In
a landmark ruling with huge costs for ratepayers, the Supreme Court has
extended council liability for negligent building inspections to include
commercial buildings. The previous legal
view was that council liability extended only to residential homes.
Changes to the
building code in the 1990s coupled with poor construction techniques has
resulted in an avalanche of legal claims for the cost of remedial work on leaky
buildings. Often, a local authority is
the only solvent party left standing as property owners sue builders,
sub-contractors and the local council for damages. Potential council liability has arisen where
a local authority acted as certifier, signing off code compliance certificates
stating that the building does
comply with the building code.
Councils have strongly
resisted liability. But a string of New
Zealand cases over previous decades have established a rule that owners of
residential houses can sue councils for negligence.
A novel question arose
with a Takapuna leaky building, being a “mixed use” development: a 23 level
building known as Spencer on Byron containing a hotel on the lower floors and
residential apartments on the upper floors.
North Shore City
argued there were strong policy reasons to limit council liability to
residential homeowners only: homeowners lacked the sophistication to look after
their own interests; by contrast, owners of commercial properties were not so
vulnerable.
The Supreme Court
ruled there were no policy reasons to stop council liability being extended to
cover “mixed-use” buildings and purely commercial buildings. It said not all homeowners are naïve; the
wealthy and commercially sophisticated also own homes. And not all commercial property owners are
sophisticated; a first time business owner purchasing a corner dairy in a
country town may well lack any business experience.
North Shore City
argued the extension of liability to commercial premises will transfer
millions, if not billions, of dollars in repair costs from building owners to
council ratepayers. The Supreme Court
said this argument overstates the position: ratepayers will pick up any
residual liability, but before that councils with insurance cover for
negligence will get compensation from their insurer and they will also be
earning income in fees for ongoing building inspection work.
Body Corp. No. 207624 (Byron Ave)
v. North Shore City – Supreme Court (11.10.12)
12.041