Dentons US LLP

03/01/2021 | News release | Distributed by Public on 02/28/2021 20:14

Major maintenance and alterations to body corporate buildings (New Zealand)

March 1, 2021

Body Corporate Number 203780 v Bell [2020] NZCA 665 (Bell)

Introduction

The Court of Appeal's judgment in Bell was a step in the right direction for flexible solutions to major maintenance works, such as recladding. Perhaps most encouraging, the Court explicitly endorsed the ability of a unit owner to reduce its cost of remedial works by making alterations to their unit - in this case, removing balconies - provided that body corporate consent is obtained by a majority vote.

The judgment emphasises the core purpose of the Unit Titles Act 2010 to provide a 'flexible and responsive regime for the governance of unit title developments', which must be balanced with the 'maintenance of the integrity of the development'.

Background facts

This case involved a development of four townhouses with the common issue of water ingress, resulting in the need for recladding. As part of the recladding works, three of the owners applied to the body corporate for consent to remove their balconies, as this would reduce the cost of recladding for them. An extraordinary general meeting (EGM) was convened at which the owners voted in favour of removing the balconies - three to one. The fourth owner, who did not want their balcony removed and voted against the others being removed, commenced court proceedings.

Decision

The High Court found in favour of the fourth owner to stop any balconies being removed, even though the body corporate's resolution did not require the fourth owner to have their balcony removed. The Court of Appeal overturned that decision.

The Court of Appeal held that the body corporate's resolution to allow the removal of three balconies was valid. The Court also held that the plaintiff had failed to seek minority relief within the time limit of 28 days following the resolution.

Key points

  • The Court of Appeal discouraged bodies corporate from applying to the court for a s 74 scheme, and unnecessarily incurring legal costs, if it can reach a decision by resolution. Oddly enough, a judgment has just issued from the High Court in which the relevant body corporate could have taken heed of this advice (Re Body Corporate 314745 [2021] NZHC 60). In that case the body corporate had unanimously voted in favour of a scheme to reclad the building and then applied to the High Court for a s 74 scheme. The High Court approved the scheme in all respects and you have to ask whether this was nothing more than an expensive and unnecessary rubber-stamping exercise.

    We believe that, in most circumstances, a body corporate is able to carry out maintenance work without the need to go to court, no matter how extensive (recladding, rebuilding etc), provided that the body corporate has obtained the necessary mandate from its owners whether through a long-term maintenance plan, a resolution at an EGM or elsewhere.

  • A unit owner has a broad scope to make alterations to their own unit, provided that the body corporate consents by a majority vote at an EGM. The scope of possible alterations includes:

    1. Alterations that materially affect another unit;

    2. Alterations to building elements that serve more than one unit; and

    3. Alterations to building elements that the body corporate would otherwise have to repair.

    A unit owner could conceivably 'alter' its unit by completely demolishing and rebuilding (at the extreme end) and we have advised on these situations in the past. Importantly, we do not recommend building alterations that extend beyond the boundaries of principal unit involved (even if the adjacent land is an accessory/principal unit owned by the same person), as this would likely trigger a requirement for a resurvey and other implications. Legal and surveying advice would be needed in those circumstances.

  • An owner who votes in the minority on a matter of body corporate maintenance or alterations can apply to the court for relief where the outcome is unjust or inequitable - but must do so within 28 days following the resolution.
  • A body corporate cannot delegate its maintenance duties and powers to a unit owner. The body corporate must enter into maintenance contracts in its own name, even where the costs of repair are largely levied against one owner and it may seem easier for that owner to carry out the repairs themselves. This principle links back to the body corporate's role in maintaining the integrity of the unit development.
  • Ordinarily a unit owner would carry out their own alterations, however, the Court's judgment in Bell permitted the body corporate to remove the balconies on behalf of the owners. Our view is that bodies corporate should be cautious if considering taking on responsibility of an owner's alteration works, because it exposes the body corporate to liabilities under the building contract.
  • A body corporate does not have power to alter a unit without the owner's authority. This echoes the fundamental principle that a body corporate cannot force a unit owner to sell.

Our advice

No matter what a body corporate does in terms of major maintenance works or alterations, it is crucial to keep all affected insurers and mortgagees fully informed. Read the body corporate rules and the relevant sections of the Unit Titles Act 2010 to make sure that you understand the body corporate's powers and duties around maintenance and alterations. Ensure that all major decisions are voted on properly, with administrative matters taken care of by a body corporate manager or lawyer.

If in doubt, seek legal advice up-front. Ultimately this could save you significant time and money, especially where getting it wrong could mean ending up in court.