OMV’s disputed cancellation of its Deloitte House lease in Wellington after the 2016 Kaikoura earthquake saw the High Court accept that misrepresentations over building earthquake ratings could justify cancellation.
Precinct Properties is claiming unpaid rent in excess of one million dollars from oil and gas conglomerate OMV New Zealand Ltd. OMV was signed up as tenant on a lease running to November 2020. Tenants were locked out of Deloitte House for four months after the Kaikoura earthquake to enable damage assessment. OMV refused to return having taken alternative commercial space in central Wellington. OMV cancelled its Deloitte House lease, saying the building was ‘untenantable’. Precinct says the OMV lease contains a ‘pay now argue later’ clause. It sued for summary judgment, saying there was no dispute that ongoing rent is still payable. OMV says the lease no longer exists; there were valid grounds for cancellation.
Associate judge Johnston ruled OMV has an arguable defence that should go to a full trial. When OMV signed up for its lease extension to 2020 it was told Deloitte House had a 100 per cent New Building Standard (NBS) rating; low risk for earthquake damage. Engineering surveys undertaken for Precinct Properties after the Kaikoura earthquake identified Deloitte’s NBS rating was most likely in the range 36-60 per cent. This rating classifies Deloitte House as an earthquake-risk building. OMV could not undertake its own survey. Precinct did not allow OMV’s engineers beyond those parts of Deloitte House open to public access. Deloitte House may be structurally sound, Judge Johnston said, but a full trial with detailed engineering reports is required. Misrepresentations over earthquake ratings can justify lease cancellations.
The High Court was told Precinct Properties wrote down the value of Deloitte House from $46.3 million to $20.2 million following the earthquake. It subsequently sold Deloitte House to Prime Properties Ltd for $10.2 million.
Precinct Properties Holdings Ltd v. OMV New Zealand Ltd – High Court (15.10.18)
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