Unit Titles Act 2010
This advisory deals with the allocation of responsibility for maintenance (and cost of maintenance) between a body corporate and unit owners.
Body corporate law in this area has been confused for a long time due to overlap and/or conflict between a number of sections in the Unit Titles Act 2010. However, there has now been a Court of Appeal decision, Body Corporate S73368 v Otway  NZCA 612, issued on 19 December 2018, which has provided a reasonably definitive interpretation of the competing sections and their relationship.
Allocation of Responsibility
- The key to this issue is the allocation of responsibility. A Body Corporate has responsibility for maintenance of common property, building elements and infrastructure, under section 138 of the Act. A unit owner has responsibility for maintenance of his or her unit – or, possibly more accurately as far as the legislation is concerned, maintenance of the unit per se is not the responsibility of the Body Corporate and, by default, falls to the owner.
- Historically, an issue has been responsibility for structural elements of the complex, from which all owners benefit but which may be part of or located within a unit: examples are structural elements such as floors, walls and roofs. Also, elements such as utility reticulation for the complex.
- Under the 2010 Act, responsibility for building elements and infrastructure – which includes pipes, water, sewerage drainage, gas electricity and other services or utilities – is the responsibility of the Body Corporate, but only if it serves or relates to more than one unit: section 138 (1).
Allocation of Cost
- As more fully explained below, the Body Corporate has the ability to recover any costs incurred that relate to repairs or maintenance of building elements and infrastructure contained in a principal unit, from the owner of that unit: section 138 (4).
- It also has the ability to recover costs which it occurs where it carries out work which a unit owner has wilfully or negligently failed to do: section 127.
- In addition, it has the ability to recover expenses on other than a utility interest basis where a unit, or more than one unit, benefits substantially more from work than other units: section 126.
Building Element or Infrastructure?
- Otway dealt with the relationship of these sections. Fundamental to this is the question what is a building element or infrastructure? The issue in this respect is that there is a point at which infrastructure (or building elements) become cables or pipes (or other items) which solely serve a particular unit – and responsibility changes – and finding that point has been the issue.
The cause of an issue is often not easily identified and, typically, it is claimed that responsibility lies with the body corporate. The body corporate investigates and incurs costs and it then becomes an issue as to who will meet those costs. The unit owner will be liable for those costs if work carried out by the body corporate is work on building elements or infrastructure “contained in a unit”.
- The interpretation of the Court of Appeal is that there may be items which appear to meet the definition of elements or infrastructure, but they are not building elements or infrastructure for which the body corporate has financial responsibility because they do not relate to or serve more than one unit. In that case the body corporate may apply the cost recovery mechanism under section 138 (4).
- It gave an example –
“A building element is something that is necessary to the structural integrity or external aesthetics of the building or the health and safety of occupiers and users of the building. The deck membrane here is only part of the overall storm water and weathertightness system necessary for the structural integrity of the building and the health and safety of owners and users. The building element here is the entire storm water system which has gone on to cause weathertightness issues. First, that system cannot be said to be “contained” only in the appellants’ units here as we outline above. And secondly and importantly, the storm water system repairs, being crucial to the integrity and value of the entire development, benefit all owners. For these reasons, s.138 (4) [allocation of cost to an individual owner/unit] does not apply here.”
- Where a body corporate carries out work which it is its responsibility to carry out, the usual rule is that cost is shared among owners in accordance with utility interest. Section 126 allows the body corporate to depart from that approach where there is disproportionate benefit to one or more owners. Again there has been some confusion as to the proper approach and different approaches adopted by the courts.
- According to the Court of Appeal, section 126 will apply where there is “a substantial benefit” to one or more units, or one or more units benefits substantially more than others. This is described as “the gateway test”.
- At that point, if the work benefits a unit “by a distinct and ascertainable amount”, the owner of the unit is liable for the cost. If that cannot be established, then cost can be apportioned among units that derive a substantial benefit from the work rateably according to the utility interest of those units, but a court has a discretion in that case to apportion as it thinks fit, having regard to relative benefit to those units.
- What is important to note at this point is the attitude of the Court of Appeal. Consistent with the view expressed above, it has taken the view that anything necessary to the structural integrity or external aesthetics of the building or the health and safety of occupiers and users of the building benefits all – or does not benefit the units on which work is carried out substantially more than it benefits others. In that case the gateway test is not satisfied, and it is not appropriate for a body corporate to consider whether a unit has benefited by a distinct and ascertainable amount or whether some units have benefited substantially more than others.
Default by Owner
- Where a body corporate carries out work that it is required or authorised to do and the work was rendered necessary by reason of any wilful or negligent act or omission on the part of, or any breach of the Act, the operational rules or any regulations by, a unit owner, section 127 authorises the body corporate to recover the cost from the owner concerned.
- Where issues tend to arise in this respect is that section 80(1)(g) of the Act places responsibility on the owner of a unit to repair and maintain the unit and keep it in good order to ensure that no damage or harm, physical, economic, or otherwise is or has the potential to be caused to the common property, any building element, any infrastructure, or any other unit in the building. Where want of repair is identified in relation to a unit, it is common to hear argument that the responsibility for repair falls on the owner. Where the owner fails to do so, the body corporate carries out the work and relies on section 127 to recover the cost.
- Once again, the position adopted by the Court is that where the requirement for repair can fairly be said to lie within the responsibilities of the body corporate (structural integrity, etc) – or is due to design or construction defect – then costs are not recoverable under section 127.
- A requirement that is often overlooked is that the work must be work which the body corporate is required or authorised to do. If the only consequence of an owner failing to carry out work is that his or her unit becomes dilapidated, then the body corporate has no authority to act. As both section 127 and section 80(1)(g) make clear, there must be impact on the elements for which the body corporate has responsibility or on other units before the body corporate is authorised to step in. But, as the case law is also tending to make clear, there are likely to be few occasions where it cannot be argued that such impact does not exist. Examples might be –
- want of repair that creates a fire hazard;
- impact on infrastructure/services;
- want of repair that impacts on the aesthetics of the complex;
- want of repair that places the complex in breach of a resource consent or the Building Code.
Which Section Applies?
- A final question is the hierarchy of these sections. As the Court sees it, section 138(4) is subsidiary to sections 126 and 127, and not an alternative as other courts have previously suggested. It only applies to repair work done by the body corporate on elements within a unit that are not building elements or infrastructure or building elements where sections 126 or 127 do not apply, such as where the need for repair arises from default by the owner or the repair does not benefit any other owner. The view of the Court seems to be that where there is any suggestion of benefit to other owners, then section 138 (4) does not apply.