Norman v Body Corporate 193764 HC Auckland CIV-2009-404-006570
[2011] NZHC 840
•27 June 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-006570
UNDER Part 19 of the High Court Rules
IN THE MATTER OF Section 40 of the Unit Titles Act 1972
BETWEEN MARGARETHE CHRISTINE NORMAN, ALEXANDER JAMES BURRELL, ROBERT CHARLES LEONI, DAVID JOHN LINCOLN PITTMAN, PHILIP CHANDLER
Applicants
AND BODY CORPORATE 193764
Respondent
Hearing: 6 May 2011
Appearances: T Allan for the Administrator
S Price for Tutanekai Investments Ltd
Judgment: 27 June 2011
RESERVED JUDGMENT OF WOOLFORD J
This judgment was delivered by me on Monday, 27 June at 11:00 am pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Grove Darlow & Partners, DX CP24049, Auckland 1140. Email: [email protected]
Minter Ellison Rudd Watts, DX CP24061, Auckland 1140.
NORMAN & Ors v BODY CORPORATE 193764 HC AK CIV-2009-404-006570 27 June 2011
Introduction
[1] The applicant was appointed as the administrator of Body Corporate 193764 (“the Body Corporate”) on 14 October 2009 on the application of the committee constituted under its rules. The committee made the application on the grounds that the Body Corporate was essentially insolvent and unable to enforce collection of its levies due to the fact that there was a serious incongruity between the rules of the Body Corporate, the unit plan and the Unit Titles Act 1972. The committee believed that the appointment of an administrator was the only effective way to protect proprietors‟ interests and to sort out the structural issues.
[2] The Body Corporate came into existence on the deposit of a unit plan for the subdivision of the former Central Railway Station in Auckland into apartments. The apartment complex is now known as Grand Central Station.
[3] The applicant seeks an order that the costs of and connected to Grand Central
Station be apportioned in the following manner:
(a) The continuing costs of administration of the property be apportioned by unit entitlement among all units.
(b)The one-off costs arising from a cash shortfall, professional fees relating to regularising the unit plan, administration of the ground lease and the forthcoming rent review be apportioned by unit entitlement among all units.
(c) The costs associated with servicing and maintaining the grounds be apportioned by unit entitlement among all units.
(d)The costs associated with providing utilities such as power, gas and water be apportioned among the 230 residential and 2 commercial units pro rata to unit entitlement.
(e) The costs of on-site management services, including housekeeping and minor maintenance in all areas excluding the parts of the building
used for car parking be apportioned among the 230 residential and 2 commercial units pro rata to unit entitlement.
(f) The costs associated with providing services to accessory units intended for the exclusive benefit of residents be apportioned among the 230 residential units pro rata to unit entitlement.
(g)The costs associated with building compliance (as prescribed by, for example, the Building Act 1991) be apportioned among the 230 residential, 2 commercial and 85 interior car park units pro rata to unit entitlement.
(h)The costs of insurance which the Body Corporate is required to hold be apportioned among the 230 residential, 2 commercial and 85 interior car park units pro rata to unit entitlement.
(i)The one-off costs associated with a loan raised by the administrator to finance the completion of repairs to the building from a group of proprietors together with interest and costs thereon be apportioned among the 230 residential, 2 commercial and 85 interior car park units pro rata to unit entitlement.
(j)The provision for a sinking fund to cover periodic maintenance of the building and of plant and services be apportioned among the 230 residential, 2 commercial and 85 interior car park units pro rata to unit entitlement.
(k)The costs associated with maintaining, up-grading or renewing building systems and services used by residential and commercial units be apportioned among the 230 residential and 2 commercial units pro rata to unit entitlement.
(l)The costs associated with maintaining, renewing, redecorating or otherwise dealing with the interior and exterior fabric of the building,
including the roof, walls, windows and doors be apportioned among the 230 residential, 2 commercial and 85 interior car park units pro rata to unit entitlement.
[4] The applicant also seeks confirmation that if the above orders are made nothing shall oblige the Body Corporate to pay for any service, amenity or work contained within a principal unit.
[5] Finally, an order is sought that the costs of the application shall be a cost of the administrator in the administration of the Body Corporate.
[6] The administrator was appointed on 14 October 2009. His first objective was to complete the remedial works to Grand Central Station which had been commenced by the Body Corporate in 2008. These have now been completed. The administrator now wishes to correct the structural difficulties by revising the unit plan. He has, however, been required to make this application in order, he says, to maintain the status quo as to the allocation of costs which has existed since 1 April
2002.
[7] Mr Price appeared on behalf of Tutanekai Investments Ltd, which is the proprietor of 37 of the 38 external car parks. Tutanekai Investments Ltd does not oppose the orders sought by the administrator on the basis that nothing in the orders sought authorised the levying of owners of the external car parks for costs relating to principal units or accessory units in the building itself.
[8] I also heard from Mr Brighton, formerly a joint proprietor of Units 13, 14 and
16. I heard from him because he spoke on behalf of a number of current proprietors. The proprietors on behalf of whom he spoke, who were present in Court, were Dongjing Yang and Saining Ren, Jeun Kok Loh, Peter Loh, and Jai Prakash. I have also considered written submissions from the JR and IE Whyman Partnership and Antioch Investments Limited.
Factual background
[9] The redevelopment of the former Auckland Central Railway Station occurred in around 1998 and 1999.
[10] Grand Central Station comprises of 355 units, of which 230 are residential units, 2 are commercial units, 85 are car park units within the building and 38 are car park units around the exterior of the building.
[11] There are a number of fundamental defects with the unit plan. Firstly, the resource consent for the redevelopment provided that the 97 car parks within the building and on the promenade level should only be used ancillary to the residential and service uses contained within the site. In practical terms, this meant that the car parks had to be created as accessory units and attached to a principal unit. Contrary to the resource consent, however, the Auckland City Council approved the plan submitted to it which recorded each car park as a principal unit. This meant that the car parks could be operated independently of the accommodation.
[12] Secondly, unlike most strata title structures, large areas of Grand Central Station that should have been common property were in fact designated as accessory units. These accessory units are therefore private property owned in shares by various groups of principal unit owners. The designated accessory units are commonly used areas notwithstanding their legal status as private property.
[13] Thirdly, there are fundamental inequalities in the ownership of what should have been common property. For example, the entire roof the building is owned by one of the commercial units.
[14] Fourthly, there are no rules governing how the various groups of accessory unit proprietors manage the care, maintenance, provision of services and other aspects of their property. The original property developer obviously intended to change the rules under s 37(5) Unit Titles Act 1972 because a new set of rules was lodged with LINZ on 26 February 1999. However, the unit plan was not lodged until
12 August 1999.
[15] The consequence of this is that the rules lodged on 26 February 1999 are ineffectual. The proposed rules provided that the Body Corporate had to maintain the exterior walls, windows and roof. There is however no such rule under the rules which do in fact govern the operation of the Body Corporate being the default rules set out in the Second Schedule to the Unit Titles Act 1972. The Body Corporate has no obligation to repair and maintain the exterior walls, windows or the roof. This means that the various groups of accessory unit owners are personally responsible for the entire provision of services, repairs and maintenance of accessory units and the owner of one of the commercial units is responsible for the repair and maintenance of the entire roof of the building.
[16] It is unnecessary to consider why the structural difficulties arose but a fundamental objective behind the development appears to have been that the University of Auckland would have complete control of the management of the units. While the University had complete control and while the rent payable was guaranteed, these difficulties did not evidence themselves.
[17] With the end of the guaranteed rental, however, the owners of the car parks objected to a levy calculated by unit entitlement to pay for all expenses except in- room services. They objected on the basis that such a levy would result in them receiving a minimal and, in some cases, a negative return on their investment.
[18] On 30 May 2002 the Annual General Meeting of the Body Corporate carried the following resolution unanimously:
The Body Corporate Committee be authorised to achieve a reclassification of the premises outgoings forecast, identifying costs associated with the residential units, commercial units, interior and exterior car parks. Professional advice to be sought if necessary. The reclassification is to apply to the 2002/2003 forecast.
[19] Consistent with the AGM‟s direction, the committee resolved on 31 July
2002:
RESOLVED that the body corporate levy raised to recover premises outgoings for the period ending on 31 March 2003 is apportioned between the accommodation units, interior car parks, exterior car parks, cafe (PU160) and office (PU100) on the following basis:
By Unit Entitlement: Waste management, professional fees, grounds maintenance, building management (other), secretarial fee, other common services, premises outgoings re PU100;
All units except exterior car parks, in proportion to unit entitlement: Insurance premium and valuation, HVAC, fire protection, lift maintenance, general repairs and maintenance, building warrant of fitness and sinking fund;
All units except both exterior and interior car parks in proportion to unit entitlement: Water, building management – cleaning, building management
– reception, building management – night auditor;
Total cost less $7,628 for the computer room apportioned across all units by unit entitlement. Apartments, plus $7,628: Lease costs:
Total less $25,000 pa by unit entitlement for apartments, PU100 and PU160. Plus $25,000 for apartments only: Energy costs.
[20] Therefore, with effect from 1 April 2002, Grand Central Station‟s outgoings have been apportioned in terms of the above philosophy with adjustments from time to time as circumstances changed. Examples of these changes are as follows:
(a) $7,628 per annum was apportioned across all units by unit entitlement to pay for a computer room but when Uni-Accommodation Limited cancelled the leases the computer room ceased to exist.
(b)Similarly, waste management charges were previously paid by the Body Corporate and apportioned by unit entitlement but when the Council took over that service, the cost of that service was effectively included in each proprietor‟s rates.
[21] The applicant submits that the original philosophy as at 1 April 2002 has evolved over time into the categories (a) to (l) in the application currently before the Court.
[22] It was recognised at the time by the Body Corporate that it was acting outside the Unit Titles Act 1972 and the rules applicable to it. On 23 March 2004 the Committee recorded in its minutes that:
As indicated to the proprietors at the last Annual General Meeting the Body Corporate is performing duties that are causing it to breach the Unit Titles Act. A compliance structure must be put in place to represent the best
interests of unit owners ... the parties agree that the Secretary will ask Staples Rodway to present a proposal to carry out a management review ... A sub- committee [is to] work with Uni Accommodation to resolve organisational, structural and legal matters. The full authority of the Committee is delegated to the Sub-Committee ...
[23] These organisal, structural and legal matters have not been resolved. Accordingly, the Body Corporate had no choice but to continue to apportion costs in accordance with the philosophy agreed in 2002. It is clear that the proprietors were aware that the apportionment of costs had no foundation under the Act but notwithstanding this, they passed resolutions every year from 2002 setting the budget for the Body Corporate and raising levies. I am of the view that the Body Corporate was not prohibited by the Unit Titles Act 1972 from acting in the way that it did. It was entitled to act as the proprietors‟ agent by agreement with them.
[24] However, unlike the Body Corporate which was able to act outside the Act by agreement of the proprietors, the Administrator is constrained by the Act to conduct the affairs of the Body Corporate in terms of the Act and/or the schedule of powers in the order by which he was appointed.
[25] When he was appointed an administrator of the Body Corporate on
14 October 2009, the applicant was provided with the following powers:
(1) In accordance with section 40(3) of the Unit Titles Act 1972 (“the Act”) the Administrator shall, to the exclusion of the Body Corporate and the Committee, have all of the powers of the Body Corporate and the Committee, modified as noted in this Schedule.
(2) All books of account, records and documents of the Body Corporate shall be delivered up to the Administrator or to his direction.
(3) During the period of administration, the Administrator or until further order of Court, the Administrator may but is not obliged to do all such things that the Body Corporate or the Committee may do whether at general meeting or otherwise in terms of s40(7) of the Act however the Administrator has liberty to apply in terms of s40(3) to extend the powers in this order to include the power to make decisions in matters concerning the Body Corporate that would otherwise require a unanimous resolution (as that term is defined in s2 of the Act) of the Body Corporate.
(4) The Administrator shall do all things that are necessary to properly administer the Body Corporate.
(5) The Administrator shall keep a record of his decisions in the course of his administration and shall within 30 days of the making of this order file in the Court a report about the state of the Body Corporate and thereafter six-monthly reports of the account of his administration with the Court.
(6) The Administrator may consult with the Committee members of the
Body Corporate (“the Committee”) but is not obliged to do so.
(7) The Administrator is not obliged to accept any recommendations and or advice given to him by the Committee.
(8) The Administrator shall carry out the duties of the Body Corporate under the Act but shall not be obliged to carry out any further duties imposed by the rules of the Body Corporate or otherwise.
(9) During the period of administration the members of the Body Corporate and the Committee shall not take any further decisions or carry out any further acts with respect to the management of the affairs of the Body Corporate, save as directed by the Administrator.
(10) The Administrator may engage such agents, consultants or advisors as he thinks necessary to assist him in properly and effectively carrying out the administration.
(11) The Administrator‟s remuneration including all out of pocket expenses and disbursements incurred by the administrator in exercising the Administrator‟s powers and duties shall be paid by the Body Corporate funds on invoice from the Administrator.
(12) Except in the case of dishonesty the Administrator is indemnified by the Body Corporate for all acts taken in the course of the Administration from any demand, claim, action, loss, damage, expense (including solicitor and client costs) sustained, suffered or incurred by the Administrator and arising from the exercise of the Administrator‟s duties.
(13) The Administrator has leave to apply generally to this Court for any directions that the Administrator considers necessary in connection with the administration.
[26] No specific power was, however, given to the administrator to apportion costs which were technically private property related expenditure to proprietors or to apportion costs which were properly Body Corporate expenditure to proprietors on a non-unit entitlement basis. Yet the Body Corporate has been doing so since 1 April
2002 outside the terms of the Unit Titles Act 1972 and the rules applicable to it.
[27] In effect, the applicant seeks orders maintaining the status quo that has existed since 1 April 2002 pending the revision of the unit plan and the possible
creation of utility interests under the Unit Titles Act 2010 Act which came into force on 20 June 2011.
Jurisdiction
[28] Section 40(2) Unit Titles Act 1972 enables a Court to appoint an administrator:
...on such terms and conditions as to remuneration or otherwise as it thinks fit.
[29] The use of the words “or otherwise” means in other respects. A Court is, therefore, not constrained to limit the terms and conditions on which an administrator is appointed to terms and conditions relating to remuneration. “Or otherwise as it thinks fit” confers a broad discretion on the Court to set terms and conditions that will enable an administrator to remedy the parlous situation which led to his or her appointment in the first place.
[30] Although s 40(3) provides that once appointed, an administrator has all the powers of the Body Corporate and its committee constituted under its rules, it is my view that s 40(2) allows a Court to give an administrator powers that he or she may not have under the rules applicable to the Body Corporate if they are clearly inadequate to enable justice to be done between the proprietors.
[31] Doing justice between the proprietors is, after all, one of the principle objectives of the Act. Such an objective extends to the apportionment of costs. For example, the proviso to s 33 states:
Provided that, if the Court considers that it would inequitable to apportion the amount of the debt in proportion to the unit entitlements of the last- mentioned units, it may apportion that amount in relation to those units in such shares as it thinks fit, having regard to the relevant benefits to those units.
[32] Unit owners expect fairness in body corporate levies. They should not pay for services they do not receive. A fundamental unfairness has, however, arisen because of defects in the unit plan. Unit owners of external car parks should not pay for any costs associated with the building. Similarly, unit owners of both the
external and internal car parks should not pay for the Sky Television subscription, window treatments, soft furnishings and floor coverings and the servicing of the self- catering kitchens which are for the exclusive benefit of residents. The unit owner of one of the commercial units should not be solely responsible for the maintenance of the roof which covers the entire building.
Objection to application
[33] The submissions received in opposition to the application from a small number of proprietors are all in the same form. Mr Brighton acknowledged drafting them. The pro forma submissions state:
(1) The appointment of the Administrator was made in secret under the auspices of the BC Committee at the time and for entirely the wrong reasons. At least two of that committee have since resigned and the support for any application should be re-established.
(2) Allocation of costs by “Unit Entitlement” is embedded in the Unit Titles Act 1972 and the methodology in this case was established in the original prospectus and based on 9,944 unit points in total.
(3) Any vagaries in discerned benefit arising from the actual areas attached to specific unit titles was taken to account in the
„differential grading‟ of points allocated to individual units: such as
3 Bed, 2 Bed, 1 Bed, Car Parks.
(4) The „common areas‟ for which the BC was actually responsible is very small, yet the changes applied under a contrived “Benefit Allocation” affected the whole building. The effect was to unfairly penalise one & two bedroom units. These are the numerical majority of apartments.
(5) There is no legal basis for “Benefit Allocation” as applied by the BC under Unit Titles Act 1972 and it is prejudicial to the majority of Owners.
(6) At the present time, there is a defended case before Auckland District Court wherein an Owner is legally challenging the Administrator on the “Benefits Allocation” method and this application is an attempt to avoid the many claims which will correctly arise.
(7) In December 2009 an objection was raised against a S48 Application sought by Mr. McCullagh. After representation it was made clear by the Hon. Judge on the day that NO person or Body would be thus exonerated.
(8) The “Benefits Allocation” has been used since 2002, Crockers (BC Secretary & Chair at the time) were acting „ultra vires‟ and also
failed to advise Owners & Committee that this methodology had no basis under the Unit Titles Act 1972.
(9) It is my contention the Body Corporate should be directed that ALL costs since 2002 should be re-calculated using the legally correct Unit Entitlement Method, and the costs of doing so should be borne by Crockers as the BC Secretary.
(10) The Court should direct the Administrator to fully investigate the Body Corporate affairs and determine culpability for the state of affairs which now exist. It should be brought into the public domain that ALL Owners, past and present are the victims of serious irregularities, mis-management and deception.
[34] Although Mr Brighton now appears to question the appointment of the administrator, he did in fact state in a letter dated 27 December 2009 to the Body Corporate secretary:
I applaud the appointment of an Administrator to regularise the legal and administrative problems of which you have been aware for many years.
[35] The Court is, in any event, not able to review the appointment of the administrator in the context of the present application.
[36] Next, Mr Brighton is incorrect to suggest that the methodology for the allocation of costs was established in the original prospectus and is based on 9,944 unit points in total. The figure of 9,944 total unit entitlements comes from the list of “Preliminary Unit Entitlements” in a brochure prepared prior to the commencement of the redevelopment. On the same page of the brochure is the following disclaimer:
Please note that this is a preliminary brochure prepared prior to the commencement of construction of The Railway Campus. Changes may be made during construction and all details and figures should be rechecked carefully as the construction work proceeds and up-to-date information is available. While every effort was made to ensure the information was true and correct at the time of printing, no responsibility will be taken for any errors or omissions. This publication is for guidelines [sic] only and does not constitute an offer or contract.
[37] Rather than 9,944, the final total unit entitlements are 100,000 as recorded on a supplementary record sheet lodged with the plan of the complete unit development.
[38] Further, Mr Brighton‟s submission that any differences in benefit arising from
the actual areas attached to specific unit titles was taken into account in the
differential grading of points allocated to individual units fails, in my view, to take into account the fundamental defects in the unit plan. It was these fundamental defects which prompted some proprietors to refuse to pay levies based strictly on unit entitlement.
[39] Although Mr Brighton submits that the “benefit allocation” calculation adopted by the Body Corporate unfairly penalises one or two bedroom units, the proprietors have in general meeting year after year approved the budget and the levies based on a “benefit allocation” calculation. The committee also acknowledged as long ago as 2004 that the Body Corporate was performing duties “that are causing it to breach the Unit Titles Act”. Mr Brighton‟s submission that the Body Corporate secretary failed to advise proprietors and the committee that this methodology had no basis under the Act, therefore, appears to be mistaken.
[40] Mr Brighton is recorded in the minutes as being present at the AGM of the Body Corporate on 30 May 2002 when the resolution authorising the committee to reclassify the premises outgoings forecast and identifying costs associated with the residential units, the commercial units and the interior and exterior car parks was carried unanimously. The resolution also recorded that the reclassification was to apply to the 2002/2003 period. Mr Brighton should, therefore, have been well aware of the move to a “benefit allocation” calculation.
[41] Finally, no basis has been established for the Body Corporate to be directed that all costs since 2002 should be recalculated using the correct unit entitlement method nor is there any basis for directing the administrator to investigate fully the affairs of the Body Corporate and determine culpability for the state of affairs which now exist.
Application
[42] The application is quite specific about proposed methodology for the apportionment of costs.
[43] The costs referred to in [3] (a) – (c) are the administration costs and costs of maintenance of the grounds. It is suggested that these are to be apportioned by unit entitlement among all units. This is strictly in accordance with the Act and the rules which govern the Body Corporate. No objection can be taken to the allocation of these costs in the manner suggested.
[44] The costs referred to in [3] (g), (h) – (j) and (l) are all costs associated with the building itself, being the costs of building compliance, insurance, the loan to complete repairs, the provision for a sinking fund to cover possible maintenance and the costs of maintaining its interior and exterior fabric. I am of the view that it would be inequitable to require the owners of the external car parks to contribute to these costs. It seems fair that these costs should be apportioned among the 230 residential units, the 2 commercial units and the 85 interior car park units pro rata to unit entitlement.
[45] The costs referred to in [3] (d), (e) and (k) are the costs associated with the provision of utilities, such as power, gas and water, the costs of on-site management services in all areas of the building except those parts used for car parking and the costs of maintaining building systems and services used by residential and commercial units. Again, I am of the view that it would be inequitable to require the owners of the internal and external car parks to contribute to those costs. It again seems fair that these costs should be apportioned among the 230 residential units and the 2 commercial units pro rata to unit entitlement.
[46] Finally, the costs referred to in [3] (f) are the costs associated with providing services or amenities for the accessory units intended for the exclusive benefit of residents. The owners of the 2 commercial units and the internal and external car park units do not receive any benefit from these services and it would again, in my view, be inequitable to require them to contribute to these costs. It seems fair that they should be apportioned among the 230 residential units pro rata to unit entitlement.
Conclusion
[47] It is in my view necessary for the application to be granted in order to safeguard the interests of the proprietors as a whole. If the administrator was confined to operating within the terms of the Unit Titles Act 1972 and the rules governing the Body Corporate, the total investment of the proprietors would be at serious risk.
[48] Most of the expenses in the annual budget are not strictly speaking Body Corporate expenses. They are expenses of various groups of principal unit owners who together own accessory units which are, however, used as common property.
[49] The Body Corporate is also not obliged in terms of the rules applicable to it to repair and maintain the exterior walls, windows or the roof.
[50] However, the administrator needs to be able to deal with the building in a comprehensive manner which includes all the property in common use but technically the private property of various groups of principal unit owners. It would be completely impractical to leave a number of different groups of principal unit owners to try and reach agreement among themselves about securing services, apportioning costs, collecting funds and paying for the contracted services. It is also important that the building be maintained in good condition. This should preferably be coordinated and carried out by the administrator.
[51] If Grand Central Station is not kept in good order, repair and condition, the lessor, the Ngati Whatua O Orakei Maori Trust Board, is able, in terms of the lease, to re-enter the land and terminate the lease. Everyone‟s investment would then be lost. Accordingly, I make orders in terms of the interlocutory application by
administrator for directions as to apportionment of levies dated 16 February 2011.
Woolford J
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