August 21, 2023
The Court of Appeal recently delivered judgment in Body Corp 406198 v Property Opportunities Ltd  NZCA 302. Member David Bigio KC acted for the Body Corporate, whose appeal was allowed in part.
The appeal related to a unit title development in Auckland known as “Bianco Off Queen”, a two-tower block development containing residential apartment units and other units used as a hotel.
The Body Corporate brought proceedings challenging the validity of a management agreement entered into between the Body Corporate and the current building manager’s predecessor. The Body Corporate also claimed that the building manager had been unjustly enriched.
The agreement granted the building manager an exclusive right to provide letting services for a hotel/short-term accommodation service from the site. After the building manager changed ownership, the Body Corporate became concerned that the agreement improperly required unit owners to subsidise the building manager’s running of the accommodation services , in breach of the Unit Titles Act 1972, and that the provision in the management agreement which required the Body Corporate to pay a contribution to the rental cost incurred by the building manager for a management unit was also ultra vires on its own.
The High Court found that the agreement’s provisions that gave the building manager exclusive rights to provide the letting and hotel management services were ultra vires the Unit Titles Act. But the Judge was not satisfied that the agreement as a whole, or the clause requiring the Body Corporate to pay rent contributions to the building manager (“subsidy clause”), were unlawful. The Body Corporate appealed.
The Court of Appeal held that the High Court was wrong to find the subsidy clause was not unlawful. It held that the Body Corporate had invalidly bound itself to an exclusive letting regime and, as the subsidy clause was directed to providing compensation for the commercial unit used for that regime, it too was unlawful.
The Court acknowledged that while a Body Corporate is at liberty to engage a manager on terms it considers appropriate, it can only bind itself to do something that is referable to its lawful powers and duties. By purporting to bind itself to an exclusive letting service, and to pay the rental cost associated with it, the Body Corporate acted outside its powers.
However, the remainder of the agreement was lawful. The unlawful provisions it contained could be removed without consequence for the balance of the Body Corporate’s scheme. This meant that certain duties and services to be performed by the building manager could continue. The Court also referred the unjust enrichment claim back to the High Court.