Unit titles - Would you join the "club"?

Owning a unit title property is similar to joining a club.  Considerations such as how well run the club is and what the club rules are will influence whether (or not) you might want to join the club.  In this article, we summarise a recent case that highlighted this message and the need to understand the difference between owning a unit title property compared with other types of property ownership arrangements.   

Message from the High Court

The reality is that owning a unit title property can be a lot more restrictive than owning either a freehold or even a cross lease property.  While owners are given exclusive rights over their units, each unit owner must adhere to the Unit Titles Act 2010 (the Act), Unit Title Regulations 2011, body corporate operational rules, and owners must also work alongside the body corporate to help run and carry out an effective unit title development.

In Wheeldon v Body Corporate 342525 the High Court stated:

 “…people who want to be able to choose how and when they might repair building elements should carefully reflect on whether unit title ownership is appropriate for them.”

This case dealt with a repair and maintenance issue in a unit title development that had 22 individual units set out in a “wedding cake” design.  The unit title development needed extensive repairs and maintenance to the whole development to bring it in line with building standards.  The estimated costs to complete the extensive works were around $3,000,000. 

Five unit owners opposed the works and the subsequent levies raised to cover the works.  These opposing unit owners brought a case to the High Court seeking a declaration and injunctive relief relating to the scope of the remedial work. 

In determining the scope of the remedial works the Court went “back to basics” by looking at the intention of the Act.  In particular, the Court reviewed the purpose of the Act, which is set out in section 3, and highlighted subsection 3(d) which states “…to protect the integrity of the development as a whole” . In reviewing the purpose against the factual background of the case, the Court found that the body corporate was entitled to repair the whole building without first giving individual unit owners the opportunity to effect their own repairs. 

The Court then moved on to consider section 138 of the Act, which sets out the body corporate’s duty to repair and maintain building elements and infrastructure that relate to or serve more than one unit.  In looking at whether the criteria under section 138(1)(d) of the Act was met by the body corporate, the Court referred to the Re Bell case.  In this case it was found that the merits of the body corporate’s proposed work should be determined by the affected owners, as they have personal knowledge of the matter.  The matter should not be determined in Court; the Court can only decide on whether the correct procedure was undertaken in passing the resolutions and the material that could justify such decision.

It was found in this case that the body corporate had sought an expert opinion, which was provided to it in good faith, and the body corporate acted on that opinion.  It therefore falls to the body corporate to decide how to act, whether via a holistic solution put forward by the defendants or a targeted approach supported by the plaintiffs.

The next question then for the Court was whether the decks of levels 4, 3 and 2 were building elements and whether they related to or served more than one unit.  The Court very simply and precisely determined that the decks were building elements and referred to the interpretation section of the Act, in order to arrive at their conclusion.  Following this, the Court went on to determine the meaning of “relate to”. 

The Court adopted the meaning as set out in Young & Ors v Body Corporate where Harrison J stated:

“Something is incidental if it naturally attaches or is causally relevant to something else.  The phrase “relates to” has a similar meaning of reference to or concern with.”

The Court therefore found that the work did not have to just physically affect more than one unit to meet the criteria under section 138(1)(d).  There could be an economic impact on the other units if the work was not completed to the building elements and infrastructure as this would in turn ultimately have a physical impact on the other units, albeit at a later point in time. 

In that sense, and in applying the evidence from the experts, the building elements related to more than one unit as the inevitable consequence of the “wedding cake” design meant that any water leaking from a deck would migrate vertically and horizontally through the building structure and in turn affect all units of the development.  The Court also found that the small in-fill panels in certain units, although they were within the boundary of each unit, related aesthetically to the other units and should be replaced as part of the whole repair and maintenance exercise.

The Court determined that the work to be carried out was essential to bring the building up to standard.  The Court did exclude some of the improvements, such as double glazing, and stated that these should be presented to owners as optional extras.  This determination was qualified by the Court on the basis that should the relevant local authority issue a building consent for a reduced scope of work than the work that was contemplated, then the body corporate would need to consider its position further.

Unit title ownership

This case highlights the often complicated nature of unit title property ownership.  There are many more aspects to consider when owning a unit title property, compared with owning a freehold property.  It is important to understand, as both an owner and a potential purchaser, your roles and responsibilities under the Act, the Unit Title Regulations 2011 and also the body corporate operational rules of your unit title property. 

While this case deals with repair and maintenance issues, there are number of other matters that the body corporate is responsible for and a number of other matters that the body corporate can control.  For example, the body corporate can limit the number of pets you can keep, or whether you are even allowed any pets at all. 

When buying a unit title property or if you currently own a unit title property, we believe it is crucial to understand your rights and responsibilities as a unit owner, and to also understand the role and obligations of the body corporate.  If you are unsure of these matters or would like further advice on any issues you may have, please do not hesitate to contact a member of our Property Team.

If you would like further information please contact Dale Thomas on 07 958 7428.