Potential new Earthquake “Code Compliance”
The Ministry of Business, Innovation and Employment has recently completed consulting on proposed changes to the system for dealing with earthquake-prone buildings. These have been
reviewed as a consequence of the Christchurch disaster. The proposals set out a consistent national approach to dealing with these building.
Essentially the proposals would require all non-residential and multi-unit, multi-storey
residential buildings to have a seismic capacity assessment done within five years. Owners of buildings identified as earthquake-prone would then have up to 10 years to strengthen or demolish these buildings.
Our assessment is that this issue will be bigger that the leaky homes saga, as properties
that have been converted to residential apartments, and many buildings that predate the Napier Earthquake of 1931, will struggle to meet any such requirements. Various assessments have been made of the costs of any required upgrades.
An estimate of NZ$2.1 billion has been described as
“only scratching the surface” (Interest.co.nz 10 Feb 2012).
This has serious implications for landlords of commercial buildings (primarily liable), their
tenants (who may have some liability, dependant on the terms of the lease), Unit Title owners (whether directly liable or via Body Corporate levies) and their tenants (who are more likely to be on limited term leases and thus liable simply to walk away – but will face increased rental rates across the board).
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Potential new Earthquake “Code Compliance”
Whether insurance will be available to noncompliant buildings in need of an upgrade is
an open question. The 15 year period (5 years to assess plus 10 years to remedy) may become illusory, if insurance is not available.
If a building can not be insured, it may have to undergo immediate repair, or possibly face being uninsured (often then breaching loan obligations and possibly lease obligations).
If the building can not be repaired, it may find itself caught by planning requirements. If the building has some type of heritage listing or protection, this could be extremely difficult
to resolve.
You can not repair, and can not demolish and rebuild.
The proverbial rock and a
hard place.
What does this mean for you?
It means that when looking to purchase commercial
property, or residential property as part of a multi-unit development, earthquake compliance and insurability must be part of your due diligence, as well as the now standard requirement to carefully consider potential leaky building issues.
It also means that when looking to lease any such property, careful consideration is
required of the lease obligations regarding insurance, maintenance and repair.
These are quite technical questions, involving detailed assessment of the relevant
contractual provisions.
We have been assisting our clients with such matters, and are more
than willing to provide that same assistance to you.
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
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• Ross has a Bachelor of Law (Honours) (1980) and Master of Commercial Law (First Class Honours) (2000) Auckland