The Problem with Unit Titles

Apartment or townhouse living brings together people from a variety of backgrounds and circumstances who have little in common save for their address.  The widely differing circumstances of owners within such developments can result in tension and conflict when there is a problem with the building they share ownership in.

Background 

Ownership in apartment or townhouse developments will usually be governed by the Unit Titles Act 1972 ("the Act").  Each owner owns his or her own unit and may also have shared ownership of any areas of common property such as, entranceways, gardens and lifts.  Common property is owned and managed by the Body Corporate which is a separate legal entity made up of all of the unit owners.

There are no rules as to how ownership of a building is allocated.  In some developments the external walls and roof of a building may form part of the common property whilst the internal walls of the units are owned by the unit owners.  In other developments external walls or roofs or balconies may be part of the individual unit owner's unit.  In these situations it is usual for the Body Corporate rules to provide that the Body Corporate is responsible for repair and maintenance of the exterior of the building.  However if the rules do not deal with this, real problems can arise.

How the ownership of a building is divided up becomes an extremely important consideration in the context of leaky buildings.  If a multi-unit building is leaking and needs to be repaired, a number of important issues arise.  Who is responsible for repairing the building?  What is the extent of the repair work required?  Who is going to pay for the repair work to be done?  Is all the repair work going to be carried out at the same time by the same contractor or should individual unit owners be left to carry out their own repairs?

The nature of damage caused as a result of a leaky building is that water penetrates the exterior cladding of the building and causes rot to the structure of the building.  If there is a risk to the structure of the building this has consequences for all of the owners of units within the building.  Even if the structure is not under threat and the water has not yet caused rot to set in, repair work will almost always be required to the exterior of the building.  In these circumstances, in order to preserve the value of each owners asset it is desirable that any repair work results in a uniform look, and that the quality of finish is the same.  How repair work is going to be carried out, by whom and at what cost is often a source of contention amongst unit owners.  If the area of the building in need of repair is common property and therefore owned by the Body Corporate or if the rules provide that the Body Corporate is responsible for the repair and maintenance of the affected areas then there is at least a mechanism for the Body Corporate to make decisions about repair work.

The rules will usually provide that any such expenditure can be approved by a [75%] majority vote.  The Act gives the Body Corporate the power to levy and collect from owners funds to cover the cost of such work.  The Act also gives Body Corporate the power to bring proceedings against any owners who do not pay their levies.  Whilst these provisions will not always meet with the approval of those owners forced to comply it does at least provide a way forward.

More complex problems arise however when the property in need of repair is not exclusively owned by the Body Corporate or the rules do not empower the Body Corporate to make decisions.  In these situations an owner who refuses to cooperate with a proposed repair programme can potentially put the whole development at risk.

What then are the options for a Body Corporate faced with a building which needs to be repaired and a unit owner who is refusing to cooperate?  Unfortunately under current legislation the only option is for an application to be made to the High Court.  This was illustrated in recent High Court decision Body Corporate 173457 v Fei Dunn & Ors.  In this case an apartment building was suffering water ingress and required substantial repair work to both the common and private areas.  The Body Corporate considered that all of the work should be treated as a single project undertaken by one contractor and the owners levied for the cost.  In this case the Body Corporate was only responsible for maintaining the roof, maintaining and repairing the cladding on the four sides of the complex which fronted onto common property.  Maintenance and repair of the cladding of parts of the building facing into individual decks and the decks themselves were the responsibility of the unit owners.  As a result, the Body Corporate could not require any unit owner to contribute to work required to be done on his or her private area such as the deck and the walls facing into the deck.

The Judge noted in his judgment that there was no "physical demarcation" between these private areas and the common areas so that repairs to the common property would necessarily involve repairs to private property.

Water ingress had caused deterioration of structural elements of the building.  In addition, decks attached to various units had or were likely to fail as a result of the poor design and construction.  Evidence before the Court was that unless the remedial work was carried out, water ingress would cause a deterioration of the building generally and a reduction in value of all units if not repaired.

The Judge was satisfied that because of the close connection between the work required to the common and private areas it was essential for the good of both the Body Corporate and the individual unit owners that all the work be carried out at the same time and to the same standard. The Judge accepted that this could not be assured if individual unit owners were permitted to undertake repairs to their own units as and when they wished.

The Judge therefore ordered, pursuant to s48 of the Unit Titles Act 1972, a scheme whereby the Body Corporate would have the power to ensure that the work required to both the common and private areas was undertaken and completed in a good and workmanlike fashion and that the money required to meet the cost of repairs was to be collected from each unit owner in proportions as determined by the Body Corporate.  The Body Corporate was authorised to levy and collect from each owner such money as may be necessary to undertake and complete the works to private property.

This case highlights the difficulties faced by many Body Corporates in having repairs carried out to buildings damaged by water ingress. The delays caused as a result of an inability to require the work to be carried out can result in unnecessary legal costs and increased repair costs as a result of further damage being caused while repairs are delayed.

The Act is set to be replaced by the Unit Titles Bill that is before Parliament.  It is intended that the new Bill will make managing unit title developments easier and more efficient. The proposed amendments include:

• The body corporate will own the common property.  This will enable it to act on behalf of all the unit owners for the good of the development as a whole in terms of repair and maintenance;
• The removal of a unanimous votes for a body corporate to make decisions.  A majority of 75% agreement will now be enough to pass a body corporate decision;
• All Body Corporates will have to create a long-term maintenance plan, to protect the long-term value of the property.  This will allow unit owner's to plan, and pay for, maintenance over a long period of time;
• Disputes will, initially, be dealt with through mediations and arbitrations in the Tenancy Tribunal, rather than through the Courts.  This will make resolutions faster and cheaper;

It is to be hoped that the proposed changes will take some of the stress and cost out of owning an apartment or townhouse.

© Harkness Henry
Email: Kirsty.McDonald@harkness.co.nz
Website: www.harkness.co.nz

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• - Operation of a body corporate and corporate secretary

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