Westthorn Properties Limited v Body Corporate 177519
[2020] NZHC 593
•20 March 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-000401
[2020] NZHC 593
UNDER the Unit Titles Act 2010 IN THE MATTER OF
an order settling scheme under section 74
BETWEEN
WESTTHORN PROPERTIES LIMITED, PAK HONG LEUNG and
209 GROUP LIMITED
ApplicantsAND
BODY CORPORATE 177519
Respondent
Hearing: 4 March 2020 Counsel:
J Heatlie and J Wood for the Applicants C Baker for the Respondent
Judgment:
20 March 2020
JUDGMENT OF EDWARDS J
This judgment was delivered by me on 20 March 2020 at 4.00 pm pursuant to r 11.5 of the High Court Rules.
Deputy Registrar
Solicitors: Rainey Law, Auckland
Price Baker Berridge, Auckland
WESTTHORN PROPERTIES LTD v BODY CORPORATE 177519 [2020] NZHC 593 [20 March 2020]
[1] The applicants are the owners of the four commercial units in the Hobson Gardens complex in Auckland. They apply for an order under s 74 of the Unit Titles Act 2010 (Act) settling a scheme of repair.
[2] There is no dispute that the commercial block of the complex is in need of repair, and that the appropriate means of raising the funds to meet the cost of repair is by utility interest. Nevertheless, the applicants complain about delay on the part of the Body Corporate in effecting those repairs. There is also a concern that the Body Corporate may trigger s 126 of the Act to recover the cost of the repairs from the commercial owners.
[3] In response, the respondent Body Corporate says that it is taking steps to effect the repairs and that it will not utilise s 126 of the Act to recover the costs of remediation. The Corporate says that the scheme of repair is not appropriate and that it simply replicates provisions of the Act obliging the Body Corporate to take the steps that it is, in any event, taking to repair the commercial block.
The Hobson Gardens complex
[4] The Hobson Gardens complex is an apartment building in central Auckland. It has 101 principal units and accessory units. The complex was created with the deposit of a unit plan on 29 January 1997.
[5] The complex has two floors of below-ground car parking which extends the length of the site. There are two main blocks above the ground. The commercial block is on the street front at the eastern boundary of the complex. It is a single-storey building of four commercial units. Those are the four units owned by the applicants in this case. Each run a retail business from their units.
[6] The residential block sits behind the commercial block. It comprises two separate towers, each 12 storeys high and containing a total of 97 residential units.
[7] A canopy made of glass and steel extends the length of the elevation on the street side of the commercial block. It is outside the base footprint of the complex and
overhangs the public footpath. The canopy is common property, as is the land lying below the commercial block.
[8] The walls of the commercial block are also, predominantly, common property. The only exception is the parts of the back walls of the commercial units that front onto the accessory units. Those walls are unit property rather than common property.
[9] There is a history of defects with the complex. Proceedings were issued in relation to defects within the residential towers. Those proceedings include an application by the Body Corporate and the majority of residential owners for a scheme under s 74 of the Act. In a judgment dated 19 December 2014, Duffy J declined that application.1
[10] The defects within the residential towers have now been repaired. Initially the commercial unit owners objected to contributing to the cost of repairs to the residential units when the commercial units had defects of their own. Ultimately, however, the commercial owners relented and contributed to the payment of the repairs calculated on a utility interest basis.
[11] Defects in the commercial block were first noticed in 2008 or 2009. An engineering report dated 7 September 2011 identified the main defects in the commercial block to be panel cracking, inter-panel movements, canopy sagging, and lack of bearing in support of the pre-cast concrete ribs. There was also evidence of water leaks though the roof. The main cause of these defects appears to be differential settlement between different foundation types as a result of sub-soil conditions. That has been confirmed in subsequent engineering reports obtained by both the applicants and the Body Corporate.
[12] In 2019, the Body Corporate engaged engineering firm Tonkin & Taylor to carry out geotechnical and structural surveys. Tonkin & Taylor recommended a monitoring schedule and a detailed structural assessment including the drilling of bore holes. Initially it was envisaged that monitoring would only need to take place over a few months, however, the most recent recommendation is that a two-year period is
1 Body Corporate 177519 v Lai [2014] NZHC 3381.
required. The monitoring is intended to allow a proper identification of the underlying ground conditions to be made, which will allow Tonkin & Taylor to advise on a remedial solution.
[13] The further structural assessment will take place during the two-year monitoring period, and some minor repair works will also be made to stop water ingress. Mr Baker gave assurances from the bar that progress is being made to attend to those minor repairs expeditiously.
[14]The preliminary estimate of the cost of repairs is between $250,000 and
$500,000 plus GST, depending on what option is taken. The Body Corporate initially took the position that the repairs to the commercial block must be paid for by the owners of the commercial units. The Body Corporate has since retreated from that position and accepts that all owners are responsible for the cost of repairs to this block. Mr Till, the Chairperson of the Body Corporate, has sworn an affidavit on behalf of the Body Corporate confirming that it does not intend to engage s 126 of the Act to recoup any costs.
[15] Levies will be raised from all of the unit owners on the basis of their utility interest. The Body Corporate’s assessment is that by the time it is in a position to strike a levy, it will have approximately $600,000 in a contingency fund. It will not be in a position to know whether a further levy will be required until completion of the monitoring period.
The law
[16] Under s 138 of the Act, the body corporate has duties of repair and maintenance for the common property, any assets designed for use in connection with the common property, and any other assets owned by the body corporate. The repair obligations also extend to any building elements and infrastructure that relate to or serve more than one unit.
[17] Section 74 of the Unit Titles Act permits the body corporate , owners of units, mortgagees or administrators, to apply for an order settling a scheme of repairs where a building is damaged or destroyed but the unit plan is not cancelled. A scheme may
include provisions for the reinstatement in whole or in part of the building or other improvement or for the transfer of units to the body corporate so as to form part of the common property.2
[18] In Tisch v Body Corporate 318596, the Court of Appeal set out the approach to applications under s 74 of the Act.3 Although that decision related to a scheme under s 48 of the Act’s predecessor, the principles continue to apply to applications under s 74. The Court of Appeal set out a three-step approach:
(a)Step 1: the Court must be satisfied that the building has been damaged or destroyed;
(b)Step 2: if so satisfied, the Court must decide whether to settle a scheme. That is, the Court must decide whether a scheme is appropriate in the circumstances;
(c)Step 3: if the Court decides the scheme is appropriate, it must then decide what the terms of the scheme should be.
[19] The Court of Appeal also considered five guiding principles emerged from relevant case law, namely:
(a)A scheme with broad support is to be preferred;4
(b)The scheme should be appropriately detailed;5
(c)The order can have retrospective effect, as long as the body corporate has acted in accordance with the scheme prior to the Court’s approval;6
2 Unit Titles Act 2010, s 74(3)(A).
3 Tisch v Body Corporate 318596 [2011] NZCA 420.
4 At [45].
5 At [46].
6 At [47].
(d)Normally work is to be done to the same standard and at the same time;7 and
(e)The terms of the scheme are not to depart from the Act and the Body Corporate Rules any more than reasonably necessary to achieve fairness between unit holders in the circumstances.8
The proposed scheme
[20] Ms Heatlie submits that the proposed scheme is in similar terms to previous schemes approved by this Court.
[21] Under the terms of the scheme, the Body Corporate is obliged to carry out the remedial work irrespective of whether it is to common property or principal units. All remedial work is to be completed in accordance with plans and specifications. The Body Corporate is empowered to do all things necessary to carry out the work.
[22] The Body Corporate is vested with a specific power to raise levies once an estimate or a tendered price for the remedial work has been obtained. Owners are required to pay the levies on dates to be set by the Body Corporate.
[23] The costs of repairs are to be funded by way of a levy calculated and raised from the owners based on the utility interests of the respective units. The levies raised are to include costs incurred by the applicants in undertaking any interim repairs, investigating the defects and taking advice on and bringing the application for the scheme.
[24] The Body Corporate also has a reporting obligation under the scheme to keep owners fully appraised of progress on the remedial work by reporting every three months. The scheme spells out what those three-monthly reports shall contain.
7 At [48].
8 At [49].
Is a scheme appropriate in the circumstances?
[25] There is no dispute in this case that the first stage of the three-stage approach outlined in Tisch is established in this case. That is, all agree that the building is damaged and in need of repair. The key issue in this case arises at the second stage of that approach – that is whether a scheme is appropriate in the circumstances.
[26] The application for a scheme appears to have been triggered by two main concerns on the part of the applicants. First, the concern that the Body Corporate may change its mind and seek to recover the cost of repairs from the commercial unit owners alone pursuant to s 126 of the Act. Second, the delays in investigating and repairing the defects.
[27] The first of these concerns is readily understood. The commercial unit owners have contributed to the cost of repairs to the residential units on a utility interest basis. It seems only fair that the cost of repairs to the commercial units be paid for on the same basis. Given the Body Corporate’s changing stance on this issue, the desire to lock in the Body Corporate’s most recent decision to levy all owners on a utility basis and not to trigger s 126, is understandable.
[28] But I am not persuaded that a scheme should be used to set that decision in stone – at least not yet. The other 97 unit owners have not had a chance to consider and vote on the scheme. The management structures for unit title developments under the Act are based on democratic principles with each unit owner having an opportunity to vote on matters that affect their property rights. The purpose of a scheme of repair is not to circumvent those democratic rights in circumstances where there has not been an opportunity to exercise them.
[29] Those democratic rights inform the need for a scheme to have broad support. In discussing this requirement, the Court of Appeal in Tisch noted that the greater the level of support from owners for the proposed scheme, the more likely it is that the scheme does justice between the owners. The Court went on to say that this will not
be invariably so because a majority of owners may support a scheme that is unfair to the minority.9
[30] This is not a case of the majority favouring a scheme that is unfair to the minority. In this case, there are no majorities or minorities as the scheme has not yet been put to a vote. It may be that all, or the majority, of the owners agree that the cost- sharing proposal put forward in the scheme is the most equitable in all the circumstances. I consider they should be given an opportunity to express that view before the Court is asked to sanction a scheme that will bind all owners to that cost- sharing mechanism.
[31] The applicants’ second concern involves the delay in investigating and undertaking repairs. I am not convinced that the proposed scheme is an appropriate response to this concern either. It is acknowledged on behalf of the Body Corporate that there has been historical delay, but more recently the Body Corporate has been taking steps to progress the investigations and the repairs. The proposed scheme of repair will not result in these various steps being undertaken any faster.
[32] Furthermore, the Act provides other routes by which disgruntled owners may seek to enforce the Body Corporate’s repair obligations. For example, depending on the value of the work, a Tenancy Tribunal, District Court or High Court may order a party to remedy a breach of the Act, operational rules or agreement or refrain from doing anything that would constitute a breach.10 I agree with Mr Baker’s submission that the role of a scheme is not to trump other provisions in the Act more appropriately designed to enforce the statutory obligations of repair. It is neither necessary, nor appropriate, to have a scheme to enforce the body corporate’s obligations in this case.
[33] That lack of necessity is also reflected in the fact that the scheme does little more than replicate provisions of the Act. For example, clauses 1 and 2 of the proposed scheme oblige the Body Corporate to carry out remedial work whether to common property or principal units. The parties are already agreed in this case that the repair work falls within s 138(1) of the Act, and the Body Corporate is obliged to
9 Tisch v Body Corporate 318596, above n 3, at [45].
10 Unit Titles Act 2010, ss 171(3A), 172 and 173.
repair. Similarly, clauses 3 to 5 of the scheme sets out the general powers of the Body Corporate in undertaking the remedial works. Those are already provided for in ss 77 to 78 of the Act.
[34] Ms Heatlie quite rightly points out that the Court of Appeal in Tisch said that the terms of a scheme should not depart from the Act and Body Corporate rules any more than reasonably necessary to achieve fairness between unit holders. But those comments must be seen in the context of the earlier observations made by the Court to the effect that the scope of s 48 (now s 74) is “limited to a situation where the best interests of unit owners as a whole dictate a departure from the scheme of the Act and from the Body Corporate Rules.”11 In this case there is no pressing need to depart from the Act and the Rules at all, and no need to endorse a scheme that simply replicates statutory obligations.
[35] In Fraser v Body Corporate S63621, the Court noted that a scheme should be a remedy of last resort.12 The current circumstances do not demand a remedy of last resort, and I am not satisfied that the scheme is appropriate in all the circumstances. The application must be declined.
Result
[36]The application under s 74 of the Act is declined.
[37] If costs are not agreed, then the parties may file memoranda within 10 working days of receipt of this judgment, with memoranda in reply five working days thereafter. Memoranda should be no longer than five pages in length. Costs shall be determined on the papers.
Edwards J
11 Tisch v Body Corporate 318596, above n 3, at [31].
12 Fraser v Body Corporate S63621 (2009) 10 NZCPR 674 (HC) at [97].
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