Lessons From Bridgewater

Bridgewater (BC324525) is a 22 unit residential complex in Paihia.  Sadly its owners have been involved in ongoing litigation following different views on remedial obligations and scope.  For Body Corporates the court decisions have at least created certainty in a number of areas including voting rights.

Voting Rights when in Arrears with Levies or Charges

The suggestion raised in Bridgewater that owners retained voting rights whilst arrears were in dispute was disabused by Muir J in the recent High Court decision Butcher v Body Corporate 324525.

In this regard Muir J held:

  1. I reject the Plaintiffs argument that Section 96(3) should be read down to exclude unit holders who have withheld levies on the grounds that the levies were purportedly ultra vires.
  2. Whatever the nature of the dispute, the approach mandated by the Act is to quarantine it from the day to day cash requirements of the Body Corporate so that it can be resolved without the implicit financial pressures that would otherwise arise.  “Pay now, argue now” conveniently captures that concept.
  3. As far as an entitlement to vote is concerned, the Act can be regarded as establishing a presumption of validity in respect of levies raised pending any determination to the contrary.

Whilst the Judgement deals only with levies, there is no reason to suspect that interest and other on-charges will not attract the same benefit.  Section 96(6) sets out the procedure an owners must follow should they wish to retain a right to vote when funds are with-held as a result of a dispute.

Section 96(6)
The payment of any Body Corporate levies and other amounts that are from time to time payable to the Body Corporate by the owner of a principal unit and that are disputed by the owner does not affect the right of that owner to dispute the payment if the sole purpose of making the payment was to exercise that owner’s entitlement to vote.

Professional Body Corporate Managers exempt from Money Laundering Act

The Ministry of Justice, following an application by Glaister Ennor (Solicitors) has granted an exemption for professional Body Corporate Secretaries from the new Money Laundering Legislation.

The exemption is conditional upon the Body Corporates under management being compliant with the Unit Titles Act 2010 and its accompanying regulations.  Boutique prides itself on its advice to clients in relation to governance issues and accordingly does not anticipate any risk associated with the maintaining of an exemption on an ongoing basis.

Owners should be aware that a duty does exist for notification to the police of any large cash transactions.

 

Receiver Personally Accountable to Body Corporate

Body Corporate 162791 (Mid City Centre) has struggled for many years with a recalcitrant owner of the former cinema site in Mid City.  Attempts to extract outstanding Body Corporate levies have proved extremely difficult since the cinemas closed many years ago.  There have been various entities controlling the four units which comprised the former cinemas, the latest being QSM Trustee Limited (QSM).  QSM was formed at short notice when the previous proprietor, 239 Queen Street Trustees Limited, was subject to liquidation proceedings in the High Court.  Liquidation proceedings were then brought against QSM when payments of Body Corporate levies were not received.  Two days before the liquidation of QSM was to be heard, the company placed itself into voluntary liquidation and a receiver was also appointed.

Since 13 August 2013 the receiver has remained in control of the units, collecting rental from tenants and utilising Body Corporate services, whilst declining to pay Body Corporate levies.  In addition the receiver attempted to interfere with the common property of other elements of the complex, at one stage installing a fence across a common property arcade.  The Body Corporate successfully obtained an interim injunction to have the fence removed and then sought a permanent injunction raising additional causes of action including that the receiver be personally liable for levies on the five units.  The claim alleged the receiver, as agent for the company in receivership, was in possession of the units, benefiting from the services and receiving rental income from a number of tenants.

The claim against the Receiver was brought by way of summary judgement and the High Court held the actions did not make the receiver personally liable for the levies.  The Body Corporate appealed and a unanimous decision of the Court of Appeal issued on 29 April 2015 finding:
1.    The receiver was personally liable for Body Corporate levies from mid-August 2013 (at at rate of some $39,000 per month).
2.    Interest at 10% per annum was applicable on the arrears in accordance with the Body Corporate’s interest resolution charge.
3.    The Body Corporate was entitled to reasonable solicitor client costs on the proceedings.

The case created a number of significant precedents for Body Corporates, and in particular recognised that receivers were not entitled to take or remain in possession of Units in a Body Corporate, enjoying the benefits of Body Corporate services, without paying for them.

Importantly, the Court of Appeal also rebutted the receiver’s argument that the position of a receiver was similar to a mortgagee in possession and that a “mortgagee in possession is not liable to pay Body Corporate levies”.  The Court noted:

“Pursuant to Section 105(3) of the Unit Titles Act, Body Corporate rules are binding on the Body Corporate, the owners of principal units, any person who occupies a principal unit, and any mortgagee who is in possession of a principal unit.  If the operational rules of a Body Corporate provide that unit holders must pay Body Corporate levies, then clearly there will be an obligation on a mortgagee in possession to pay those levies.  If the Body Corporate’s operational rules require all owners to abide by acts in force in relation to the use, occupation or possession of the unit, as they do in this case, then a mortgagee in possession will be liable to pay levies, because the obligation to do so is contained in Section 80(1)(f) of the Unit Titles Act.”

The decision, whilst significant to the Body Corporate, giving rise to a recoverable debt in the order of $1million against the receiver personally, it is also significant to other Body Corporates frustrated by receivers or mortgagees in possession who fail to meet Body Corporate levies.  The judgement was issued in the Court of Appeal on 21 May 2015 under reference CA213/2014[2015]NZCA185.

Insurance Victory for BBCL Body Corporate

Christchurch’s unique situation has brought a number of challenges to our Christchurch Body Corporates.  The impact of Mother Nature has been both random and at times unjust.  Equally the insurance industry and its associated broking fraternity have responded in a variety of different fashions.  The catastrophic events suffered in Christchurch illustrate so clearly that the laissez faire attitude to insurance that many encompassed was shared not only by owners but also by many in the related industries.

One of BBCL’s Body Corporates has suffered huge challenges as a result of impreciseness in documentation relied on by the Body Corporate.  This documentation was supplied by its broker and the insurer.  This sadly has resulted in two lawsuits against both the insurer and the broker which have only caused further heart-ache to owners.

February 22 2011 saw the total complex declared an economic loss.  To this day the Insurer still will not accept that (despite 50% being demolished under an order from CERA) and the remainder requiring temporary strengthening to leave it habitable pending a controlled deomolition.

The BC relying on a replacement valuation looked to design a replacement complex for its central Christchurch site only to be advised that the replacement cost is nearly double the replacement valuation it received.  The extent of cover under the policy was disputed and an issue has also arisen as to whether or not EQC payments acted as an excess under the policy or not.  A simple reading of the policy document would suggest it does however when confronted with the claim the insurer alleged it did not.

The issue of whether EQC’s payments acts as an excess has now been resolved by a full bench of the High Court in Auckland and the Body Corporate is delighted to have received the judgment issued by Justice Courtney which has affirmed that a clear reading of the policy does in fact apply.

The end result is that instead of being limited in recovery to the valuation estimate the Body Corporate is able to recover both that plus the EQC pay-out of $6.8 million plus GST.  The total sum will certainly go a long way towards the cost of rebuild, if not completely, and will come as a huge relief to the 68 owners affected.

Managing claims of such scale and then preparing for rebuilding as required by the 2010 Unit Titles Act required a significant vote of faith by owners and their hardworking Committee in BBCL and the supporting professionals.  BBCL share’s the owners delight at the successful High Court award and looks forward to progressing with the Body Corporate a complete rebuild over the coming years.

 

Harbour Lights

It is believed the 20 residential units known as Harbour Lights (99 Mokoia Road Birkenhead) is the first multi-unit complex to be the recipient of a financial assistance package under the Government’s much touted Weathertight Homes Assistance Scheme.

The package, brought in to affect in mid-2011 is designed to assist home owners in repairing their leaky homes.  The promise was a 25% government contribution with a further 25% from the territorial authority if the authority was responsible for the inspections and code of compliance on failed building works.

Since announcement of the scheme Boutique Body Corporates Limited has been pursuing claims for five Body Corporates, which meet the necessary criteria.  Recent media criticism has highlighted the challenges within the scheme design and surrounding processes.  To date this had seen not a single multi-unit complex receive a payments under the Scheme

Mr Leishman, Director of Boutique commented:  “There has, quite rightly in our opinion, been criticism of the bureaucracy which has wrapped itself around the issue of eligibility and the process involved in satisfying the Department’s stipulations. This has contributed to significant days and added costs as consultants and Quantity Surveyors struggle to fit square pegs into round holes.”
Thanks to the combined efforts of Boutique and the professionals engaged by the Body Corporate Harbour Lights is delighted to report the first payment has been received by Body Corporate.  All involved, including the staff on the ground at the WHRS who assisted in facilitating the processing of the application through what can only be described as a tortuous journey are to be commended for the efforts.  Mr Leishman noted  however “It is difficult to escape the impression that the structure has been designed with a view to making it so difficult that the majority will simply give up.”

Boutique is  now look to deliver a similar outcomes on the four remaining complexes that it is currently working with the Department on.