It has been a high stakes strategy by owners of Auckland’s Parnell Terrace apartments in their dispute over increased ground rents, a bluff now called with the Court of Appeal ruling Ngati Whatua can take control of the development and potentially cancel owners’ rights should ground lease rentals continue in arrears.
Several purchasers of Parnell Terrace’s apartments, built two decades ago on the Strand at Parnell, have been bankrupted by leaky building remediation costs and unexpected increases in lease costs.
Attempts to force ground-rent recovery costs on to Ngati Whatua failed.
Parnell Terrace sits on land owned by Ngati Whatua, received as part of its Treaty settlement. In a savvy commercial move, Ngati Whatua leased the land on a 150 year lease with nominal rental payments for the first fifteen years. This gave commercial developers time to develop the site, cashing up by on-selling a completed project.
When the rent holiday ended, an annual ground rent payment kicked in at six per cent of the current freehold market value of the land, with reviews of ground rent every seven years.
The Court of Appeal was told Parnell Terrace’s eighty-odd apartments are occupied under the Unit Titles Act. Parnell’s body corporate is lessee under the 150 year lease and has primary responsibility for ground lease payments to Whai Rawa LP, a commercial subsidiary of Ngati Whatua.
Parnell’s separate apartment owners are members of the body corporate. They are guarantors of their body corporate’s obligation to pay ground rent.
Tensions rose after a 2018 ground rental review. The annual ground rent doubled to $1.3 million. This cost is divvied up between apartments, with payment due to the body corporate for onward payment to Whai Rawa.
The Court of Appeal was told owners of fourteen of Parnell’s 81 apartments defaulted when faced with the double-whammy of remediation costs and increased rent. Three declared bankruptcy.
To put pressure on Whai Rawa in its challenge to the ground rent increase, Parnell’s body corporate had owners agree to re-jig rental payments; each would pay Whai Rawa direct for their share of ground rent. Whai Rawa would have to chase up defaulters; it was no longer a body corporate problem.
Whai Rawa’s response was swift. It applied to have independent administrators put in control of the body corporate. It threatened to cancel the unit title plan, taking over ownership of all apartments at Parnell Terrace.
This stand-off reached the Court of Appeal.
The court ruled Unit Titles legislation imposes primary responsibility for payment of ground rent on to each body corporate. Appointment of administrators to Parnell’s body corporate was appropriate.
To stop collecting ground rent contributions from apartment owners as a negotiating tactic in the dispute over rent increases was a deliberate and considered breach of statutory duty justifying appointment of administrators to Parnell Terrace’s body corporate, the court said.
Body Corporate 201036 v. Whai Rawa Lands LP – Court of Appeal (7.05.24)
24.115