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Body Corporate Business Update May 2018

3 May 2018

APPOINTMENT OF AN ADMINISTRATOR

Got a dysfunctional body corporate? Do you need an administrator?

An administrator is an independent third party appointed by the High Court under section 141 of the Unit Titles Act 2010 (UTA) to assume the powers and duties of the body corporate (and the body corporate committee).

An application for the appointment of an administrator may be made by the body corporate, any person having a registered interest in a unit (i.e. a mortgagee as well as a unit owner), or a creditor of the body corporate. The application must show “cause” for the appointment of an administrator, but section 141 does not set out what grounds would justify the appointment of an administrator.

The Court therefore has a wide discretion. In the past, the Court has appointed an administrator where it considered that it was appropriate to do so – where the Court found actual or alleged dysfunction of the body corporate, i.e., the body corporate is unable to govern itself. Examples of the types of behaviour that amount to dysfunction include:

  • undemocratic or ultra vires (unlawful) decisions;
  • deadlock; and 
  • decisions made through undue influence or which unnecessarily harmed the interests of the minority (see TBS Remcon Ltd v Body Corporate 354994 [2016] NZHC 1689, Low v Body Corporate (2011) 12 NZCPR 142 and Melview Viaduct Harbour Ltd (in rec) v Body Corporate 348911 [2012] 1 NZLR 84).

The Court has however been reluctant to use section 141 as a device to ensure that the body corporate pays its outstanding debts, i.e., by circumventing other debt collection processes.

More recently in Maiden v Body Corporate 46112 [2018] NZHC 448, the Court considered the issue in respect of a nine-unit apartment building. The five applicants in the proceedings owned five of the units in the development. The second respondent owned the other four units.

In the lead up to the proceedings, the Body Corporate held an annual general meeting (AGM) in 2010. There were no AGMs in 2011, 2012 or 2013. In 2014, an AGM has held but abandoned before the Body Corporate could pass any resolutions, and subsequent attempts to hold meetings failed. The Body Corporate had no effective governance structure.

As well as the failure to hold AGMs, the applicants also claimed that the body corporate had failed to fulfil its duties to repair and maintain the common property and building elements under section 138 of the UTA. At the time of the application, critical maintenance included exterior painting, roof replacement, and joinery replacement. The second defendant accepted that the body corporate was dysfunctional and that repair work was required urgently.

The Court found that:

  • the Body Corporate was dysfunctional because there had been no AGMs and no operative governance structure;
  • in the absence of an elected chairperson, an interim measure was necessary;
  • the lack of agreement between unit owners was preventing the building being maintained; and
  • the buildings required repairs.

The Court ordered the appointment of an interim administrator to undertake an urgent and objective inquiry into the governance and maintenance issues and provide an independent report to the Court in 4 weeks prior to a further hearing.

Matters advised on

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

  • body corporate operational rules;
  • managing the behaviour and conduct unit owners;
  • redevelopment; 
  • shared ownership of accessory units;
  • unit title disputes;
  • unpaid levies.

For specialist legal advice, please contact Vicki or Paul