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Body Corporate Business Update July 2018

3 July 2018

COST RECOVERY FOR REPAIRS AND MAINTENANCE

In the context of repairs and maintenance, the question “who pays” is often the first – and last – issue to be addressed by a body corporate.

The Unit Titles Act 2010 (UTA), confers on bodies corporate the power and duty to repair and maintain common property. It also gives bodies corporate the power and duty to repair and maintain an owner’s principal unit where the work is important to the integrity of the development as a whole (i.e., where the work affects a building element or infrastructure that relates to or serves more than one unit (see section 138(1)(d) UTA)).

The UTA requires that the cost of such work borne by all owners in shares equivalent to their utility interests in the first instance. But, it also offers two options for recovering costs from an individual owner or group of owners under sections 126 and 138(4). However, the UTA does not provide express guidance as to how or when a body corporate is to exercise its cost recovery powers.

In Body Corporate 199380 v Cook [2018] NZHC 1244 (Cook), the High Court (Court) was asked to clarify the relationship between sections 126 and 138(4) of the UTA. The questions before the Court were whether one section is intended to apply only when the other cannot apply. Or, if they can both apply, on what basis should a body corporate decide which section to apply when it makes repairs within a principal unit that have benefits for other units, and possibly, the building as a whole. The case related to repairs and maintenance to the decks of four first-floor units that form the ceiling of one ground floor unit in the Sebel Suites in Auckland.

The Court held that:

  • section 138(4) does not only apply where the repairs to an owner’s principal unit do not “substantially benefit” any other units;
  • section 126 can apply in circumstances where section 138(4) also applies;
  • when deciding to recover funds under either section 126 or section 138(4), the body corporate is exercising a statutory power of decision; and
  • it is not an unfettered discretion.

When considering whether to apply section 126 or section 138(4), the Court set out the series of principles or matters that a body corporate must have regard to as follows:

  • the purpose of the UTA – especially section 3;
  • where a body corporate exercises its powers to repair unit property under section 138(1)(d), the starting presumption is that the costs of repairs should be met by the owner of the unit (i.e., that the power of recovery under section 138(4) will be exercised);
  • the nature of the particular building or complex – a one-size-fits-all approach is not appropriate;
  • the weathertightness of a building is interlinked and indivisible and all owners have a mutual interest in keeping the building weathertight and in good repair – weathertightness affects saleability and value across a development as a whole;
  • a departure from the allocation of costs on an ownership basis is appropriate where it is reasonably necessary to achieve what is fair between owners in the circumstances (as per the decision in Tisch v Body Corporate No 318596 [2011] 3 NZLR 679);
  • where the repairs result in substantial benefit to other units, recovery under section 126 is likely to be appropriate; and
  • where the repairs benefit the whole building generally but does not benefit one or more units substantially more than others, letting costs lie with all owners on a utility interest basis may be appropriate.

The decision whether to recover costs from an owner (or group of owners), and if so, under which section, therefore, relies heavily on the facts and circumstances of each case. Bodies corporate will need to be aware of:

  • the features and characteristics of their development; that is, the configuration of buildings and units within buildings, boundaries between common property and principal units, construction type, etc.;
  • whether the repairs relate to weathertightness;
  • who benefits from repairs; and
  • whether the benefit meets the threshold of being substantial of not.

The body corporate will also need to have an understanding of the purpose of the UTA including:

  • the distinction between common property that is owned by and is the responsibility of the body corporate, and unit property that is owned by and is the responsibility of individual owners;
  • the purpose of establishing a flexible and responsive regime for the governance of unit title developments;
  • the purpose of protecting the integrity of the development as a whole; and
  • the objective of ensuring the on-going management of the development on a socially and economically sustainable basis.

Underlying all of this is the concept of community and fairness to all owners being founded on collective and personal responsibility.

In Cook, the Court’s ultimate decision on the facts was that recovery under section 126 from the four first-floor owners and the ground floor owner was more appropriate under the circumstances.

BODY CORPORATE COMMITTEE WORKSHOP

In conjunction with Tim Jones, Barrister, Vicki Toan presented a workshop for Auckland Body Corporate Limited on body corporate committee governance on 6 June 2017. The workshop looked at the purpose and role of the body corporate committee and decision-making process. A big thank you to Chris Newman at Auckland Body Corporate for hosting the workshop.

MATTERS ADVISED ON

We have recently advised bodies corporate, unit owners, and body corporate managers on the following matters:

  • first body corporate operational rules for new unit title developments;
  • the relationship between a body corporate and an overarching incorporated society;
  • making submissions on an application for resource consent by an adjacent landowner;
  • redevelopment;
  • resolutions for general meetings;
  • common property leases; and
  • unpaid levies.

 

 

 

 

Source: Body Corporate Business Update July 2018

InBrief Body Corporate Business Update July 2018

For specialist legal advice, please contact Vicki or Paul