Leaky Building Purchasers

Leaky Building Purchasers Johnson and Others vs Auckland Council and Another [2013] NZHC165 A trap for the unwary purchaser has recently snapped closed on the very unfortunate purchasers of a leaky building. In Johnson and Others v Auckland Council and Another [2013] NZHC 165 the High Court was faced with the purchasers of an expensive home that was subsequently discovered to be a leaky building. The purchasers sued the Council and others, under what is now regarded as a normal type of leaky building claim.

The Council admitted it was negligent in its actions, but maintained that the purchasers were themselves negligent in not fully checking out their purchase. In other words, that they failed to take the steps any normal reasonable prudent purchaser would take. This is called “contributory negligence”, where the claimants own actions or omissions contributed to their own loss.

The Council also attempted to convince the Court that the correct measure of loss was not the cost of repairs, but the difference in value between the building in a non-leaky state, and the building as it was at the time of purchase.

The Court reviewed the law on contributory negligence starting with the Act of 1947 by that name, and the cases on the Act since. The Judge held (at para 16): “Plaintiffs, like defendants sued in negligence, are held to an objective standard of care. One consequence of this is that a failure by the plaintiffs to appreciate a risk which was reasonably foreseeable will not preclude a finding of contributory negligence.”

The Judge went on to find that there was no reason to make an exemption from this general principal for residential purchasers.

He then reviewed the evidence of the instant case, including evidence from expert witnesses, who deposed to what a reasonable purchaser should do. Particular attention was drawn to the standard terms of a sale and purchase agreement, which contains specific warnings that a person should not sign an agreement until first obtaining legal advice.

As an aside, if legal advice is taken prior to signing, your lawyer can advise you on what terms should be in the contract. If you only see a lawyer after signing, they can only tell you the effect of the terms that are in the contract.

By Ross Dillon • Ross has been a partner and litigator in a leading mid-sized Auckland firm for almost a quarter century. He has specialized in dispute resolution • Ross has a Bachelor of Law (Honours) (1980) and Master of Commercial Law (First Class Honours) (2000) Auckland

Leaky Building Purchasers

Johnson and Others vs Auckland Council and Another [2013] NZHC165 continued.

Which may not be what you need, expected, or want. Once you have signed, the deal is done.

It is too late to change anything unless the other party agrees to any change. If the contract you have bound yourself to is favorable to them and disadvantageous to you, why would they agree to change it? Always see your lawyer BEFORE you sign.

The Judge concluded that the purchasers were contributorily negligent. The evidence established that the house was of a type that was prone to leaky building problems. The purchasers had been warned by their own assessor. Thus, they had contributed to their own loss by proceeding anyway. The Judge decided that as a result, the Plaintiffs could only recover 25% of the losses they might be entitled to. They would have to bear 75% of that loss themselves.

He then turned to assessing what those losses were.

The house had cost $3.9 million. The cost of repairs due to the leaky building problems (excluding other renovation work the Plaintiffs had undertaken) was approximately $1.8 million.

The Court found that the cost of repairs was irrelevant. The true measure of loss was the difference in price between a leaky building and a sound one. The value of a sound house was the actual purchase price ($3.9m). If known to be leaky, the valuation evidence was that it was worth about $2.7 million. Making the loss $1.2m. But the Plaintiffs were only entitled to 25% of that loss - $300,000.00. In round terms, the Plaintiffs had spent $3.9m to purchase a house, spent $1.8m to solve leaks, and received $300,000 towards the costs of repairs, from an admittedly negligent Council.

The case itself took 7 days in the High Court. It seems unlikely that, after legal costs, much cash was recovered at all.

If there is a moral to this story, it is that purchasing a house is a major investment.

It needs to be undertaken with reasonable care. That will always at least require you to see your lawyer before you sign a contract, and may involve reasonably detailed further specialist advice before you declare a contract unconditional.

If you proceed in any other manner, the costs could be horrifying.

By Ross Dillon • Ross has been a partner and litigator in a leading mid-sized Auckland firm for almost a quarter century. He has specialized in dispute resolution • Ross has a Bachelor of Law (Honours) (1980) and Master of Commercial Law (First Class Honours) (2000) Auckland