Sentinel case leaves building owners nervous

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.