Terrorism Exclusion

The recent atrocities in Christchurch with the Mosque attack brought home to BBCL the need to consider the potential impact of terrorism on Body Corporates.

Virtually every current Body Corporate policy has a terrorism exclusion from the material damage portion of the policy.  If the Body Corporate has a concern regarding terrorism, whether for any specific reason or simply to ensure full coverage, additional cover can be obtained upon request.  Should you feel that this is an omission from your current cover please contact your account manager.

EQC Charges on the Rise

Residential owners should be aware the residential building cap covered by EQC has been increased from 1 July 2019 to $150,000 (plus GST).  This is up from the previous base of $100,000.  The increase will be helpful in natural disasters where comparatively minor damage occurs.  In circumstances where a total loss arises then the EQC cap will invariably need to be topped up by natural disaster cover under the Body Corporate’s material damage policy.  The top-up for natural disaster is already included in all Boutique policies.

As with any change in cover, the premium increases and EQC’s take will go up from $200 plus GST per unit to $300 plus GST.  This will be reflected in insurance renewals from 1 July 2019.  In theory the insurer’s premium should reduce to reflect the increase in EQC cap  – time will tell.

Shading The Truth

A recent High Court decision Douglas v Jules Consultancy Limited (CIV-2017-485-130[2019] NZHC555) has brought home the significant importance of transparency when dealing with issues affecting the building’s condition.  This is spelt out in a recent High Court decision of a professional secretary minimising to a prospective purchaser the potential extent of leaks within a building. 

Liability has been awarded against the Secretary under the Fair Trading Act, which included a reference to “misleading by omission”.  In that instance the Secretary chose to minimise the extent of issues and to omit references to correspondence that she should have known would have been extremely relevant to a prospective purchaser.  When asked about a specific notation on the LIM report, the Secretary was deemed to be “guilty of misleading conduct by being silent on the other weathertightness issues of which the Secretary was aware”.

In terms of representations actually made, these must be honestly held and there must be a reasonable basis for them.  The Court was satisfied there was no reasonable basis for the opinion that the complex did not suffer from weathertightness issues except in relation to the walkways.  This statement had not been supported by fact.

BBCL’s policy has always been to be transparent regarding construction issues and it is clear the Courts impose a high level of responsibility in terms of this.  Owners may have similar responsibilities with warranty obligations under standard sale and purchase agreements.  If you are in any doubt on these issues, we suggest you obtain independent legal advice.

The Maintenance Pendulum

Introduction

The Unit Titles Act 2010 (the Act) brought with it a new responsibility for maintenance.  Under the 1972 Act the Body Corporate (BC) was responsible for common property and owners for private.  The new Act defines building elements and makes the BC responsible for maintaining these elements even if private property where they “relate to or serve more than one unit[Section 138 of the Act].  In addition the Bridgewater case [Wheeldon & Others v BC324525] settled the BC  obligation has primacy over a unit owner’s repair and maintenance obligations under Section 80.

Maintenance Process

With the responsibility to maintain, the Body Corporate has a duty to expend existing funds or to raise further levies against all owners for repairs to be carried out.  The focus of the Act has shifted to ensuring the maintenance of the building was the primary responsibility of the Body Corporate.

Cost Recovery

The maintenance responsibility is clear, but until recently the issue of recovery of costs remained confused.  The reason is there are three sections of the Act which cross over to some degree:

  • Section 138 (4) provides for recovery of any private property costs from the owner of the unit where work occurs.
  • Section 126 provides for recovery of money expended for repairs and other work which is:
  • Section 127 provides recovery is permitted where the repair work is rendered necessary by reason of any wilful or negligent act or omission or breach of the Act, rules or regulations by any unit owner or their tenant, lessee, licensee or invitee.

So Which Option to Choose?

Various judgements, over the past three years, have ranged from the Body Corporate having an unfettered right to choose which section to apply, to the development of a series of principles which need to guide the decision-making process.  A recent Court of Appeal decision in BC S7368 v Ottway & Others has brought further clarity on the steps involved.

Facts of the BC 87368 Case

A building in Mt Maunganui suffered from significant leaks to decks on the first level which service two apartments and which sit above ground floor shops and the public footpath.  The concrete decks had a butyl rubber membrane with ceramic tiles on top and had been leaking since 2009 as a result of the “premature failure of the waterproof membrane”.

The decks provided amenity for the first level owners, but also formed part of the drainage system for the whole building and provided shelter for the retail ground floor commercial shop units under.

What Happened?

The Court of Appeal looked at each of:

  • Sections 127 – whether the first-floor owners were at fault; and
  • Section 138(4) – the first-floor owners owned the decks and the Body Corporate benefitted from the decks as they were part of the drainage system for the total complex; and
  • Section 126 – who benefitted

High Court

Section 127 – The High Court held the BC could not recover the repair costs under Section 127 as it found the first-floor units had “not committed any wilful or negligent act in breach of the 2010 Unit Titles Act or the Body Corporate operational rules”.  It held the defects were caused during the construction process.  The leaks were not the result of a maintenance failure caused by the first-floor apartment owners who owned the deck.
The Court of Appeal endorsed this finding.

Section 126 – The High Court noted the membrane on the decks was an important part of the stormwater system for the entire building.  The replacement of the membrane necessitated balcony works, joinery works and drainage works to ensure requirements of the current building code were met.  The Court found the repair works did not benefit the first floor owners more than other units by a distinct and ascertainable amount, apart from the new joinery installed to the first floor apartments.  The joinery replacement was held to be for the distinct and ascertainable benefit of the first floor units.  Payment of the cost was ordered by the High Court under Section 126.

Section 138(4) – the High Court held this was not limited to circumstances where Section 126 does not apply, and found there was jurisdiction to apply Section 138(4), but limited this to the joinery.

Court of Appeal

The Court of Appeal addressed the arguments and the High Court decisions.  To assist in considering the competing options, it referred to the legislative background and, in particular, the genesis of Section 138(4), being a departmental report prepared by the then Department of Building and Housing for the relevant Select Committee during the legislative process.  The Court of Appeal held “The Committee envisaged the new provision Section 138(4) as being subsidiary to Sections 126 and 127, which were to prevail where they applied.  Section 138(4) would only apply to repair work done by the Body Corporate either on elements within a unit that were not building elements or infrastructure, or on building elements themselves where Sections 126 or 127 did not apply.”

Summary

The Court of Appeal has settled the interaction between Sections 126, 127 and 138.  What it has not done, and which will likely be fact specific, is how an apportionment might occur under Section 126.  This requires further analysis of subsection 2 of Section 126 which reads:

“a)  So far as the repair, work, or act benefits any unit by a distinct and ascertainable amount, the owner at the time the expense was incurred and the owner at the time when the action is instituted are jointly and severally liable for the debt, or

b) So far as the debt is not met in accordance with the provisions of paragraph (a) it must be apportioned among the units that derive a substantial benefit from the repair, work or act rateably according to the utility interest of those units, …”

The Body Corporate is required to make an assessment of the “ascertainable amount” the Act benefits each unit affected.  If this cannot be rationally done, then the cost is split amongst the units benefitting by their respective utility interest (i.e. generally ownership interest).

The example in BC s78368 is fairly clear as to who benefits and the ascertainable amount.  Less clear will be the situation of a multi-storey complex where a private property roof keeps the total complex watertight, where the most identifiable benefit is to the top floor unit with benefit likely reducing proportionately as the risk of water inundation decreases going down the building.  Little guidance currently exists from the decisions to date so decisions by BC will need to be fact based.

Asbestos – what you need to know in a Body Corporate context

Asbestos:  What you need to know in a body corporate context:

BBCL wants to outline for managers and committees the legislative obligations that now affect bodies corporate.

The Health and Safety at Work Act 2015 (Act) specifies that a body corporate or its agent must ensure that, when work is carried out at the property, it is done safely and without endangering workers or others occupying or visiting the property.

A body corporate is described in the Act as persons conducting a business or undertaking or “PCBU” for the property.  This is the term used in the Act.

In terms of the Health and Safety at Work (Asbestos) Regulations 2016 (Regulations) the PCBU is obligated to identify asbestos in the workplace and document plans for managing its risks in an asbestos management plan if there is a risk of exposure to respirable asbestos fibres.

In fulfilling your obligations under the Regulations, it is important to consider issues such as – “is the property of an age and type that is likely to contain asbestos, such as a structure built, altered or refurbished before 1 January 2000 with building elements that may contain asbestos.”

Key Factors:

As a PCBU you have numerous obligations under the Act in respect of matters that take place in or at the property.  You may not be alone in this obligation as you may also be able to rely on other PCBU’s such as building contractors and property managers to coordinate collaborate and co-operate with you when these people share overlapping duties with you if any works are intended to be carried out on the property.

The Act imposes a duty on the PCBU to identify asbestos and to prepare an asbestos management plan for work involving a risk of exposure to respirable asbestos fibres.  For example – if exposure is likely to occur from dust created when demolition is being undertaken or drilling or cutting into potential asbestos containing materials is contemplated.

The risk of exposure depends on the kind of work that is planned. Types of work that can create potential risks may include (but are not limited to) refurbishments, remedial renovations, demolition work, etc.

Duties:

 If the proposed works create a risk of exposure in an area of the property, the PCBU must ensure asbestos is identified and an asbestos management plan is prepared before the work is carried out.

Application of the Act and Regulations:

 There has been a great deal of “drum beating” in the marketplace concerning the Regulations.  A significant number of commentators have stated that as a PCBU you are obligated to have a full survey of the property undertaken and identify the risks relating to potential asbestos contamination.

Worksafe has now clarified the extent of the duty under the Regulations.

The duty only applies:

  • when you are planning and carrying out the work; and
  • to the area relevant to the work creating a risk of exposure to respirable asbestos fibres.

This clarification from Worksafe makes it very clear that there is no need to rush out and incur the expense of obtaining a full survey of the property.

As the PCBU you must however consider the potential of asbestos contamination and the risk that any proposed work might have in releasing respirable asbestos fibres into the air and the property.

When engaging contractors to carry out any work at the property, you must give consideration to and take into account the age of the works at the property and give consideration to the potential for there to be asbestos in the building structure of the property and act accordingly.

If you as a committee or Chairman are outsourcing work that as described earlier could risk asbestos fibres exposure, please ensure you are aware of your obligations or feel free to call BBCL if you think we can assist.

 

 

BBCL   2018

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 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.