How are repair costs apportioned under section 74 schemes?
A significant source of disputes in unit title developments is the apportionment of repair costs.
Many bodies corporate seek to avoid disputes of this kind by making applications to the High Court under section 74 of the Unit Titles Act 2010 for orders settling a repair scheme. A repair scheme clarifies the basis upon which repair costs will be levied before the work begins and thereby reduces the risk of disputes arising during the work. It also means bodies corporate avoid the difficult task of determining whether repair costs should be reapportioned to particular owners.
But how have the Courts been deciding section 74 scheme cases? Is there a pattern in the scheme decisions to date which provides guidance as to how the Courts are likely to apportion repair costs in the future?
The leading case is Tisch. It was decided under section 48 of the Unit Titles Act 1972, the equivalent of section 74 under the Unit Titles Act 2010. The Court of Appeal in Tisch stated a scheme should aim to balance the interests of each unit owner and arrive at terms which achieve the fairest outcome for all. It also stated schemes should not depart from the Unit Titles Act and body corporate rules any more than is necessary to achieve fairness between the owners.
Under the Unit Titles Act 1972 Act the body corporate was responsible for the repair of common property and arguably any work to unit property that was incidental to common property repairs. Otherwise, the owners were responsible for the repair of their own unit property. In the scheme cases under the 1972 Act, which largely relate to weathertightness repairs, the Courts generally apportioned repair costs in accordance with these ownership responsibilities.
- In Tisch, the Courts decided the cost of repairs to a first floor balcony was payable by the owner of that balcony and not the unit below.
- In Endeans, the Courts held repairs to the exterior walls and roof of a multi-storey building should be paid by all owners on the basis of unit area as anticipated by the body corporate rules.
- In Met/Soho the Courts decided repairs to the walls of apartments on top of a commercial building that were within common property should be paid by all owners according to unit entitlement.
- In Manchester Securities the Court initially determined a penthouse owner was to pay for repairs to his unit and contribute to the cost of common property repairs below, to an amount capped by his unit entitlement. However, after cost blowouts and delays by the penthouse owner the Courts amended the scheme to the default position whereby the penthouse owner was to pay for the repairs to his unit and contribute to the costs of the common property repairs below on a utility interest basis, without any limitation.
The Unit Titles Act 2010 extends the repair obligations of the body corporate so it is required to repair common property and all building elements relating to or serving more one unit. It also expands the ability of the body corporate to reapportion repair costs to particular owners at the conclusion of the repair project. To some extent, this is reflected in the scheme cases under the new Act.
- In Shangri-La the Court considered repairs to a building façade comprising both common and unit property. The work provided similar benefits to all apartments but the utility interest of the penthouse owner was significantly higher than the other units. The Courts decided that in order to achieve fairness, 50% of the costs should be apportioned on an equal basis and the other 50% on a utility interest basis.
- In Balfour Rd and Greenwich Park the Courts decided the cost of recladding the walls on end units in blocks were, where the walls comprised unit property, payable by the owners of the units, and where the walls comprised common property by all owners on a utility interest basis.
- In Uptown the Court considered an amendment to a scheme to include the cost of repairs to newly discovered fire defects. The Courts decided cost apportionment to all owners on a utility interest basis was consistent with the relevant provisions of the 1972 and 2010 Acts and the body corporate rules. It was also fair to the owners.
- In The Links the Court approved a body corporate proposal to apportion all weathertightness repair costs according to utility interest in circumstances where the balconies and at least part of the exterior were within unit property but the work benefitted the building as a whole.
The scheme cases are decided on their own facts, so there are no hard and fast rules. The most consistent thread in the case law is that repair costs should be apportioned in a manner which is consistent with the reasonable expectations of owners at the time that they purchased. This requires an assessment of the Unit Titles Act and the body corporate rules.
In respect of weathertightness repairs, cost allocation will often be based on the separation between unit and common property, although in larger developments where this is impractical or there is uniform benefit arising from the works the Courts may adopt utility interest as the starting point. In cases involving fire or structural repairs the Courts are also more likely to adopt apportionment on a utility interest basis.
As always, it is advisable for bodies corporate to take legal advice on any cost apportionment issues.
Grimshaw & Co regularly acts for bodies corporate. We are experts on the Unit Titles Act and are well placed to advise your body corporate on the validity of body corporate rules, repair and maintenance obligations, section 74 schemes and provide other specialist advice. For assistance please contact Gareth Lewis on (09) 375 2376 or firstname.lastname@example.org