Unit owners claim leaky building success

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Tim Bates of Auckland law firm Legal Vision summarises some important principles that have come out of the latest leaky building claim to be decided in the High Court.

This High Court case — another multi-unit leaky building claim by Body Corporate No. 189855 and Others v North Shore City Council and Others — concerned 12 residential units at 45 Byron Avenue, Takapuna, which suffered from water ingress.

 

The claim was brought by the Body Corporate and the owners of 12 of the 14 units. The defendants included the council, the individual developer/architect, an individual from the construction company, the building expert advising on original repairs, his company, the project manager and the plasterer.

 

The findings to come from this judgment are as follows:

The court rejected the council’s argument that the existence of a duty being owed by the council to unit owners would differ from unit to unit, depending on whether the unit (which, in each case, was residential) was bought for personal occupation.

The court followed the Sunset Terraces decision and held that a duty will be owed by the council where the intended use of the unit is residential.

 

The court held that the unit owners do not need to show a specific reliance upon the council. Instead, it held that only a general reliance is required, being a community reliance upon the work of the council.

It was held that the council owed a duty of care to the purchasers and subsequent owners of 45 Byron Avenue in issuing the consent, inspecting the project during the construction process and when determining whether to issue a code compliance certificate.

The court held that whilst a duty is not owed to the Body Corporate per se, a duty is owed to all the unit owners of the common property.

The Body Corporate provides an administrative convenience such that it can expressly sue for damage to common property on behalf of the unit owners.

The Body Corporate’s claim for damage to common property is only as good as each claim of each individual unit owner against the relevant defendants.

The issuing of practical completion certificates were not causative of any loss — rather the cause of loss was the defective design and, later, negligent inspection by the council.

As at March 2002, a purchaser of a recently built building could not be said to have been contributorily negligent by failing to insert a condition requiring a professional report or, for that matter, by failing to obtain a pre-purchase building report.

A failure to make an agreement for sale and purchase conditional upon a CCC being issued does not amount to contributory negligence.

Where a unit owner is made aware of a levy for significant building levies prior to purchase, that ought to have instigated in the purchaser a chain of inquiry.

His failure to make inquiries re the status of his unit having been put on notice, amounted to contributory negligence and reduced his claim against the defendants by 25%.

However, it was not enough for the court to hold that he purchased with actual knowledge of the defects or that he acted with such disregard for his own interests so as to make his conduct the sole cause of damage which he suffered.

Where a unit owner transfers her property into a family trust knowing that there had been building problems that had been fixed, it amounted to contributory negligence on behalf of the trust.

It was held that the trustees had acted with disregard for the interests of the trust by failing to take any steps at all to enquire into or protect their position when they knew the building had defects and the council had refused to issue a code compliance certificate. This claim was reduced by 25%.

Where a unit owner is aware that repair work has been completed and that further work is needed to get a CCC, but still transfers the unit into a related company, it makes that company contributorily negligent for its loss. This claim was reduced by 25%.

Each unit owner was entitled to $20,000 general damages where they occupied their unit. That award was reduced to $12,500 where the units were rented. In the event that the units were co-owned then the award was to be shared between the owners.

 

This decision must be considered as a really good win for the unit owners and would, no doubt, be of significant concern to councils around New Zealand.

In his final paragraph, the judge makes the point that although councils are routinely apportioned 10-25% liability in construction defects cases, the insolvency of others more directly responsible for the defects, such as developers, building companies and, in some instances, architects, means that the burden of meeting all the judgment may fall upon councils.