"Buyer Beware" When Buying Apartments

A recent High Court decision [1] (PDF) has confirmed that the ownership of an apartment as part of a unit title is not “all for one, one for all” when it comes to decision making.  The wishes of the majority can override the interests of a minority.

A complex of 30 residential units experienced weathertightness issues.  The owners sued those responsible and recovered money, which they then put to the necessary repairs.  The High Court sanctioned a scheme to carry out the necessary repairs.  Problems soon occurred when the owners discovered that the estimated cost of $6 million would blow out for various reasons to a staggering $13 million.

Two owners challenged the ability of the body corporate to levy owners for the increased amount.

The High Court rejected all the owners’ submissions, including that: the levies were ultra vires, i.e. unlawful; the body corporate committee failed to communicate adequately with owners; the work was not sanctioned by the High Court’s scheme; and the body corporate had failed to manage the expenditure.

The High Court found that the levies had been lawfully made and communicated to the owners, and that the work had increased in cost due to areas of work which could not have been anticipated, noting that it was “…difficult to see what motive the committee would have had to spend the unit owners money in a profligate manner”.

The High Court commented that the (financially disastrous) position these owners found themselves in resulted from two factors:

  •  the inherent danger that weathertightness repairs will exceed estimates; and
  • a more fundamental reason, the fact that the owners entered “…into a form of property ownership in which the decisions by a majority of unit owners can bind a dissenting minority”

It is this factor which prospective purchasers of unit title property must consider closely before purchasing.

In a further financial blow for the owners who failed to set aside the levies, the High Court in a later judgment [2] (PDF) accepted that the Unit Titles Act 2010 enabled the body corporate to recover indemnity (i.e. full) costs from the two owners through their unsuccessful challenge to the validity of the levies imposed by the body corporate to meet remedial work which fell within the scheme approved by the High Court.

The moral of this story is: caveat emptor still applies, even more so when buying an apartment ownership in a unit title complex.

[1] Body Corporate 207650 v Speck & Ors CIV-2015-404-3079 [2017] NZHC 966

[2] Body Corporate 207650 v Speck & Ors CIV-2015-404-3079 [2017] NZHC 1636