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A QUESTION OF BENEFIT – FURTHER CONSIDERATIONS FOR BODIES CORPORATE SEEKING COSTS OF REPAIR
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A recent High Court appeal adds another proverbial brick in the wall of the leaky building challenge for bodies corporate.

In Body Corporate 199380 v Cook; Van den Blink and Webb[1],  the High Court considers two provisions of the Unit Titles Act 2010 (‘UTA 2010’) that deal with recovery for repairs done to units in a body corporate. The appeal was brought by the body corporate seeking recovery for repairs undertaken to a deck in 2015 from the unit owners.

While the appeal was unsuccessful, the decision is the first to consider the relationship between two recovery provisions of the UTA 2010, and prescribes mandatory factors for bodies corporate to consider when making a decision on which provision to seek recovery under.

The Unit Titles Act 2010 and its application

The UTA 2010 has addressed many of the deficiencies of its predecessor, the Unit Titles Act 1972. The purpose of the new UTA 2010 is to establish a flexible and responsive regime within which bodies corporate can govern unit title developments so as to uphold the integrity of the development as a whole[2].

In achieving this purpose, the UTA 2010 provides greater powers to bodies corporate to carry out repair works to unit property where it is either to building elements or infrastructure that serve more than one unit and is therefore important to the integrity of the building.

In this recent decision involving the Sebel Suites building in Auckland’s Viaduct, Justice van Bohemen considers whether these greater powers translate to greater responsibility, and with whom this responsibility lies when it comes to recovery of costs. 

Sections 126 and 138(4) of the UTA 2010 each provide different bases on which a body corporate can seek recovery.

Section 138(4) provides that the cost of such remedial work to building elements contained in a unit are recoverable from the unit owner(s). Section 126 allocates liability by reference to whether the repairs were for the ‘substantial benefit’ of one or more units.

In Cook, the body corporate undertook repair works to the first floor deck of the Sebel Suites building. The deck formed a single continuous whole divided into four parts with each part being contained wholly within the title of its respective unit. The deck also formed part of the ceiling of Unit S below, the well-known establishment Soul Bar.

The body corporate then sought recovery of these works from the four first-floor owners under section 138(4) of the UTA 2010. 

Tenancy Tribunal and District Court decisions

Two of the four unit owners brought a claim to the Tenancy Tribunal that recovery should instead be sought under section 126 of the UTA 2010 and that the repairs substantially benefited Unit S (Soul Bar), therefore it was not appropriate for the first-floor unit owners to bear the full costs of the repairs.

It was accepted throughout the decisions that:

  1. The body corporate had a responsibility to maintain and repair the deck under the UTA 2010[3]; and
  2. If the repairs were not made, there was a risk of water getting underneath the decks and into the ceiling cavity of the restaurant.

Both the Tribunal and the District Court considered the circumstances of the building itself and found that the repairs conferred benefit to ground floor unit as well as first floor units. In doing so, it was held that recovery under section 126 was more appropriate than that under section 138(4).

High Court decision

Justice van Bohemen describes the general position as:

  1. Where repairs have a substantial benefit to other units in terms of section 126, this will likely be considered the more appropriate avenue for recovery; and
  2. Where the repairs are considered for the benefit of the building generally but do not benefit one or more units substantially more than others then recovery from all unit owners on basis of utility interest may be more appropriate under section 138(4).

Can both sections apply? If both sections apply, how does a body corporate decide which section to use?

In the current case, it was held that both sections can apply taking into account the broader propose of the UTA 2010.

In making the assessment as to which avenue of recovery to pursue, it was held that the body corporate is exercising a statutory power of decision. In doing so, it is to give proper effect to the statutory scheme as a whole and must also take into account the following:

  1. The purpose of the UTA 2010 – in particular:
    a) The distinction between unit property and common property, and the division of responsibility between unit owners and the body corporate;
    b) Flexible and responsive regime for governance;
    c) Protecting the integrity of the development as a whole; and
    d) Ensuring ongoing management of the development on a socially and economically sustainable basis.
  2.  The nature and characteristics of the building or complex;
  3. That all owners have a mutual interest in keeping the building weathertight and in good repair and therefore such issues are interlinked between all units in a development and indivisible;
  4. Achieving a fair outcome that balances the interests of the unit holders.

The body corporate’s appeal was dismissed. The decisions of the Tenancy Tribunal and District Court were upheld a) that the repairs conferred a benefit to the ground floor unit as well as the first floor units, and b) that it would not be appropriate for the first-floor unit owners to bear all the costs of repair. Recovery of the costs was decided under section 126.

What does this mean for you?

While this decision provides some clarity as to the application of and relationship between either section, it’s mandatory prescription of factors to consider has widespread implications for body corporate decision-making surrounding maintenance responsibilities and when undertaking repairs and seeking recovery.

If you are involved in running a body corporate and faced with any of these issues, or are involved in a body corporate dispute – be sure to seek legal advice. Early legal advice is indispensable in avoiding unnecessary expense and delays. Kensington Swan has a wealth of experience in dealing with the multitude of issues that can arise in a unit title context.

Thanks to Samantha Te Au, Solicitor, for the preparation of this Newsflash.

FOOTNOTES

[1] Body Corporate 199380 v A Cook and M van den Blink and M Webb [2018] NZHC 1244.

[2] Section 3 of the Unit Titles Act 2010..

[3] Section 2 of the Unit Titles Act 2010 defines a deck as a ‘building element’; and section 138(1) imposes an obligation of the body corporate to maintain and repair building elements.

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