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.