Unaware it was leaky building, vendor of an apartment in central Wellington’s Sirocco development was not liable to compensate a disgruntled buyer for potential remediation costs. But a legal obligation on vendors to disclose future earthquake strengthening costs now joins requirements to disclose known leaky building remediation costs, following a Court of Appeal ruling.
The Miles purchased their Sirocco apartment from business consultant Bruce Gadd in 2013, paying $540,000. He had owned the apartment for some nine years, but was absent overseas as a career civil servant for extended periods. Eight months after their purchase, the Miles learnt along with other owners in the eleven-story building that scheduled minor maintenance had uncovered extensive moisture penetration. Further investigations recommended a reclad for the entire building. As at 2020, remediation costs were estimated at $22 million. The Court of Appeal was told no decision has yet been made to remediate.
The Miles sued Mr Gadd, alleging proper disclosure was not made at the time of their June 2013 purchase. In addition to statutory disclosures required when selling a unit title apartment, the standard agreement for sale and purchase required Mr Gadd as vendor to disclose ‘any other liability.’
This required disclosure of potential future special levies to deal with remediation costs to the entire complex arising from the likes of earthquake strengthening or water ingress, the Court of Appeal ruled. But Mr Gadd was unaware of any latent water ingress issues and consequently had no knowledge of any potential future special levies to remediate the problem, the Court of Appeal said.
Sirocco’s external Harditex cladding had the potential to leak. The Miles were advised in their pre-purchase valuation report that buildings using similar cladding had leaked. They chose not to get a building report. There had been sundry minor issues affecting Sirocco whilst Mr Gadd owned his apartment: leaking taps and toilet in one apartment; a shower leak in another; a leak from the deck of a further apartment; the need to remediate stormwater outflow from one outlet.
Reports to Sirocco’s body corporate from cladding specialists at the time Mr Gadd was an owner stated jointing in the Harditex cladding was being kept under review but that no issues were apparent. There was nothing to cause a vendor in Mr Gadd’s position to believe that ongoing work could not be managed under Sirocco’s regular maintenance fund such that a special levy would be required, the Court of Appeal said.
Seven years after buying for $540,000, the Miles sold their Sirocco apartment for $305,000.
Miles v. Gadd – Court of Appeal (7.06.22)
22.098