The Auckland High Court has issued its decision on the management agreement for the Sentinel Apartments in Takapuna. The body corporate was challenging the management arrangements put in place by the original developer.
The Court concluded that the management agreement is harsh or unconscionable in terms of section 140(5) of the Unit Titles Act 2010 and should be terminated. This was because of:
- its ultra vires clauses (as described below);
- the potential length of the its term; and
- the difference in termination rights.
The provisions of the management agreement that were ultra vires concerned the exclusive letting service, concierge service, residents service and real estate sales service. The term and termination clauses were not held to be ultra vires. Numerous clauses in the body corporate rules and the management agreement that were also challenged were intra vires i.e. acceptable. Although the ultra vires clauses could be severed, that did not assist the manager here given the finding under s140.
The body corporate had also alleged breach by the original developer of its fiduciary duties and dishonest assistance by the manager in that breach. That was not accepted by the court. However the developer was found to be a promoter who owed fiduciary duties to the body corporate which were breached by causing the body corporate to enter into the management agreement. SML was potentially assisting this breach of fiduciary duty. The judge held the developer had a duty not to engage in transactions to the detriment of the interest of the body corporate. In dealing with another company controlled by the same director this duty was breached.
The appeal period has not yet expired.
The decision could affect body corporates, developers, managers, owners of manager’s apartments and agents who act on the sale of management rights for body corporates. If you are interested in this area please contact me. If you want to read about two other recent management rights decisions of the Court, click here.