous resolution adopted the Rules in substitution for the rules specified in the second and third schedules to the Unit Titles Act 1972.
The Rules as adopted provide (inter alia) for the control, management, administration, use and enjoyment of the units and the common property and the funding of outgoings for this purpose.
The transferor wishes to create a scheme in relation to the Building by means of positive covenants running with title pursuant to Section 126(A) of the Property Law Act 1952 so as to achieve the objectives specified in clause 3.
3. OBJECTIVES
3.1The Transferor wishes to:
(a)authorise the Body Corporate (and the Committee) to allocate outgoings to parts of the Building with a view to ensuring that proprietors of units receiving the benefits accruing from outgoings should bear the corresponding financial obligations.
(b)require the Body Corporate to determine the liability of proprietors of units to contribute to the Body Corporate Fund by reference to Rentable Areas in lieu of contributions being assessed and levied by reference to unit entitlements; and
(c)be liable to make contributions to the Body Corporate Fund in the manner allocated, assessed and levied by the Body Corporate in accordance with the scheme of management for apportionment of outgoings which is contemplated by the land covenant.
3.2The transferor wishes to regulate the respective rights and obligations of proprietors in accordance with the Rules so that to the extent that any of the Rules or the application thereof are not authorised by or enforceable pursuant to the Unit Titles Act 1972, the proprietors of Units for the time being shall nevertheless be bound by the Rules by virtue of the covenants set out in this Transfer.
3.3The covenants set out in this Transfer are created for the purposes of:
(a)ensuring that units and the common property are controlled, managed, administered, used and enjoyed in a manner which is necessary, expedient or appropriate having regard to the nature and size of the building.
(b)fairly and directly reflects the relevant benefits arising from the contributions made to the Body Corporate Fund than would be the case if all outgoings were pooled and contribution levied solely by reference to unit entitlement;
(c)binding the proprietors of the units from time to time;
4. TRANSFEREE TO COMPLY
4.1The transferee shall comply with the Covenants.
5. BENEFITING UNITS
5.1The transferee acknowledges and agrees that the Covenants are for the benefit of all of the Benefiting Units and the proprietor of a Benefiting Unit shall be able to enforce the observance of the Covenants by a Transferee. The Transferee acknowledges that the covenants are intended to bind its successors in title and assigns.
6. COVENANTS
6.1The Transferee undertakes and covenants (in its capacity as proprietor of the Covenanting Units):
(a)to perform and comply with the Rules and lawful requirements of the Body Corporate in accordance with the Rules to the extent that the Rules have application to:
(i)the Covenanting Unit owned by the Transferee;
(ii) the right to enter upon, use and enjoy common property as a consequence of ownership of any one or more of the Covenanting Units;
(iii) the right to have access to and to use the enjoy utilities, facilities, systems and services provided in the Building collectively;
(iv) the obligations of proprietors arising as a consequence of ownership of the Covenanting Unit;
(b)to pay:
(i)the contributions to the Body Corporate Fund levied by the Body Corporate or by the Committee in relation to the Covenanting Unit;
(ii)the monetary obligations arising under or pursuant to the Rules in respect of the Covenanting Unit;
(c)not to transfer the Covenanting Unit without requiring the transferee to be bound by the Covenants to the end and intent that the Covenants
shall be attached to the Covenanting Units for the benefit of the Benefiting Units;
7. BODY CORPORATE FUND
7.1The obligations of the Transferee to make contributions to the Body Corporate Fund shall be determined in accordance with section 8 of this Transfer.
7.2The fund required to be established and maintained in accordance with section 15(2)(a) of the Unit Titles Act 1972 shall extend to and include all amounts which the Body Corporate considers prudent in the circumstances prevailing from time to time in accordance with and having regard to the factors specified in Rule 3.2.
7.3The amount of funding required from time to time for the purposes of the bd Fund shall be determined in accordance with Rule 4.6.
8. OUTGOINGS
8.1That part of the Body Corporate Fund which comprises Outgoings shall be determined in accordance with the following provisions and otherwise in accordance with the Rules:
Allocation of Outgoings
8.2The Committee (or if necessary the Body Corporate) shall have power and discretion to:
(a)identify any Outgoings which in the opinion of the Body Corporate or the Committee acting on the advice of the Building Manager or any other person engaged to advice the Body Corporate or the Committee:
(i)are or will be or are likely to be attributable to the control, management, operation, security, maintenance, repair, renovation, cleaning, use or enjoyment of the Office Areas,
Retail Areas or Residential Areas; or
(ii)benefit units located within the Office Areas, Retail Areas or Residential Areas by a distinct and ascertainable amount;
(iii)are or will be or are likely to be attributable to the control, management, operation, security, maintenance, repair, renovation, cleaning, use or enjoyment of the Office Areas, Retail Areas or Residential Areas to a greater degree than the other;
(iv)substantially benefit units located within the Office Areas, Retail Areas or Residential Areas to a greater degree than the units located within the other areas;
(b)allocate or apportion such Outgoings between the Office Areas, Retail Areas or Residential Areas and in doing so exercise the discretion reserved to the Committee pursuant to Rule 4.7;
(c)allocate any Outgoings to which Rule 4.2(e) relates in accordance with the discretion reserved by Rule 4.2(e);
(d)determine, fix, and allocate contributions to the Body Corporate Fund in the manner specified in clause 8.3.
Determining Contributions
8.3All contributions to the Body Corporate Fund including contributions to Outgoings shall be determined in the following manner:
(a)First all Outgoings other than those allocated pursuant to clause 8.2 shall be allocated to the Office Areas, Retail Areas and Residential Areas in accordance with the following formula:
a x 100 b
where:
a = the total of all Rentable Areas applicable to the relevant area (being the Office Areas, Retail Areas or the Residential Areas as the case may be).
b = the total of all Rentable Areas applicable to the Office Areas, Retail Areas and the Residential Areas.
(b)Second the global amounts allocated to each of the Office Areas, Retail Areas and Residential Areas pursuant to clause 8.2 and Rule 4.7 shall be added to the global amounts (if any) allocated to each of the Office Areas, Retail Areas and Residential Areas pursuant to clause 8.3(a).
(c)Third contributions to each of the global amounts determined for the Office Areas and Retail Areas in accordance with clauses 8.3(a) and 8.3(b) shall be allocated to each of the units located in each of the Office Areas, Retail Areas and Residential Areas as follows:
(i)in the case of units located in the Retail Areas, to each of such units by reference to the proportion that the Rentable Area of
each unit bears to the total Rentable Area applicable to all units located in the Retail Areas;
(ii)in the case of units located in the Office Areas, to each of such units by reference to the proportion that the Rentable Area of each unit bears to the total Rentable Area applicable to all units located in the Office Areas;
(iii)in the case of units located in the Residential Areas, to each of such units by reference to the proportion that the Rentable Area of each unit bears to the total Rentable Area applicable to all units located in the Residential Areas.
If requested, the Building Manager, Secretary or any other person engaged to advise the Body Corporate or Committee, shall provide to the Body Corporate, the Committee or proprietors (as the case may be) with its recommendation and calculations for the apportionments referred to in this section 8.
Liability for Contributions
8.4The Transferee covenants and agrees that the Transferee will exercise the powers conferred on the Transferee as proprietor of the Covenanting Unit or otherwise pursuant to a right in law to exercise such powers to procure compliance by the Body Corporate with the intention and objectives specified in this Transfer and for the purposes of ensuring that contributions to the Body Corporate Fund are assessed and allocated in a manner set out in this section 8.
8.5If the Body Corporate levies contributions in the manner specified in Section 15(2)(c) of the Unit Titles Act 1972, the Transferee covenants and agrees that the Transferee will:
(a)nevertheless by liable to make contributions to the Body Corporate Fund in the manner specified and determined in accordance with clause 8.3, and
(b)make such adjustment payments necessary to give effect to the provisions of clause 8.3.
SCHEDULE 2
3.2The Body Corporate shall establish and at all times maintain a fund (“the Body Corporate Fund”) for such amount as the Body Corporate considers is in the circumstances prevailing from time to time prudent having regard to:
(a)costs, expenses and other outgoings incurred by the Body Corporate in each financial year on account of Outgoings and the total amount which is anticipated will be required to be set aside to meet future estimated Outgoings to be incurred in each financial year (including the sinking fund contemplated by paragraph (m) of the definition of Outgoings);
(b)foreseeable and potential long-term contingencies including an additional sinking fund for replacement and renewal of utilities, systems, services and facilities provided to or within the Building (including the elevators, escalators, communication system, mechanical systems, electrical systems, electronic systems, fire protection systems, security systems and air-conditioning systems) and structural repairs and renovations of an intermittent nature, to the extent that the sinking fund established as part of Outgoings pursuant to paragraph (m) of the definition of Outgoings is or may be inadequate;
(c)liabilities or potential liabilities (including contingent liabilities) of the Body Corporate from time to time including but not limited to replacement, renovation and renewal of the exterior (including the roof) of the Building and contractual or tortious liabilities for which the Body Corporate is or may become liable;
(d)management and administrative costs and expenses associated with the affairs of the Body Corporate including but not limited to the employment of any professionals and other persons to assist or advice the Body Corporate, the Committee or the Secretary or to carry out any functions for which the Body Corporate, the Committee or the Secretary is responsible and any salary, fees and expenses payable to the Secretary or members of the Committee; and
(e)legal costs and expenses incurred or for which the Body Corporate (or the Building Manager acting on behalf of the Body Corporate) is or may become liable in connection with or pertaining to the affairs of the Body Corporate including (but not limited to) –
(i)obtaining legal opinions (including opinions as to the rights, powers, authorities, duties and responsibilities of the Body Corporate);
(ii)issuing or defending legal proceedings; and
(iii)otherwise obtaining advice or taking any action which may be considered appropriate, prudent or advisable in the circumstances.
4.6Subject to any directions given by way of special resolution at any general meeting of the Body Corporate the Committee may fix the quantum of contributions from Proprietors from time to time for the purposes of establishing and maintaining the Body Corporate Fund, the time or times contributions levied are to become payable and the manner of payment of levies by Proprietors.
Apportioning Outgoings
4.7If the Proprietors enter into a scheme for allocation or apportionment of Outgoings between the Office Areas, Retail Areas and Residential Areas, the Committee may identify any Outgoings which in the reasonable opinion of the Body Corporate or the Committee acting on the advice of the Building Manager or any other person engaged to advise the Body Corporate or the Committee
4.2
(e) to allocate and change to any Proprietor of a Unit, any costs, expenses and outgoings identifiable in the reasonable opinion of the Body Corporate as being incurred for the benefit or substantially for the benefit of such Proprietor and take such action as may be reasonable in the circumstances to recover such costs, expenses and outgoings.
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