Majority rules? A closer look at body corporate governance
We recently commented on proposed changes to the Unit Titles Act 2010 (Act), which include a focus on more robust body corporate governance.
If the Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Bill (Amendment Bill) is enacted, it is hoped that the prescribed code of conduct for body corporate committees will minimise the number of time-consuming and costly disputes highlighted by the case of Foreshore Equities Ltd v Body Corporate 396688.
The Parkview and the carparks
The case involved a majority owner pushing through a body corporate resolution approving the lease of common area carparks to an entity related to that majority owner – without providing details of the lease terms, or identifying the proposed lessee. The minority owners objected and asked the High Court to make an order under section 215 of the Act to overturn the resolution. The High Court agreed.
- The Parkview on Hagley (Parkview) is a mixed-use unit title development including 40 units operated as a hotel letting pool. The hotel operator is part of the VR Group of hotels and resorts (VR).
- VR, and its associated companies, own the majority of the hotel letting pool units – with only eight units being owned by independent parties (the Minority Owners).
- The Body Corporate manages the common areas of Parkview, including the common area carparks. VR (and associated companies) hold majority votes at Body Corporate meetings.
- In February 2020, the Body Corporate proposed a resolution to lease the common area carparks to the VR Group – apparently so these could be used by hotel guests. Unit owners were asked to confirm the resolution by signing and returning the provided form.
- Some of the Minority Owners asked for additional information including a valuation, the proposed lease terms, details on how the proposed lease would affect the Body Corporate and the Parkview, and information on any resource consenting implications.
- The Body Corporate did not respond. Shortly after, the Body Corporate informed unit owners that the resolution had been passed (presumably by the majority votes of VR and its associated companies).
- The Minority Owners applied to the High Court to overturn the resolution under section 215 of the Act.
- The Court agreed that the resolution was not “just and equitable” to the Minority Owners and ordered it be overturned. In particular, because key lease details were not disclosed to the Minority Owners, the Court held that finalising such details would have been left to those who manage the Body Corporate – and “the minority owners would have been locked into the outcome of the designated resolution, while the majority owner could finalise important details on whatever terms it saw fit”.
While the Minority Owners did manage to overturn the resolution, they required a High Court application to do so, and the whole process will have involved considerable cost, time, and effort (for both parties). Cases like this certainly give weight to the argument in favour of changes to unit title law to ensure better standards of body corporate governance (and reduce the need for applications to the Court for relief).
If you have any queries on the application of Section 215, or body corporate governance, the Amendment Bill, or unit ownership in general, please contact one of our experts.