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OIA and body corporate recovery

03 August 2018 - By Thomas Gibbons

Overseas Investment amendments

Property lawyers rejoice! The select committee report on the Overseas Investment Amendment Bill has recommended that the part of the bill requiring practitioners to certify that a transaction complies with the Overseas Investment Act be removed. This removes a compliance requirement from lawyers (and let’s not forget, this was going to be an offence with a serious penalty) and places it where it belongs – on purchasers. There are mixed views on the bill overall, but all property lawyers can breathe a sigh of relief on this point.

Cook and recovery for body corporate maintenance

OIA changes have moved fast. Other law moves more slowly. Almost from the moment the Unit Titles Act 2010 was passed, it was identified that there was a potential conflict between the recovery provisions of s 126 and s 138(4). Eight years on, this issue has (almost) been resolved, through the High Court decision in Body Corporate 199380 v Cook [2018] NZHC 1244.

As many of these decisions do, Cook concerned a leaky apartment building with a deck. Four first-floor units shared the deck, which was also the ceiling of unit S, but entirely within the boundaries of the first-floor units. The body corporate did the works, and then sought recovery from the first-floor owners under s 138(4) of the UTA. Two owners argued that s 126 should apply instead.

Mandatory factors for deciding on recovery

With reference to Body Corporate S73368 v Otway [2017] NZHC 3265, the court held that it was not the case that s 138(4) only applied where s 126 did not apply. However, using the unfortunate language of administrative law, the court said that in considering whether to apply s 126 or s 138(4), a body corporate “must have regard to”:

The purposes of the UTA in s 3, including:

  • The retention of the theme distinguishing common property from unit property (set out in Fraser v Body Corporate S63621 (2009) 10 NZCPR 647 and other decisions, but in my view amenable to criticism and not apparent from the UTA).
  • The purpose of establishing a flexible and responsive regime for unit title governance.
  • The purpose of protecting the integrity of a development as a whole.
  • The objective of ensuring the ongoing management of the development on a socially and economically sustainable basis by the community of individual owners.

The principles derived from the UTA, Otway, and earlier decisions that:

  • When repairs are done under s 138(1), the presumption is that costs should be met by the owner under s 138(4).
  • Consideration of building characteristics, avoiding a ‘one size fits all’ approach.
  • The reality that weathertightness is interlinked and indivisible – everyone is affected by leaks.
  • Departing from allocation based on title when “reasonably necessary to achieve what is fair”.
  • Where there is substantial benefit to other units, the likely appropriateness of recovery under s 126.
  • The appropriateness of recovery by utility interest where there is no substantial benefit to some owners over others.

Comment

The end result was that recovery under s 126 was deemed more appropriate, and the first floor owners were better off than they would have been under s 138(4). The specific decision therefore seems correct. But the implications for other bodies corporate are alarming.

With respect, the prescriptiveness of this assessment is something of a nightmare for bodies corporate, which are often governed by laypeople, and within a context of prior courts allowing that body corporate resolutions should not be subject to “a pedantic or overly critical analysis” (see Body Corporate 198900 v Bhana [2015] NZHC 1620, at [77]).

Setting out that these factors are mandatory means that a body corporate making a decision on whether to seek recovery under s 138(4) or s 126 must go through a number of technical and yet broad brush steps. Further, this test is separate from deciding whether: (a) this is work the body corporate should do; (b) whether the body corporate can actually seek recovery; and (c) whether recovery is practically feasible in the circumstances.

But “must have regard to” is clear and assertive wording. Complex decisions about maintenance responsibilities and recovery just got even more complex.


Thomas Gibbons thomas.gibbons@mccawlewis.co.nz is a director of Hamilton law firm McCaw Lewis. He writes and presents extensively on property law and is author of A Practical Guide to the Land Transfer Act 2017 (LexisNexis NZ Ltd).

Last updated on the 3rd August 2018