Body Corporate 87945 v Marine Parade Holdings Ltd

• Jurisdiction: New Zealand
• Judgment Date: 12 June 2019
• Neutral Citation: [2019] NZHC 1311
• Date: 12 June 2019
• Docket Number: CIV-2018-470-107
• Court: High Court

Under The Unit Titles Act 2010

In the Matter of an Originating Application for Orders establishing a Scheme under section 74 of the unit Titles Act 2010

Between

Body Corporate 87945

First Applicant

John Joseph Molloy Diane Elizabeth Molloy and Custodian Nominee Company Limited Trustees of the JJ and De Molloy Family Trust

Second Applicants

and

Marine Parade Holdings Limited

First Respondent

The Other Respondents Listed in Schedule One to the Originating Application Dated 12 July 2018

Second and Subsequent Respondents

[2019] NZHC 1311

CIV-2018-470-107

IN THE HIGH COURT OF NEW ZEALAND

TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA

TAURANGA MOANA ROHE

Leaky Building — scheme to repair complex with weathertight issues — apportionment of costs — Unit Titles Act 2010

Counsel:

D Bigio QC and K Wendt for applicants

S L Cogan and J G Donkin for first respondent

Counsel:

D Bigio QC, Shortland Chambers, Auckland

K Wendt, Richmond Chambers, Auckland

S L Cogan, Quay Chambers, Auckland

J G Donkin, Quay Chambers, Auckland

Introduction

1 This is an application by Body Corporate 87945 (“the Body Corporate”) for an order settling a scheme under s 74 of the Unit Titles Act 2010 (“the Act”). The scheme relates to repairs to a unit title development located in Mt Maunganui known as “the Pavilions.” The Pavilions development contains twenty residential units and one commercial unit spread across four levels in a terrace-like or tiered construction, sometimes referred to as a “wedding cake” configuration.

2 The Pavilions has suffered substantial damage as a result of weathertightness issues and building and design failures. The s 74 scheme relates to extensive remedial work (including a full reclad of the building) that has been recommended to fix the various issues that have been identified. The Body Corporate proposes that the costs of the scheme be allocated to owners proportional to their respective utility interests. 1 The Body Corporate believes that this is the fairest approach, because of the interrelatedness of building elements and infrastructure – a weathertightness failure of one part of the building within a unit's property may have a direct impact on another unit.

3 The first respondent, Marine Parade Holdings Limited (“MPHL”) owns two units in the Pavilions development. It opposes the scheme. MPHL's opposition, however, is limited to the issue of how the costs of the remedial work should be allocated between unit owners. MPHL's view is that apportioning costs on the basis of utility interest is unfair, because the repairs will benefit some units substantially more than others. MPHL says that the fairest way of apportioning costs is for each unitholder to pay for the remedial work undertaken on his or her unit and for only the costs of remedial work to common property to be allocated by utility interest.

Background

4 Construction of the Pavilions commenced in 1999. Grantham Developments Ltd (“Grantham”) was the developer. MPHL is associated with the developer, as David Shepherd, MPHL's director, is also a director of Grantham.

5 The Pavilions is built over four levels and includes 21 principal units, comprising twenty residential units (ranging from one to three bedrooms) and one commercial unit. There are four principal units on the ground level and parking for all 21 units. The four ground level principal units have associated outdoor patio areas that do not form part of an elevated roofing system of any unit below. There are eight principal units on the second level, seven principal units on the third level and two principal (penthouse) units on the top level. All these elevated units have associated decks that form the roofs of the units below. Each unit has a different area of external wall, a different ratio of external wall to floor area, and a different area of deck.

6 Defects in the building were first identified in March 2003 and targeted repairs were first undertaken in 2004 and 2005. The full extent of the weathertightness issues became increasingly apparent over subsequent years.

7 In April 2016, Incodo Ltd was engaged to investigate the issues with the building. Incodo identified extensive weathertightness issues throughout the building, including systemic weathertightness defects in the building's envelope and damage to exterior cladding, balcony membranes and tiling, and other building elements.

8 On 5 August 2016 an Extraordinary General Meeting (“EGM”) was held to discuss the Incodo report and remedial options. The owners resolved to proceed with a “liquid coating” repair option, rather than a full reclad. In the following months further investigations and other preparatory work was undertaken, involving the Body Corporate Committee, Incodo and the Home Owners and Buyers Association (“HOBANZ”). Incodo recommended a full reclad as the only realistic option.

9 At an AGM on 24 March 2017, HOBANZ explained to owners why comprehensive remediation was necessary and presented a Process & Timeline document which provided an overview of the remediation project process (including a s 74 application). Following the HOBANZ presentation, owners resolved to engage a project manager (Watershed) and architects (Architectural Design Group) to prepare a scope of work and cost estimate to remediate the building.

10 In advance of an EGM scheduled for 4 August 2017, two documents prepared by HOBANZ were circulated to owners:

• (a) a Background Discussion Paper which explained the results of further building investigations since the 24 March 2017 AGM; and

• (b) a “Q&A” document, responding specifically to owners' queries about the remediation project. In relation to cost apportionment, HOBANZ explained that the Body Corporate was obtaining a report from Yeomans Survey Solutions (“Yeomans”) on the unit/common property boundaries and that a meeting would be held in September for owners to discuss various matters, including cost apportionment.

11 At the 4 August 2017 EGM, owners discussed and voted on a concept design, chose a cladding system, and raised a design levy. A s 74 scheme was discussed, but at that stage the Body Corporate had not yet received the Yeomans report. Three weeks later a further EGM was held where owners voted again on a cladding system and on a balustrade design. An updated project estimate was provided to owners. Levying the costs on the basis of utility interest was discussed, but the minutes recorded that there would be further discussion on cost apportionment.

12 Following receipt of the Yeoman's Report on 14 September 2017 a draft s 74 scheme was circulated to owners for consideration. It included the proposed utility interest cost apportionment. Owners were recommended to seek independent legal advice before an EGM scheduled for 16 October 2017.

13 At the 16 October 2017 EGM the draft scheme was approved by the majority of the owners represented at the meeting. Owners of 18 of the 21 units were represented at the meeting. MPHL was the only owner to vote (by way of postal vote) against the scheme and proposed utility-interest based cost apportionment. Mr Shepherd, by email, expressed his opposition to costs being allocated on a utility interest basis. He submitted that “the proposal to levy owners on the basis of their utility interest is fundamentally wrong and inequitable”, and that “work against each unit should be levied against the unit concerned”. Mr Shepherd also provided an example, stating that “Unit 1B has minimal external wall area and no balcony and yet is being asked to pay well in excess of its actual upgrade costs”. Mr Shepherd's reasons for opposing the scheme were recorded in the minutes of the subsequent 20 December 2017 EGM and in communications between HOBANZ, the Body Corporate committee and Mr Shepherd in May-June 2018.

14 Later, some non-material changes to the draft scheme were recommended by the Body Corporate's lawyers and approved by the Body Corporate committee in July 2018. That final scheme is the scheme the Court is being asked to settle under s 74 of the Act.

Schemes under the Unit Titles Act – the law

15 Unit owners are responsible for repairing and maintaining their own units and meeting the cost of doing so. 2

16 Common property, however, is owned by the body corporate, with owners beneficially entitled as tenants in common in shares proportional to their ownership interest. 3 The body corporate is accordingly obliged to repair and maintain common property. In addition, the body corporate has responsibility for the repair and maintenance of building elements and infrastructure (which can be contained in common or unit property). 4

17 The body corporate must raise levies for repairs to building elements and common property by utility interest 5 and, once the work has been completed, it can then decide whether to reapportion contributions amongst owners by recovering from certain owners greater contributions. 6 However, s 138 does not set out specific guidelines as to how the costs of major repairs should be recovered. 7 It is not designed

to deal with systemic failures. That is the province of s 74 schemes, which generally relate to remediation of an entire complex that has suffered systemic or substantial damage. In such circumstances it will generally be impractical to leave the repair work to individual proprietors

18 A body corporate may apply to the High Court under s 74 of the Act for an order settling a scheme in respect of any building or other improvement comprised in a unit that is damaged or destroyed, but for which the unit plan has not been cancelled. 8 The scheme may include provisions for the reinstatement in whole or in part of the building or other improvement. 9 The works are not limited to “essential” works. Work that...