LV Trust Holdings Ltd v Body Corporate 114424
[2012] NZHC 3578
•20 December 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-008245 [2012] NZHC 3578
UNDER Section 74 of the Unit Titles Act 2010
BETWEEN LV TRUST HOLDINGS LIMITED AND KP TRUST HOLDINGS LIMITED Applicants
ANDBODY CORPORATE 114424 & OTHERS First to Twenty-first Respondents
Hearing: 5-6 November 2012
Counsel: NR Campbell for Applicants
D Bigio and V Toan for Respondents
Judgment: 20 December 2012
JUDGMENT OF ASHER J
This judgment was delivered by me on Thursday, 20 December 2012 at 1pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
NR Campbell, PO Box 4338, Shortland Street, Auckland 1140. Email: [email protected]
ASCO Agmen-Smith & Co, PO Box 3596, Shortland Street, Auckland 1140.
Email: [email protected]
D Bigio, PO Box 4338, Shortland Street, Auckland 1140. Email: [email protected]Glaister Ennor, DX CX 10236, Auckland. Email: [email protected]
LV TRUST HOLDINGS LIMITED AND KP TRUST HOLDINGS LIMITED V BODY CORPORATE 114424
& OTHERS HC AK CIV-2011-404-008245 [20 December 2012]
Table of Contents
Para No
Introduction [1] The legal framework [12] The cost allocation
The different approaches [24]
Relevant facts to cost allocation [29] Approach [42] What does the scheme of the Act and the rules/regulations indicate? [49] Analysis [58] A fair solution [65]
Compensation
Background [69]
Analysis [79]
Result [87]
Introduction
[1] In 1987 a 17 level residential tower, the Shangri La apartments, was erected on Jervois Road, Ponsonby. It was a unit title development.
[2] By 2010 the building was leaking. The unit owners resolved by majority to carry out the work required to make the building weather proof. This included re- cladding the building with a glass curtain. This work has been done.
[3] The applicants own unit 15. They seek approval of a scheme drafted by them under s 74 of the Unit Titles Act 2010. A proposed scheme is attached to the originating application. The first to twenty-first respondents include the Body Corporate (“Body Corporate 114424”) and the other owners and some mortgagees.
[4] The Body Corporate has now filed its own proposed scheme for which it seeks approval under s 74. It and the other unit owner respondents support that scheme and oppose the applicant’s scheme. The mortgagees of Shangri La abide the decision of the Court providing their interests are protected.
[5] There are two particular issues between the parties that I am asked to rule on in an interim decision.
[6] The first issue is one of cost allocation between units. It is the applicants’ argument that part of the remedial work applies to common property and part of it to unit property. They say that the cost of the building work to property for which a unit owner is responsible should be borne by that unit owner, and that it is fair to attribute half of the cost of the overall building work to the unit owners. Thus, the scheme proposed by the applicants contains a provision that in respect of all the remedial work, 50 per cent of a one-fifteenth share of the total cost will be borne by each unit, and the other 50 per cent in accordance with the utility interest for each unit.
[7] The Body Corporate and all other unit owners, save for the applicants, assert to the contrary that all the cost of the building should be borne by all unit owners on a utility interest basis, that is, equally, subject to adjustments in accordance with their utility interest. Thus, the costs attributable to repairs to common property shall be apportioned on the basis of each owner’s utility interest and the cost attributable to building elements and infrastructure that relate to more than one principal unit shall
also be apportioned on the basis of each owner’s utility interest.1
[8] The difference arises from the fact that the applicants own the largest unit and if all the charges are to be paid on a utility basis, they will pay considerably more than other unit owners. On their scheme they will still pay more, as the owners of the largest unit, but the differential will be reduced.
[9] The second issue is whether the scheme should provide for the payment of compensation to the applicants, arising from the fact that they lost the use of their unit for approximately 18 months during the building period for building-related reasons, whereas no other unit owners lost the use of their unit for more than six weeks.
[10] In relation to compensation the applicants seek a term in the scheme providing for compensation being paid to owners for the period of the loss of the use
of a unit that exceeds six weeks (six weeks being approximately the average time of
1 Cls 11.1(a) and (b) of the Body Corporate’s proposed scheme.
loss of use of all the other units).2 Compensation is to be calculated at the market rental of the unit during the time of the loss of use.
[11] The parties seek effectively an interim judgment at this point to determine how the scheme should be worded in respect of these two contentious issues. I am not asked to determine the exact words of the scheme. Once the two matters in issue are settled by Court decision, the parties will then endeavour to agree on the rest.
The legal framework
[12] The two relevant Acts are the Unit Titles Act 1972 (“the 1972 Act”) and the
Unit Titles Act 2010 (“the 2010 Act”). The 2010 Act came into force on 20 June
2011. The 1972 Act was repealed,3 but the repeal was not complete. Under s 220 of the 2010 Act, s 37 of the 1972 Act relating to rules, and Schedules 2 and 3, which set out the Body Corporate rules, remained in force for 15 months until 1 October 2012 unless a Body Corporate cast certain special resolutions.
[13] The concept of shares being calculated on the basis of unit entitlement was introduced in the 1972 Act, which assigned a basis for determining a proprietor’s share on the basis of a value for that particular unit in relation to each of the other units on the unit plan, as fixed by a registered valuer.4 By s 222 of the 2010 Act every such unit entitlement was deemed to be an “ownership interest”, and the 2010
Act also provided for a “utility interest”,5 which effectively replaced a unit
entitlement. By s 39(2) a utility interest is the same as an ownership interest unless certain special circumstances apply. For the purposes of this decision the unit entitlements under the 1972 Act can now be regarded as being replaced by utility interests and the utility interest entitlement has the same meaning and effect as the original unit entitlement.
[14] This concept of utility interest is central to the first issue as the respondents seek to have the repair costs paid on a utility interest basis, whereas the applicants
2 Cl 10.2 of the applicants’ proposed scheme.
3 Unit Titles Act 2010, s 218.
4 Unit Titles Act 1972, s 6.
5 Unit Titles Act 2010, s 39.
say that is unfair and that the costs should only be paid on a utility interest basis as to
50 per cent. The Body Corporate has not re-assessed ownership interest or utility interests following the enactment of the 2010 Act, so a unit owner’s utility interest is the same as that owner’s unit entitlement under the 1972 Act.
[15] Utilising the right provided for in s 220 to this effect, the Body Corporate resolved at an AGM on 6 December 2011 that s 138 of the 2010 Act, the section which provides for the Body Corporate’s duties of repair and maintenance, should apply from that date. The Body Corporate also resolved at an AGM on
18 September 2011 that s 105, the section relating to Body Corporate operational rules, should apply once those new operational rules were registered.
[16] Mr Campbell for the applicants in his submissions set out the three relevant time periods in terms of the application of the Act and rules. His analysis was not
contested:
(a) The first period is up to 20 June 2011, during which the 1972 Act applied. Much of the building work took place in this period. (b)
The second period is from 20 June 2011 to 6 December 2011, during
which the 2010 Act applied, but not s 138, and the old Body
Corporate rules remained in place. By 6 December 2011 the curtain
wall was virtually complete. The work that occurred after that date was primarily on the level 16 deck repairs. (c)
The third period is from 6 December 2011 to the date of registration of the new operational rules (understood to have been 20 September
2012). During this time the 2010 Act, including s 138, applied and
the old Body Corporate rules remained in place. By the time those
new rules were registered all building work had been completed. [17]
It b
ecame clear in the course of submissions that the fact that the events in
question took place during the transition period between the two Acts has not led to any particular complications. There is no material difference between the provision
relating to schemes in the 1972 Act (s 48) and in the 2010 Act (s 74). Under both
Acts an owner of a unit may apply to the High Court to settle a scheme by order.6
The scheme may include provisions for the reinstatement in whole or in part of the building7 and any person having or claiming any estate or interest in the unit may be heard.8 Importantly both provide that the High Court may make any orders:9
... 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.
[18] Under s 15(1)(f) of the 1972 Act the Body Corporate was obliged to keep the common property in a state of good repair. Under s 138(1) of the 2010 Act the Body Corporate must manage, maintain and keep in a good state of repair the common property. Under s 138(2) of the 2010 Act it must also maintain, repair or renew all building elements and all infrastructure that relate to or serve more than one unit. Section 138(1) to (4) of the 2010 Act provides:
138 Body corporate duties of repair and maintenance
(1) The body corporate must manage, maintain, and keep in a good state of repair the common property and any assets owned by the body corporate or designed for use in connection with the common property.
(2) The body corporate must maintain, repair, or renew all building elements and all infrastructure that relate to or serve more than 1 unit.
(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 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.
6 Unit Titles Act 1972, s 48(1) and Unit Titles Act 2010, s 74(2).
7 Unit Titles Act 1972, s 48(1)(a) and Unit Titles Act 2010, s 74(3)(a).
8 Unit Titles Act 1972, s 48(4) and Unit Titles Act 2010, s 74(6).
9 Unit Titles Act 1972, s 48(5) and Unit Titles Act 2010, s 74(7).
[19] Thus, a Body Corporate can recover costs incurred that relate to repairs to building elements and infrastructure contained in a principal unit under s 138(4) from the owner of the principal unit in which the work was done. This specific provision in s 138 was not in the 1972 Act. Under the 1972 Act, s 15(1)(f) and Schedule 2 made similar provision placing obligations on the Body Corporate to maintain common property. However, there was no equivalent to s 138(4) relating to recovery of costs for repairs to building elements and infrastructure contained in a principal unit.
[20] However, s 15(1)(f) placed an obligation on the Body Corporate to keep the common property in a state of good repair and s 15(1)(f) gave it the duty to control, manage, and administer the common property and do all things reasonably necessary for the enforcement of the rules. Section 16 of the 1972 Act conferred on the Body Corporate the rather wide power to do all things reasonably necessary to enable it to carry out its duties under the Act. Under s 15(2) of the 1972 Act the Body Corporate could also establish and maintain a fund for repairs and would raise amounts by levying contributions based on unit entitlements. Section 32 then made that amount a debt recoverable by the Body Corporate. Section 33 of the 1972 Act provided for the recovery of costs where repairs and work done to common property substantially benefited one unit more than the others.
[21] Rule 2 of Schedule 2 of the 1972 Act (part of the standard 1972 Rules) was amended by the first respondent Body Corporate in 1987, placing an obligation on the Body Corporate to repair and maintain the exterior of the building. There was also a particular rule passed in relation to windows, placing the obligation on the proprietor or occupier to maintain the windows.
[22] Mr Campbell submitted that even where s 138 applied, the division of responsibility for the cost of repairs and maintenance between the unit owners and the Body Corporate was unchanged from the 1972 Act. While that may be so in relation to the division of responsibility, there is now a specific power to recover the costs from the owner of the particular principal unit involved under s 138(4).
[23] What this legal framework means in relation to this case is that (as is not contested) the Body Corporate had the power to access units to carry out repairs and maintenance in relation to building elements and infrastructure that related to or served more than one unit, and to recover the costs from an individual owner.
The cost allocation
The different approaches
[24] The essence of the difference between the two parties is that Mr Campbell argues that paying for the bulk of the costs on a utility interest basis is unfair because the owner of unit 15 (“unit P”) is levied on the basis of two floors whereas only one of them required the curtain wall repair. The applicants therefore end up paying a disproportionate amount.
[25] Mr Bigio on the other hand argues that since the bulk of the remedial work relates to property positioned in the common area, the Body Corporate must be responsible for the costs of those repairs and therefore should be apportioned in the usual way amongst the owners of the principal units on the basis of each owner’s utility interest, apart from when a failure of the fixtures or fittings in an owner’s unit has caused the need for repairs where the owner has requested additional work. In such cases the owner in question will be responsible for the repair costs or the cost of the additional work requested.
[26] He points out that as at 13 October 2011 the cost of the remedial works project was split between the common property and unit property works as follows:
(a) Common property: $4,571,390.25 or 86.92 per cent; (b) Unit property: $631,461.50 or 12 per cent; and
(c) Additional work (owner requested work): $56,639 or 1.08 per cent.
[27] The cost of the repairs therefore primarily related to common property and it was submitted therefore the apportionment was fair.
[28] If the applicants’ approach is adopted they will end up paying some $80,000 less than on the respondents’ approach. They will still end up paying more than other unit owners because of their greater utility interest, but the differential between them and other unit owners would be reduced.
Relevant facts to cost allocation
[29] The apartments consist of a residential tower and ancillary garage buildings. The repairs in question related to the residential tower only. That tower consists of an apartment tower and a joined stair tower. The stair tower is entirely common property. The apartment tower is partly common property and partly unit owner property. The cost allocation dispute arises in relation to work done on the apartment tower, including the walkways that connect the apartments to the stair tower.
[30] The apartment tower has 17 levels, a ground level and then levels 1 to 16. There are 16 principal units and with the exception of unit P they each encompass one floor. Unit P encompasses all of level 15 and part of the top level, level 16, which also contains a lift and services block which is common property.
[31] A central background factor leading to this dispute is that unit P, because it is the top unit and encompasses two floors, is of a considerably greater floor area than other units. It has therefore the most valuable utility interest. The utility interest of unit P is variably described as 9.65 and 9.77 per cent, whereas the utility interests of other units are between 4.71 and 7.81 per cent.
[32] The apartments began to suffer from weathertightness issues shortly after construction was completed in 1987. Up to level 15 there was a standard form of external construction in the building. The leaks were in the windows and external walls primarily in the south-western side of the tower where there were no balconies and therefore overhangs to protect the windows from the weather. There were also
other maintenance issues involving leaks in other areas, including leaks through the tiles in the balcony areas of level 16 which were in part the roof of the building below. By 2008 leaks through the windows were a major issue.
[33] The solution adopted to fix the leaking was to re-clad the south-western half of the apartment tower with a glass curtain wall, being the part where there were no balconies and the existing windows were most exposed. Around that half of the apartment tower the external windows were to be removed and the new glass curtain wall erected from level 1 upwards extending to the top of level 15. It did not have to extend to level 16 and did not do so, because level 16 was largely surrounded by balconies and the external walls and windows on that level did not leak.
[34] In effect the curtain wall was a new exterior cladding for the part of the building where it was erected. The existing windows were removed and the new glass curtain or sheath constituted the new windows. Inside those windows a new internal lining for each unit had to be built as well as a new sill board inside each of the new curtain wall windows, to fill the extra 200 to 300 millimetres of extra space created by the removal of the windows. Thus, there was work to be done inside each unit. There were other problems to which the building project was expanded to address, the most significant being the repair of the leaks in the Deccan parapet at level 16, forming part of the roof of the tower. Unit owners were in a position whereby they could request the contractors to do additional work for their units, and some availed themselves of that opportunity. The individual unit owners were to pay for that work, and that is not contentious.
[35] I do not propose tracing through all the meetings that led to the present impasse. They began following a proposal from Peddle Thorp Architects as to how the leaking problems should be remedied. This was presented at the Body Corporate’s AGM on 26 August 2009. From then on the issue as to the fair way of recovering the cost of the repairs was a matter for discussion. In the initial meetings it was proposed that the levy would be on a unit entitlement (utility interest) basis, and this was met with general support.
[36] Then at a February 2010 meeting it was resolved by the majority of unit owners (49.67 per cent to 44.81 per cent) to authorise a building levy of $5.4 million on a unit entitlement (utility interest) basis payable in three instalments. The applicants voted against that resolution.
[37] The applicants paid the first two instalments of that levy but then would not pay the third levy. They expressed the view that given that the building project in part involved work on unit property for which the Body Corporate was not responsible, the unanimous consent of the owners was required. The position at this stage was governed by the 1972 Act and the respondents did not take issue with the proposition that indeed unanimous consent of the owners or Court approval was required.
[38] On 9 March 2011 at an owners’ committee meeting it was proposed to proceed with an application to the High Court by the Body Corporate for approval of a scheme. What would be sought would effectively be retrospective approval of the work and cost allocation. There were discussions between the parties. Ultimately there was no application by the Body Corporate. In November 2011 the Body Corporate’s solicitors advised the applicants’ solicitors that they had no instructions to apply for such a scheme and did not expect any such instructions.
[39] On 17 November 2011 the Body Corporate’s solicitors wrote to the applicants’ solicitors demanding payment of the outstanding levy and costs and threatening to issue proceedings if they were not paid. The applicants then brought the present application for approval of a scheme.
[40] There is now no dispute about the need for a scheme. The Body Corporate has now, following the issue of these proceedings, put forward its own scheme which would authorise the Body Corporate to collect building levies on the unit entitlement basis already carried out.
[41] The applicants’ proposed scheme was based on the assumption that the boundary between the common property and the units was at the external face of the external walls and windows. However, following a meeting that position has been
modified and it is accepted by both parties now on the basis of expert advice that the boundary between the units and common property was at the median or centre line of the external walls and balcony balustrades.
Approach
[42] A Court in approaching an application for approval of a scheme of this type must first consider whether the building has been damaged or destroyed, and if so satisfied decide whether a scheme is appropriate in the circumstances, and if a scheme is appropriate, then decide what the terms of the scheme should be.10 It is only the third step which the parties contest in this case, it being accepted by the applicants, the Body Corporate and the other unit owners that the building was damaged and the approval of a scheme is appropriate in the circumstances.
[43] As to step three which involves the Court settling the terms of the scheme, it was observed in Tisch v Body Corporate No 318596:11
The aim should be to balance the interests of each unit holder in a way that imposes terms that achieve the outcome fairest to all unit holders.
[44] The Court reviewed the relevant case law and observed that at least five guiding principles emerged. These can be summarised as follows:12
(i) a scheme with broad support was preferred; (ii) the scheme was to be appropriately detailed;
(iii) the order could have retrospective effect so long as the body corporate had acted in accordance with the scheme prior to the court’s approval:
(iv) normally, work was to be done to the same standard and at the same time; and
(v) the terms of the scheme were not to depart from the Act and the Body Corporate Rules any more than was reasonably necessary to achieve fairness between unit holders in the circumstances.
10 Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679 at [35].
11 At [44].
12 At [45]–[49].
[45] It was stated in Tisch that the main point of the settlement of a scheme under the Act is that it avoids potential ultra vires issues by enabling the Body Corporate to repair both common property and unit property to the same standard and at the same time.13 The ultra vires issue is not such a concern under the 2010 Act as the Body Corporate has a specific power to repair unit property and by a 75 per cent majority.14 However, while s 138 makes specific reference to the recovery of costs from principal unit owners15 the Act does not set out any specific guidelines as to how the costs of repairs to common property and unit property as part of a major renovation should be recovered.
[46] The major single component of the work was the installation of the curtain wall. The entirety of the external walls and windows were being worked on or replaced. Prior to the construction work the external walls and windows were a mixture of unit property and common property, the boundary passing through the median of the walls. It became clear during the hearing that the windows themselves were positioned towards the outside of the walls, and therefore were on common property. The curtain wall being positioned some 200 – 300 mm outside the existing wall was erected entirely in the area owned by the Body Corporate and not individual unit owners.
[47] Mr Bigio for the respondents submitted that this was a fact supportive of a division of cost primarily on the basis that the costs of the curtain wall were treated as Body Corporate costs in their entirety, and the levies were on the basis of unit entitlement (utility interest) rather than attribution as to 50 per cent to the individual unit owner.
[48] Mr Campbell for the applicants argued that such an approach would be artificial, pointing out that the building was in the process of being resurveyed and in due course the boundary would be adjusted to be the median point on the outside cladding, which would be the mid-point of the new curtain wall. On the basis of this anticipated adjustment the work could be seen as being half in the Body Corporate
common area and half in the area of the individual owners.
13 At [34].
14 See Unit Titles Act 2010, s 138.
15 Unit Titles Act 2010, s 138(4).
What does the scheme of the Acts and rules/regulations indicate?
[49] The scheme of the 1972 Act was that work done on the common areas of the Body Corporate should be fixed as a cost of the Body Corporate and paid for on the usual basis of unit entitlement, and that work done in the units themselves should be paid for by the individual unit owners.16 Under s 48(5) of the 1972 Act the Court has a wide discretion including directing the payment of money by or to the Body Corporate or by or to any person (s 48(5)(b)), and imposing such terms and conditions as it thinks fit (s 48(5)(d)).
[50] In my view the levies should be based at least to an extent on the benefits enjoyed by either the Body Corporate or individual units. This is supported by s 33 of the 1972 Act and s 126 of the 2010 Act, which provide for the recovery of money by the Body Corporate where it does repairs substantially for the benefit of one unit or a number of units only, or benefits some units substantially more than others. In
particular I note that both sections17 provide that if the Court considers it to be
inequitable to apportion the amount of the debt in proportion to the unit entitlement or utility interest of unit owners, it may apportion them in such an amount in relation to those units and such shares as it thinks fit having regard to the relative benefits to those units. This provision signals that part of the scheme of both Acts is to apportion costs in accordance with benefits received, and not on a strictly formulaic basis.
[51] This has continued in the 2010 Act although s 138(4) indicates that costs incurred by the Body Corporate for work done in a unit are recoverable if they relate to the maintenance, repair or renewal of building elements and infrastructure. “Building elements” are defined in s 5 to include components necessary to the structural integrity of the building, or the health and safety of those who occupy the building.
[52] I have no doubt that the work in this case was a repair carried out for these purposes. However, no party suggests that s 138(4) should be strictly applied
16 See for example Unit Titles Act 1972, ss 15(2), 33 and Schedule 2, rr 1 and 2. See also Body
Corporate 198072 v Bank of New Zealand [2011] 3 NZLR 249 (HC) at [80].
17 Unit Titles Act 1972, s 33(b), and Unit Titles Act 2010, s 126(3).
thereby requiring an exact apportionment of the work done contained in the unit and that done on the common property. Both sides are approaching this matter in a broad brush manner, but from very different perspectives. Insofar as the Act does indicate a policy, it is that individual owners can be required to meet the cost of repairs to their unit.
[53] The limitations of a strict Body Corporate/unit owner division based on where the repairs have been carried out are demonstrated by this case where neither side chooses to adopt such an approach for the good reason that it would be unnecessarily rigid and the work was done, save for the limited amount of work carried out at the instruction of individual owners, for the general benefit of all owners, even when it was proceeding inside the units.
[54] There is a reference in the rules to unit owners maintaining the windows in their units. I do not regard this as any particular relevance to the proposed schemes. The rule would appear to be based on pragmatic considerations and it was not intended to apply to structural changes to the windows as part of a re-cladding project.
[55] It must be asked which of the schemes is closest to the intent of the Act and the Body Corporate rules/regulations. There is no specific provision which in my view explains what should happen in a case of cost apportionment for general repairs which require work in both Body Corporate property and unit owner property. Section 138(4) indicates that the boundaries can be put aside and a Body Corporate can claim for work done in a particular unit.
[56] The purpose provisions of the Act are relevant. They provide for the ownership management. Section 3 provides:
3 Purpose
The purpose of this Act is to provide a legal framework for the ownership and management of land and associated buildings and facilities on a socially and economically sustainable basis by communities of individual owners and, in particular,—
(a) to allow for the subdivision of land and buildings into unit title developments comprising units that are owned in stratum estate in
freehold or stratum estate in leasehold or licence by unit owners, and common property that is owned by the body corporate on behalf of the unit owners; and
(b) to create bodies corporate, which comprise all unit owners in a development, to operate and manage unit title developments; and
(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. (emphasis added.)
[57] Thus, the emphasis is on the management of buildings on a socially and economically sustainable basis, and for a flexible and responsive regime.
Analysis
[58] The essential question is whether the levies to be imposed to pay for the curtain wall repairs should be on a unit entitlement basis when a unit entitlement calculation for unit P reflects the value of that unit on levels 15 and 16, while no work was in fact done on a curtain wall on level 16. I take into account the five principles mentioned in Tisch.
[59] Mr Bigio in submissions estimated the difference in percentage contribution as being the difference between a 6.67 per cent reduction or a nine per cent reduction. As I have observed I accept Mr Campbell’s submission that the net value of the difference is approximately $80,000 including GST.
[60] The fact that the applicants are in a minority of one and that the majority of
14 are against their proposal is far from conclusive in the particular circumstances of this case. The assumption referred to in Tisch,18 that the greater level of support from owners with the proposed scheme, the more likely it is to do justice, does not in all circumstances follow. As the Court of Appeal observed, the assumption does not invariably apply because the majority of owners may support a scheme that is unfair
to the minority.
18 Tisch, above n 10, at [45].
[61] When the majority of owners will financially benefit and the minority will financially suffer, the majority support may do no more than reflect that unfairness.19
The position is different where the issue is one of method or scope, or aesthetics. If, for instance, there is broad support for a particular colour scheme or design, that is likely to be highly persuasive. Not so when it is just a question of who out of the various owners should pay, with a division along payment lines.
[62] The scheme of the Act and rules should be departed from no more than is reasonably necessary. Both parties propose a scheme that constitutes a departure from the Act and the rules in that neither is suggesting a division of payment strictly along ownership lines. If a division was done strictly along ownership lines, Mr Bigio correctly points out that given that the median point was the existing external wall of the building, most of the work would have been done in the area owned by the Body Corporate as the curtain wall was built in the Body Corporate airspace. Therefore, what the applicants propose constitutes more of a departure than the Body Corporate’s proposal. Rather than there being a Body Corporate unit entitlement levy for the greater part of the cost, there will be a 50-50 split between the Body Corporate and owners.
[63] However, there is force in Mr Campbell’s response that to treat the median line of the existing wall as the division is unduly technical. The boundaries of the individual units are to be resurveyed and the boundary ultimately is likely to be on the mid-point of the exterior of the curtain wall. If that was so, the reverse would be the position and it could be said that most of the work was done in space that was to be ultimately owned by the individual unit owners.
[64] In the end I see little merit in this case in a technical calculation based on where the ownership line lies or will lie. The purpose of the 2010 Act is expressly stated to be to provide for management on a socially and economically sustainable basis and to establish a flexible and responsive regime.20 Any departure from the Act
must be no more than is reasonably necessary to achieve what is fair as between unit
19 See Body Corporate 172108 v Meader (2011) 12 NZCPR 101 (HC) and Body Corporate 95035 v Chang [2012] NZHC 1512 at [82].
20 Unit Titles Act 2010, s 3(c).
owners in the circumstances, but a consequence that is appreciably less than fair cannot be accepted. So what is fair?
A fair solution
[65] What is fair is a levy that broadly reflects the benefits achieved, taking into account the presumption that payments for Body Corporate work should be on a unit entitlement basis. There is a certain artificiality in attributing half the benefit of the repairs that affect each unit to the unit itself and half to the Body Corporate irrespective of actual benefit. I note that in Body Corporate 172108 v Meader and Tisch levies were adjusted to reflect the actual benefits received by particular
owners.21 Small differences will not be enough to warrant a departure from unit
entitlement.
[66] The extra payment here of $80,000 by the applicants that arises from the ownership of an extra floor on which the relevant work was not done is not in this category. To effectively charge an owner of an extra floor more than others simply because it is part of the unit entitlement calculation is in my view unfair. An adjustment should be made which, while reflecting the greater value of unit P and its greater contribution, nevertheless should not penalise the owners of unit P for having an extra floor that was not subject to the repairs.
[67] The proposal put forward by the applicants in the scheme that the division be on a per unit basis as to 50 per cent of a one-fifteenth share of the total cost, and the other 50 per cent in accordance with the utility interest for each unit, seems to me to be fair. The alternative in the respondents’ proposed plan of all the costs attributable to common property and to repairing the building elements and infrastructure that relate to more than one principal unit being apportioned on the basis of unit entitlement or utility interest fails to reflect the particular position of unit P. There is no reason in fairness for the respondents’ refusal to acknowledge the difference
between unit P with its two floors and the other units with their single floor.
21 See also Body Corporate 198072 v Bank of New Zealand, above n 19, at [95]–[98].
[68] I conclude that it is the applicants’ proposal that should be preferred in relation to the setting of the levy for the repairs.
Compensation
Background
[69] There was in the end no difference between the parties as to the factual background to the claim for compensation.
[70] There were two unique factors about unit P which led to it being utilised for repair purposes for long periods. The first was because of the means by which the curtain wall was to be attached to the tower. At each level the curtain wall was to be attached by brackets. But in addition, once it had reached level 15 the entire curtain wall was to be secured to the apartment tower by beams from which it was top hung. These beams were to be installed originally into the ceiling of level 15 and following a design change were installed to the external face of level 15. Such beams did not have to be installed in any other unit. Preparation for the installation of the beams began in August 2010. When inspections began it became clear that unit P would suffer more disruption than other units in the months that followed. Unit P was tenanted and the tenant gave notice that he would vacate the unit on 23 January
2011. On 19 January 2011 the Body Corporate asked for access to unit P to install the support beams.
[71] At this point in January 2011 the applicants asked the Body Corporate for compensation for the additional disruption to unit P that was going to occur. The Body Corporate refused. On 25 January 2011 the applicants offered access but subject to a reservation of rights and on condition that the Body Corporate would apply for the approval of a scheme by 14 February 2011 so that issues such as compensation could be resolved. The Body Corporate agreed a scheme should be sought, although not at that point. In due course on 17 March 2011 the applicants provided access to unit P for the purpose of installing the support beams, reserving their right to compensation.
[72] That work was expected to take six weeks. Instead, together with some additional work, the work was not completed and the unit not returned to the applicants until 24 August 2011. The period was some five months. Through this time the curtain wall had yet to be installed at level 15. There is no doubt that the work was necessary for the project as a whole and that no other unit had that level of occupation. Indeed, it seems that the average period of occupation of other units was five to six weeks.
[73] There was then a need to return to unit P to do work on strengthening the support beams. It was also finally necessary in September 2011 to occupy level 15 to enable contractors to install the curtain wall which had reached its highest point. The curtain wall at level 15 was installed in the period between 30 September 2011 and 25 November 2011. However, before that installation was complete the Body Corporate requested access to unit P for further work. This was to repair the leaks in the deck and parapet that ran outside level 16. It was clear that there were leaks coming through that deck and that the water was going down into the units below.
[74] On level 16 all of the parapet and most of the deck is common property. There is a portion of the deck that is within the boundaries of unit P, although there is no physical demarcation between the two areas of deck.
[75] The Body Corporate sought access to unit P on 9 November 2011. The Body Corporate acknowledged that it wished to work on common property and claimed that the leak affected only unit P. The estimate of the time of work was 13 weeks.
[76] The applicants allowed access to unit P for the deck repairs, reserving their rights. Work began on 21 November 2011. In addition to doing work on the site, the top floor of unit P was used as a workshop for the contractors.
[77] In December 2011 there was a leak in level 15 that went as far down as level
12. Work on the deck proceeded through 2012 being completed in June 2012. However, once work on the deck was complete there were other numerous minor items of work to be finished and damage to be repaired in unit P. The work was finally completed and unit P made available to the applicants on 5 October 2012.
[78] While Mr Bigio queried some of these details, in the end the respondents did not contest the fact that the applicants had been deprived of access to their property for 18 months, whereas other unit owners only had to put up with a period of approximately five weeks.
Analysis
[79] The relevant clause in the scheme put forward by the applicants is that the applicants will have compensation for the period of the loss of use of the unit that exceeds six weeks. Compensation shall be calculated on the market value of the unit at the time of the loss of use. It is proposed that the payment of that compensation be by way of adjustments to the levies.
[80] The Act is silent on the issue of compensation, and so are the rules and regulations. There is no case to which I have been referred in which a compensation order has been made. There is, however, s 48(5) of the 1972 Act and s 74(7) of the
2010 Act giving the Court the power to order the payment of a sum of money by the
Body Corporate to any person.
[81] There can be no doubt that the provision of the use of the unit P was for the benefit of all the owners. If the applicants had not agreed to occupation, the respondents would have had to have sought the urgent approval of a scheme requiring them to make their unit available. Indeed, they might well have had to have sought interim relief along these lines.
[82] It will of course always be the case that there will be a measure of give and take from Body Corporate owners and particularly that on occasion unit owners will have to allow occupation and accept inconvenience without compensation to enable work to be done for the benefit of all the units. Mr Bigio has a point when he observes that to accept that there can be compensation in such circumstances could give rise to a whole new area of claims and potential areas of dispute. Indeed, a Court would have little sympathy for claims based on modest differentials in inconvenience. A degree of cost or inconvenience can be seen as part of the
inevitable give and take of body corporate life, even when it does not necessarily fall equally on each owner.
[83] However, that does not mean that there can never as a matter of principle be an order for compensation. While the Act does not authorise it, nor does it prohibit it. While there is no case in which it has been ordered, nor has there been any case in which it has been refused. Mr Campbell makes the point that the lack of authority might simply indicate the fact that a reasonable Body Corporate will in an extraordinary circumstance allow for compensation to a particular owner who is grossly disadvantaged by repairs for the common benefit.
[84] A scheme must do equity between unit owners. A gross inequity should not be tolerated. In my view it would have been a gross inequity to have required the applicants to give up possession of unit P for a period that exceeded the loss of use of other units by approximately 17 months, and to have not provided compensation. The fact that the work has now been done and what are sought are retrospective orders does not change that position. The loss of a valuable home for 17 months is undoubtedly a significant event. It can be assumed that the rental value of the property for such a period would be very considerable indeed, the unit occupying as it did the top two floors of an apartment building on a ridge by Jervois Road in Herne Bay overlooking the harbour and the city.
[85] The respondents pointed out that there was no legal wrong by the Body Corporate or the other unit owners. They argued that a compensation order amounts to imposing a financial penalty where there has been no fault. However, it is significant that no merits argument was put to me as to why such a compensatory order should not be made for the applicants. It was not disputed that the applicants had lost possession for much longer than the other unit owners, and for the common benefit. The arguments rather centred on the fact that there was no jurisdiction to make such an order, or that the Court’s discretion to approve schemes should not go so far as encompassing compensation orders.
[86] While the discretions under ss 48 and 74 are not unfettered and must be exercised in a principled way, there is no barrier to a compensatory award. Where it
is patent that compensation is necessary to do equity between unit owners, then such compensation can and should be part of this scheme. Given the scale of the loss to the applicants, it follows that I find for them on this point.
Result
[87] I conclude that the applicants’ approach on the two issues in contention is to be preferred, and if required to do so and subject to submissions on the specific wording, I would approve clauses 9.2(a) and 10.2 relating to those two issues in the applicants’ proposed scheme.
[88] However, the parties do not ask for any specific orders and have only asked me to give this indication as to what I would approve in the scheme, to enable them to confer and present, hopefully on a consent basis, a draft amended scheme. This is therefore an interim judgment. Leave to apply for approval of a final scheme is reserved to both parties.
[89] Costs on this hearing are reserved.
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Asher J
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