Tremont
apartment owners in Auckland are not liable as guarantors for the costs of
leasing an apartment for the manager and for the rentals charged on access to
the building’s swimming pool, gym and tennis court, the Court of Appeal ruled. Owners had paid $1.32 million for these costs
over five years.
The Tremont complex is a 106 unit complex built
in St Lukes by Vermillion Wagener Ltd.
Before any sales, and while it owned all the units, Vermillion set up
three valuable agreements.
The first was an apartment lease between
Vermillion, Sage Property Management Ltd as manager of the complex and the
Tremont Body Corporate as representative of all owners. Sage received a thirty year lease of a
Tremont apartment. While expressed as a
guarantee, the Body Corporate effectively became fully liable for all Sage’s
obligations on the lease, with no right of recourse against Sage. These lease costs were found to be some 50
per cent higher than market rates.
Second, a thirty year management agreement was established at an initial
annual fee of $53,000. And third, a 999
year lease was created over Tremont recreation amenities at an initial annual
rental of $100,000. It is the norm in an
apartment complex to have recreational facilities owned jointly through the
Body Corporate as common property. At
the Tremont complex, the swimming pool, spa and sauna, gymnasium, recreation
room and tennis court were privately owned by Vermillion with a rental levied on
the Body Corporate through a guaranteed access agreement to allow use by
individual apartment owners.
The Court of Appeal confirmed a High Court
ruling that the Body Corporate could not be forced to pay the guaranteed lease
costs in respect of the manager’s apartment and the recreational facilities. A Body Corporate is a creature of statute:
the Unit Titles Act. It can only do what
the Act permits. The Act gives a Body
Corporate power to give guarantees, but said the Court, this power can only be validly
used in respect of its statutory duties.
The Act creates no statutory duty on any body corporate to provide a
manager’s apartment or to provide recreation facilities. Body Corporate guarantees of these rentals
were ultra vires and invalid.
Vermillion
Wagener v. Body Corporate 401803 – Court of Appeal (21.07.15)
15.083