Sentinel case leaves building owners nervous

The North Shore Sentinel apartment building

The legal battle over the management of Auckland's North Shore Sentinel apartment building has caused confusion for management rights holders around the country. 

The case is a feast for lawyers who disagree on what it takes to render a contract unenforceable. 

The Auckland High Court found the body corporate’s long-term management contract with Sentinel Management Ltd unenforceable. 

Those management rights were valued at $1.77 million when SML advertised them for sale in 2010. 

The decision made last month is the first to test a provision in the Unit Titles Act 2010, which has been in force only since June last year. 

The court found the management rights contract harsh and unconscionable. Justice Mark Woolford exercised his discretion to terminate it. 

McCaw Lewis director Thomas Gibbons says the decision might affect contracts that were formed before the act, since the law change was retrospective. 

“For existing bodies corporate their contracts will be at risk. There will be some nervous managers around if their contracts are anything like the Sentinel’s.”

However, Sentinel lawyer Denise Marsden says the management rights contract made unenforceable by the court was unique. 

“In my experience a lot of the management agreements around town won’t have the same level of exclusive services as in this case.”

Ms Marsden says the decision might not affect others because there was a “package of factors” that led the court to come to its decision. 

But AUT University property law expert Rod Thomas says the decision was essentially based on the term of the contract. 

“The judge seemed to be finding that the contract is oppressive simply because it’s long.”

Whether a long-term contract could be held unenforceable was a debate the industry needed to have, he says. 

The argument seems yet to continue, as some lawyers are perplexed over a concluding statement in the judgment by Justice Woolford: “I appreciate that parties may wish to negotiate transitional arrangements or that SML may wish to appeal.”

Ms Marsden could not confirm yet whether an appeal would be lodged. 

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7 Comments & Questions

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Looking forward to further reporting on this. As NZ slowly moves to more apartment or body corporate 'managed' facilities this deserves some clarity. The trade that occurs across the ditch whereby management rights are valuable and traded with hefty goodwill components is bound to follow here.

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Having dealt with "Body Corps" over a leak from the up stairs apartment in a multi-unit complex - and watching them scurry faster than the builders, developers, cladding contractors and insurance company - I would say to everyone don't buy where a Body Corp is involved - it's simply not worth your time, hassle, stress and cost.

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I disagree - I've previously made many offers on apartments where body corps are involved. But discounted my offers heavily to take into account the costs, future rorts, and hassles of dealing with a body corp.

My discount was too great for the owners so - so I haven't managed to buy one yet. But I'm sure the time will come when people are so fed up with it that the apartments are virtually given away.

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A well run body corporate committee is as rare as hens teeth but I have experienced a couple of good ones here in Auckland over the years. The calibre of a live in manager and experience of the secretary can prove a winning formula. Regrettably some owners get themselves onto the committee with an ulterior motive if not ego and buckle when the real work starts and their technical if not management competencies become obvious. Large buildings with an equally large budget can afford to engage the professionals. Stay away from the retired old lady establishments who are constantly fretting over the sinking fund and maintenance costs. They'll always choose the cheapest quick fix and beige paint.

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Body Corps = Reverse Financing for Property Developers.
Agree with Anony #1 - very interested to see how this story develops, please follow up NBR or should be wait till Bell Gully or a law firm posts an analysis in one of the free online newsletters?

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How anyone can comment on this without knowing the ancillary issues? I can't see how the judge would have terminated the contract on "duration", alone, if everything was running sweet with the management-and-upkeep of the Sentinel; if there had been transparency of function, good lines of communication with regular meetings and updates to the owners; and where body corp fees reflect prudent and realistic opex etc, etc.

Somewhere, somehow -- things have turned rancid between the complex administrators and the owners. The judge might have used "duration" as a distillation of all what is dysfunctional in the -- apparent -- breakdown of the relationship, where the owners feel that resolution and making a fresh start can only come by way of terminating the contract.

I'll bet that, over time, with this narrative, there has been a steady erosion of confidence and distrust with the owners towards the administrators, widening the disconnect to the point of becoming toxic. Hence, it's come before the court.

Justice Mark Woolford: “I appreciate that parties may wish to negotiate transitional arrangements or that SML may wish to appeal.”
That can be interpreted as either a statement in ambiguity, providing a burgeoning buffet table for the lawyers to feast upon (doubtful); or, he's resigned himself to the fact, that his ruling will go down like a lead balloon with the body corp.

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The ruling in Sentinel gives unit title owners (the Body Corp,) hope when they are experincing dreadfully long contracts (like 30 years!), exclusive letting contracts, multiple conflicts of interest, and most of all, no real ability for the BC to decide its own destiny and manage the complex in a commercially realistic manner that is in sync or balance, with the current economic climate.

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