Beyond the call of duty

Body Corporates do not have free reign to adopt management schemes, as the High Court recently reiterated in Body Corporate 401803 v Vermillion Wagener Limited [2015] NZHC 285. As statutory entities, their powers are prescribed by the Unit Titles Act 2010.

In the early days of the venture, the body corporate (controlled by the developer) entered several contracts. These served to benefit two companies related to the developer’s sole director and his partner, and resulted in high levies for unit holders. Between 2008 and 2013, the body corporate paid these companies around $1.32 million.

Applying the Unit Titles Act 1972, the Court found on summary judgment that two agreements were ultra vires – they were not “reasonably necessary to enable [the body corporate] to carry out the duties imposed on it by the Act and by its rules”. Broadly, the duties relate to the management and administration of the complex.

Firstly, the lease of an apartment to a live-in manager, with the body corporate guaranteeing the lessee’s liability in full, went beyond the body corporate’s powers. Even if a duty required hiring a manager, there was no duty to accommodate him or her.

Secondly, leasing the amenities – the swimming pool, tennis court, spa/sauna and gym – to another related company was also ultra vires. The agreement provided that the body Corporate would also guarantee the rent. In outsourcing the provision of amenities, the body corporate was held to have acted outside its powers also.

While the facts of this case are certainly unusual, it serves as a helpful reminder that the actions of a body corporate are confined to their statutory duties. Furthermore, unit title holders may want to be alive to the possibility of buying into unnecessarily expensive body corporate schemes.

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