Apartment owners in Takapuna's upmarket Sentinel have won a case against management of the 30-level tower.
The body corporate and Dennis Ansley for the owners went to the High Court at Auckland against Sentinel Management, a business originally established by tower developer Rick Martin.
Owners argued the management system was undemocratic and that the manager held too much power, calling for the management agreement to be ruled invalid and unenforceable.
Justice Mark Woolford agreed and said the management agreement was "harsh and unconscionable" in terms of the Unit Titles Act 2010 which governs such agreements.
Tim Rainey of Rainey Law argued for the owners that the management agreement was invalid and unenforceable. Martin was like a company promoter and therefore had obligations to apartment buyers via their body corporate.
But Neil Campbell for Sentinel Management argued Martin was not a promoter and even if he was, his duties were limited by the terms of the management agreement.
Rainey said Martin's interest in the development was "inherently at odds with the body corporate's interest" and Martin favoured his interests in Sentinel Management over those of the body corporate. Aspects of the management agreement were unreasonably one-sided, unfairly priced and overly beneficial to Sentinel Management, he said.
But Campbell said there was nothing harsh in aspects like the termination rights. The management rights, valued at $1.7 million, had been advertised for sale.
The judge said these rights included a letting service, a real estate sales service and Sentinel residents' service. He ruled for the owners, saying the management agreement was "designed to maximise profit for Sentinel Management in a way which has restricted the rights of apartment owners to manage the building through the body corporate".
Companies Office records show Sentinel Management's directors are Darren Hayes and Adam Rizzo of Australia and the sole shareholder is Freestyle Property Group, owned by Darren and Melissa Hayes and Adam and Megan Rizzo.
Campbell had argued against the judge terminating the agreement because it was unfair to Freestyle which bought the business in 2008 without knowing about the owners' objections.
But the judge had no sympathy for that argument because he said Freestyle had helped Martin set up the management business in 2007 so they were "in part authors of the scheme. Freestyle proposed the end goal of selling the management rights at a premium price. They were to be paid a substantial bonus if a certain sale price was achieved," he said.
Rainey described the outcome as "a remarkable success".