Douglas V Body Corporate 102029 [2024] NZHC 3695

This case concerns competing applications to the High Court from the owners of a townhouse unit title development in Auckland. 

The majority of owners sought the cancellation of the unit title plan under s 188 of the Unit Titles Act 2010 (UTA) and an order for sale of the base land under s 339 of the Property Law Act 2007. The minority of owners wanted to keep the unit title plan in place and rebuild the development under s 74 of the UTA. 

The case speaks to the core purpose of the UTA: to facilitate a socially and economically sustainable framework for owning land. 

Background 

The unit title development in question consists of seven residential units, which are in a serious state of dilapidation. Amongst other problems, watertightness and structural issues have created health risks for the occupiers and rendered the development uninsurable. The seven owners have, for the past decade, been unable to agree on the best way forward. 

Four of the unit owners wanted to cancel the unit title plan and sell the entire property. The body corporate had received one offer from a developer to buy the property ‘as is’. The other three owners wanted to demolish the development and rebuild it like-for-like. Everyone agreed that it was not economically possible to repair the development without a complete demolishment and rebuild. 

To resolve the deadlock, the majority owners applied to the Court to order the cancellation of the unit title plan under s 188 of the UTA and sale of the base land under s 339 of the Property Law Act 2007. The minority owners responded with their own application to the Court for a scheme to rebuild the development under s 74 of the UTA.

The Court acknowledged that both sets of owners had compelling reasons for their points of view. 

The Court was required to determine whether it would be just and equitable to cancel the unit plan and make the order for sale, or whether it was more appropriate to rebuild the development.

High Court decision

The application for cancellation of the unit title plan was considered first. An order to rebuild the development could only be granted if the unit title plan was not cancelled.

The Court found that it was just and equitable to cancel a unit plan under s 188 of the UTA given that the buildings are no longer fit for purpose, would require a complete rebuild, and there is significant hostility between the majority and minority owners.

The Court considered a wide variety of factors before arriving at the above conclusion. These factors are set out below.

• The scope of the work needed to make the development fit for purpose would require a complete demolishment and rebuilding of the common property and each individual unit, including those owned by the majority owners.
• There was no definitive economic advantage to either option. Evidence that the owners would be better off in the long run if the development was rebuilt was eclipsed by evidence that the majority owners could not raise the funds to complete it in the first place.
• The Court considered that there was more uncertainty and risk involved with the rebuild option (particularly in relation to costs of the work, delay and eventual sale price of the units). That risk would be borne by the unit owners if an order to rebuild was granted, but could be passed on to a developer if an order to cancel was granted.
• The body corporate would effectively need to adopt the role of developer in order to complete the necessary work if an order to rebuild under s 74 were granted. This would require the ongoing administration of the body corporate, and the Court alluded to the difficulty in achieving this given the dysfunction and enmity between the minority and majority owners.
• The judgement cited case law where a unit title plan had been cancelled under s 188, despite objections from a minority of owners. No such authority for ordering a complete rebuild scheme under s 74 without unanimous owner consent was cited.
• The majority interest favoured cancellation.

Given the Court’s opinion that it was just and equitable to cancel the unit title plan under s 188 of the UTA, it followed that it also considered that a sale order under s 339 of the Property Law Act 2007 was appropriate.

Conclusion / Key takeaways

An order under either s 188 or s 74 of the UTA is a measure of last resort. A court has a broad discretion to grant either order, and in both cases will consider the human consequences of doing so. In this case, the question of whether the unit title development should be cancelled or rebuilt came down to a question of causing the least hardship.

Courts are generally very reluctant to impinge on property rights. While the cancellation of a unit title plan will extinguish the property rights of the owners, in this case that concern was mitigated by the fact that retaining those rights would have required the owners to undertake an expensive, risky and costly redevelopment of the entire site.

The Court considered that an order to rebuild the development under s 74 of the UTA would cause more harm to the majority of owners than an order to cancel the unit title plan under s 188 of the UTA would cause to the minority.

Douglas V Body Corporate 102029 demonstrates the broad discretion afforded to a court in deciding whether to grant an order under both s 74 and s 188 of the UTA. As such, any unit title owners seeking one of these orders (with or without unanimous consent) should seek legal advice early in the process to discuss their options and work through how best to frame their application to the court. 

This article was written with the assistance of Amy Christian, a Solicitor in our Real Estate team.