Body Corporate 406198 v Property Opportunities Ltd
| Jurisdiction | New Zealand |
| Judge | Campbell J |
| Judgment Date | 10 March 2022 |
| Neutral Citation | [2022] NZHC 418 |
| Docket Number | CIV 2019-404-818 |
| Court | High Court |
UNDER The Declaratory Judgments Act 1908 and Part 18 of the High Court Rules 2016
IN THE MATTER OF Bianco and the Unit Titles Act 1972
[2022] NZHC 418
Campbell J
CIV 2019-404-818
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHE
Contract — application for a declaration that a building Management Agreement entered into by the developer was ultra vires and void — assignment — novation — severance of invalid clauses — unjust enrichment — restitution — Declaratory Judgments Act 1908 — Unit Titles Act 1972
D Bigio QC and I J Stephenson for the plaintiff
C J Pendleton for the first defendant
T J Rainey for the second defendant
This judgment was delivered by me on 10 March 2022 at 11:00 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
The plaintiff, Body Corporate 406198 (the Body Corporate), is the body corporate of a unit title development, known as Bianco Off Queen, in central Auckland.
In December 2008, when the developer of Bianco Off Queen was the sole owner of all the units in the development, it caused the Body Corporate to enter into an agreement under which the Body Corporate would pay a building manager to provide building management services (the Management Agreement). The developer also arranged for the building manager to enter into a lease of a unit in the development and for the Body Corporate to guarantee the building manager's obligations under that lease. In addition, the Management Agreement obliges the Body Corporate to reimburse the building manager for the rent payable under that lease.
The Management Agreement was for a term of ten years with the building manager having two options to require the Body Corporate to enter into new agreements, each of ten years. The second defendant, Shiraz Holiday Ltd ( Shiraz), became the building manager in 2014 and exercised its option for a new agreement in 2018. If that option is exercised again in 2028, there will be an agreement in place until 2038.
The Body Corporate challenges the validity of the Management Agreement. It says it was entered into ultra vires the Unit Titles Act 1972 ( UTA 1972) and is accordingly void and of no effect. Alternatively, the Body Corporate says the provision obliging it to reimburse the building manager for the rent payable under the lease is ultra vires the UTA 1972. The Body Corporate seeks declarations to that effect. It also asks for an order that Shiraz repay money the Body Corporate has spent in paying the rent and outgoings that were payable under the lease.
There are two main issues. Is the Management Agreement, or the provision for reimbursement of rent, ultra vires? Must Shiraz repay rent and outgoings that were paid by the Body Corporate?
Bianco Off Queen contains 157 units in two towers. There are 156 residential units and one commercial unit. Residential unit owners include owner occupiers, investor owners and Kainga Ora. The one commercial unit, unit 1F/2 (the Management Unit), is owned by the first defendant, Property Opportunities Ltd ( POL).
The second defendant, Shiraz, operates a hotel and serviced apartment business at Bianco Off Queen. A number of residential units are leased to Shiraz for that purpose. Shiraz is also the building manager under the Management Agreement.
As part of its business, Shiraz leases the Management Unit from POL. Shiraz uses the Management Unit as the hotel reception. Shiraz also provides some of the building management services from the Management Unit.
Bianco Off Queen was developed by the third defendant, Bianco Ltd. 1 Timothy Manning was a director of Bianco Ltd.
Completion of the development occurred in late 2008. The unit plan for Bianco Off Queen was deposited on 18 November 2008. On deposit of the plan, the Body Corporate was created. 2 At that point the rules for the Body Corporate were the default rules set out in schs 2 and 3 of the UTA 1972.
In December 2008, the Body Corporate set up arrangements for the operation of a hotel and serviced apartment business and for the provision of building management services at Bianco Off Queen. On 3 December 2008, there was an extraordinary general meeting of the Body Corporate. At that time Bianco Ltd remained the sole owner of all the units. The Body Corporate resolved:
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(a)to delete the default rules in the UTA 1972 and adopt amended rules in substitution (the Amended Rules);
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(b)to enter into the Management Agreement with the fourth defendant, Avondale Properties Ltd 3 (a company of which Mr Manning was the sole director);
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(c)as guarantor, to enter into a lease (by Avondale Properties Ltd) of the Management Unit;
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(d)to enter into an assignment of the Management Agreement to VR Management Services Ltd; and
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(e)to enter into an assignment of the lease to VR Management Services Ltd.
Mr Manning signed the Body Corporate resolution as director of Bianco Ltd.
On 5 December 2008, the Amended Rules were registered and took effect. 4 The Amended Rules imposed the following obligations on unit owners:
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(a) to “not withhold their consent unreasonably to the Manager obtaining licences and other permits and consents desirable for the Land and Building's use as managed and serviced Units” (cl 2.1(n)). “Manager” was defined as the “Manager appointed pursuant to the Management Agreement” and “Management Agreement” was defined as “the agreement in relation to the management control and administration of the Property and operation of a Letting Service and provision of services entered into by the Body Corporate”;
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(b) to not appoint any other person to provide “management services or Letting Services” (cl 2.1(s)). “Letting Services” were defined as “the
offering of the Units for short term/medium term/long term accommodation”; and -
(c) where they are the owner of the Management Unit, to lease that unit “to the Manager” (cl 2.1(u)).
The Amended Rules also imposed obligations on the Body Corporate:
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(a) to “enter into a Management Agreement with a management company or professional manager for the carrying out and management of all or any of the duties of the Body Corporate for remuneration” (cl 3.1(t)). The Management Agreement was:
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(i) to “reserve to the manager the exclusive right to operate a Letting Service from the Property” (cl 3.1(t)(iii));
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(ii) to provide “the exclusive right of the Manager to provide additional services to the Proprietors of Units” (cl 3.1(t)(iv));
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(b) to “not appoint any other Manager … to provide management services or Letting Services” (cl 3.1(u));
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(c) to “pay a contribution to the Manager equivalent to the rent payable under the lease for the Management Unit and Reception and provide a rental guarantee to the lessor of the Management Unit” (cl 3.1(v)). “Reception” was defined as the area in the Management Unit “used as the reception for the operation of the management of the building”; and
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(d) to “not amend any Rules to affect in any manner the management rights pursuant to the Management Agreement without the written consent of the Manager” (cl 3.1(w)).
The Amended Rules stated that the Body Corporate had power to guarantee any lease of the Management Unit and Reception (cl 3.2(l)).
On 5 December 2008, the Body Corporate entered into the transactions approved in the 3 December 2008 resolution.
First, the Body Corporate executed, as guarantor, a deed of lease of the Management Unit ( the Lease). Bianco Ltd was the lessor and Avondale Properties Ltd the lessee. Mr Manning signed the Lease on behalf of all three parties.
The Lease was for a term of ten years with two rights of renewal, each of ten years. The permitted business use was “Reception and Office for the building manager to be used for operation of the complex as serviced apartments”. The Lease stated it was collateral to the Management Agreement and any breach of the Management Agreement would be a breach of the Lease. In the event the Management Agreement was terminated, the Lease could be terminated at the option of the lessor (cl 47.1).
Unusually, the Lease provided that Avondale Properties Ltd “assigns the premises to an assignee of the Management Agreement of even date with this lease” (cl 34.1(f)) and that “[f]rom the date of assignment of this lease by [Avondale Properties Ltd], their liability shall cease” (cl 48.1).
Secondly, the Body Corporate entered into the Management Agreement with Avondale Properties Ltd. Mr Manning signed the Management Agreement on behalf of both parties.
The Management Agreement was initially for a term of ten years. The manager had two rights of renewal of ten years each (cl 16). As noted, the current manager, Shiraz, renewed the Management Agreement in 2018.
The Management Agreement includes the following terms:
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(a) the manager is to perform the “Duties” set out in cl 3.1. These include performing the “Scheduled Works”, which are works (such as cleaning the common property) specified in sch 1 of the Agreement;
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(b) the manager may provide other services to individual unit owners (such as food delivery or valet services) and charge individual unit owners for those services (cl 3.2);
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(c) as remuneration for performance of the Duties the Body Corporate is to pay the manager an annual management fee (cls 5.1 and 5.5). Initially, the annual management fee was $220,000.00. 5 This was subject to review each year in accordance with increases in the Consumer Price Index (cl 5.6.1);
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(d) in addition to the management fee, the Body Corporate...
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