Owners of unit titles at Aspen Villas in Taupo successfully challenged a long-term management contract set up by the Calvert family who redeveloped the property in 2001.
Property management contracts are a valuable asset, promising a regular income stream. Government was forced to change the rules with effect from 2011 to stop property developers giving themselves favourable management contracts over apartment projects at the early stages of development and then either sitting pretty after onselling unit titles or selling the management rights and generating further profit from the development.
The High Court was told Aspen apartment owners objected to a long run management contract which left Palmer Trading Ltd, controlled by the Calvert family, with potential control over management of Aspen through to 2048. They stopped paying Palmer Trading’s monthly invoices. Aspen Villas operates as a seventeen unit motel. By early 2022, unpaid invoices totalled $190,000 and management fees were accruing at some $6600 per month.
Palmer Trading was given the management contract in 2008, at a time when the Calvert family had majority voting control of Aspen’s body corporate. This initial management contract was for a term of five years, automatically renewable for three further five year periods. Justice van Bohemen ruled the contract was valid for five years only, being the first term ending in 2013. Aspen Villa body corporate rules, as they then stood, put a limit on long-term contracts entered into. It could not enter into contracts of more than five years duration. Any decision to renew had to come back to the body corporate for a new vote.
Aspen Villa owners were left to sort out the downside consequences of Palmer Trading apparently having no right to charge management fees since 2013.
Changes to the Unit Titles Act, effective from July 2011, limited unit developers use of their voting control to set up favourable management contracts. Terms must benefit unit owners, not management. Contracts can be set aside if ‘harsh and unconscionable.’
Body Corporate S90876 v. Palmer Trading Ltd – High Court (10.02.22)
22.034