Unit Titles: Paying for the actions of former owners

There are many things a purchaser of an apartment in a unit title complex needs to consider. The Clearwater Cove Court decision highlights the risks for purchasers arising from historic costs awards against the body corporate.

In 2008 the Clearwater Cove body corporate commenced a representative claim in the Weathertight Homes Tribunal against the Auckland Council and Fletchers in relation to building defects. The claim was unsuccessful. The Auckland Council and Fletchers sought costs. The Tribunal found the claims in relation to the majority of the units lacked substantial merit and there was bad faith on the part of the body corporate in the conduct of the claim. It ordered the body corporate to pay costs to the Auckland Council and Fletchers in the sum of $894,000. The body corporate did not pay and the Court appointed an administrator to manage the affairs of the body corporate.

A lengthy dispute then ensued as to which owners should pay the costs award. In 2020 the High Court considered whether the costs should be paid by the owners of the units whose conduct resulted in the adverse costs award or the owners as a whole. The Court found the costs should be apportioned to those units at fault under section 127 of the Unit Titles Act.

However, in some cases the units of the owners at fault had sold and the new owners purchased without knowledge of the misconduct of the previous owners. The Court held the body corporate should first seek to recover the costs from the former owners who were at fault, but if the funds could not be recovered from those parties, the correct interpretation of section 127 is that the current owner must pay.

Gareth Lewis, a Grimshaw & Co Partner advises the decision “is a reminder that the way in which a body corporate is required to manage historic liabilities under the Unit Titles Act can result in recent purchasers incurring significant costs that were not anticipated”. He states “the disclosure requirements under the Unit Titles Regulations will not necessarily put purchasers on notice of these matters. This emphasises the need for purchasers and their lawyers to make comprehensive enquiries about issues of this nature at the time of purchase”.

Grimshaw & Co regularly advises bodies corporate and unit owners. We are experts on the Unit Titles Act and are well placed to advise your body corporate on the validity of body corporate rules, repair and maintenance obligations, section 74 schemes and provide other specialist advice. For assistance, please call us on (09) 377 3300.

Hot tips for body corporate remediation projects

A major repair or renovation to an apartment building is a significant undertaking which requires careful planning, clear lines of communication and specialist expert advice.

There is a lot at stake for the owners. A well-managed remediation project will take less time, enhance the reputation of the building and add value to the apartments. A poorly managed project can lead to incomplete repairs and years of delay and frustration.

Here are 10 hot tips for bodies corporate undergoing remediation or renovation projects:

• Take independent building advice. The body corporate should take advice on building defects and remediation options from independent building professionals. Avoid taking informal advice from others such as the developer or members of the body corporate.

• Beware of targeted repairs. There can be a temptation to undertake ‘targeted’ or ‘patch’ repairs which are cheaper but essentially cover over problems and do not address the underlying issues. These repairs often fail and result in the need for further repairs in the future. Seek confirmation the proposed repairs will be durable in the long term.

• Obtain advice on claim options. Consult legal advisors who specialise in building defect claims to identify whether you have a claim against those involved in the construction or certification of the complex for the cost of repair works. All claims are subject to strict limitation periods, so legal advice should be sought as soon as possible.

• Get the owners on board. Any remediation project needs the support of the owners. This means satisfying the owners the work is necessary and there is a commercial benefit in undertaking the work. Provide a valuation report which sets out the potential capital gain and a business plan with details of the estimated cost and timing of the repair project.

• Apply for a section 74 scheme. Engage lawyers to apply to the High Court for a repair scheme under section 74 of the Unit Titles Act. This will clarify the basis upon which owners are to be levied for the work and authorise the body corporate to undertake work to both unit and common property, amongst other things. The scheme provides an assurance the project will proceed in an organised and professional manner.

• Engage a body corporate manager with experience in remediation projects. Body corporate managers who have managed other remedial projects are familiar with the issues that are likely to arise, know the best experts, will have systems that can be used to manage the project and can provide useful advice to owners throughout the project.

• Put in place clear lines of responsibility. The contractual arrangements between the body corporate, the building professionals and the head contractor are important. Seek legal advice in relation to the contracts. Ensure there is a clear understanding as to the responsibilities of each building professional and who ultimately oversees the work.

• Appoint an owners representative. An owners representative fulfils an important role in liaising between the building professionals and the owners. He or she provides important information to the owners, such as when they need to vacate their apartments, and can assist with other matters such as finance and alternative accommodation options.

• Provide regular updates. The body corporate should provide regular updates to the owners so they have a clear understanding of how the project is progressing and have up to date estimates of the costs and timing of the work. Reports from the building experts should be provided to explain any significant changes in the scope of the work.

• Resolve disputes quickly. If disputes between the body corporate, building professionals and/or the head contractor develop it can result in significant delays to the project or at the conclusion of the project the body corporate may have difficulties obtaining the producer statements it needs from contractors. Address any disputes which arise as soon as possible, and where necessary invoke the dispute resolution process in the contract.

Grimshaw & Co regularly acts for bodies corporate undergoing remedial work projects. We are experts in building defect claims, construction contract disputes, section 74 schemes and the Unit Titles Act 2010. Call us on 09 377 3300 for practical expert advice.

Covid-19 lockdown and lease disputes

On 25 March 2020 the Government declared a civil emergency and enforced a Level 4 lockdown. Aside from the unprecedented social impact, shockwaves reverberated throughout businesses operating in New Zealand.

If you owned/operated a business at a leased premise before the lockdown, then almost certainly you have acquired rights when it comes to the payment of rent during the lockdown period.

The standard form Auckland District Law Society lease document (6th edition, 2012) has special provisions relating to “No Access in Emergency”. These were incorporated as a response to the Christchurch Earthquakes and fall out from the Red Zones created following those catastrophes. Put simply, a qualifying lessee will be entitled to withhold a “fair proportion of the rent and outgoings”. Other standard form leases have similar provisions which may be engaged by the circumstances of the lockdown.

On the flipside, if you were the landlord of commercial premises during the lockdown then you will need to carefully consider your approach to the enforcement of rent payments.

Grimshaw & Co is able to provide tailored advice to your situation, after considering the applicable lease documents, and your particular lessor-lessee relationship. We are able to think outside the box to offer a strategy suited to your individual circumstances. This may simply involve an exchange of correspondence, or more formal measures such as mediation, expert determination or quick form arbitration.

Get in touch if you would like to speak to one of our experienced lawyers today.