All for One and One for All?

1 November 2018

The allocation of costs for significant repairs to unit title developments can be a very contentious issue. A recent decision of the Court of Appeal in Gu v Body Corporate 211747 [2018] NZCA 396 provides further guidance for bodies corporate and unit owners.

The case relates to a mixed use building in Eden Terrace, Auckland. A reinstatement scheme under section 74 of the Unit Titles Act 2010 (UTA) had been settled by the High Court in October 2011 to provide for weathertightness repairs. In the course of carrying out the work, additional defects became apparent significantly increasing the total project costs. The Body Corporate applied to the High Court to vary the terms of the scheme under section 74(8) of the UTA.

But, the owners of the ground floor commercial units appealed the High Court’s decision; because, they disagreed with the Body Corporate’s proposed allocation of the additional costs.

The additional work related to passive fire protection, ventilation extract risers, and the air supply ducting affecting compliance with clauses C3 Spread of Fire, C6 Structural Stability During Fire, and E3 Internal Moisture of the Building Code.

The Court of Appeal accepted at paragraph [56] that:

• there is a presumption in the UTA that levies for Body Corporate repair work will be struck on a utility interest-basis
• the work is paid for with the money raised by those levies; and
• the Body Corporate can, in appropriate cases where the works benefit any unit by a distinct and ascertainable amount, recover from the relevant unit owner(s) the costs of repairs undertaken on or to that unit either in whole or in part.

This position is consistent with both the Unit Titles Act 1972 and the UTA.

In respect of the additional works required in this case, the Court of Appeal found that the additional works were for the benefit of the development as a whole. The Court of Appeal also that no distinct benefit capable of being ascertained was conferred on any individual unit or units (at paragraph [62]) because:

• the additional work required to address the additional defects are interlinked such that a weakness at any one point has the capacity to have significant and immediate implications for other owners
• each unit forms part of the integrated structure of the building
• all owners would benefit from a code compliance certificate being issued for the building; and
• the additional works are not for the benefit of individual unit owners, but all unit owners.

The appeal was allowed in part such that the costs of the additional works were to be shared on a utility interest-basis less the amounts received by the residential unit owners under the Financial Assistance Package.