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.