Legal Update - The 10 Year Longstop Period is Not The End of The Road For Some Leaky Building Owners

Section 393 of the Building Act 2004 provides that no court case dealing with building construction may be brought against a person, 10 or more years after the building was constructed.

When precisely time starts running differs between different parts of the building construction. 

In relation to territorial authorities (i.e. local councils), where the claim relates to issuing of code of compliance certificates or building consents in leaky building claims, time generally starts running from the date on which these are issued.

For buildings that were constructed in the Mediterranean style with monolithic cladding systems (around 2002), they will be nearing or past the 10 year period from when they were constructed.  Given this, some leaky building homeowners will now be in a situation where claims against the Council under the Building Act will still be within the 10 year period because the claim runs from the issue of the Code Compliance Certificate, but out of time against other parties such as architects, builders, plasterers etc.

This does not necessarily mean that other causes of action that could allow recovery are also time barred.  That is because the 10 year longstop period under the Building Act applies only to claims arising from building work and not to other claims such as breaches of contractual warranties relating to the building, under the standard REI-ADLS sale and purchase agreement [1]  (“the agreement”).  The reason such alleged breaches are not caught under the Building Act longstop despite relating to building work is that the act or omission on which the claim is based is the warranty given by the vendors and does not arise from the building work itself. 

The six year limitation period applies instead to such alleged breaches and time starts running from when the warranty was first given. 

For instance, if a home owner bought a house in 2007, and the house was constructed in 2001, claims under the Building Act would most likely have run out against most parties to the construction in 2011.  However, for claims of breaches of vendor warranties time would have started running from 2007 and will not expire until 2013.

The warranties that are giving rise to such claims under the agreement are that the building work has been carried out in compliance with consents or permits and generally that it meets the obligations under the Building Act [2].

Apart from this there are also certain implied warranties under the Building Act [3] , which may also give rise to claims.  These implied warranties are applicable only to contracts for building work on household units and sale of household units by a residential property developer  and so may be of more limited application.

The term “household unit” is defined under the Building Act as including buildings or parts of buildings used or intended to be used only or mainly for residential purposes. The term “residential property developer” is defined as:

“.. a person who, in trade, does any of the following things in relation to a household unit for the purpose of selling the household unit:

(a) builds the household unit; or
(b) arranges for the household unit to be built; or
(c) acquires the household unit from a person who built it or arranged for it to be built

The implied warranties are for products and the manner in which building work is done, breaches of which would be considered a breach of contract. 

Given this, homeowners who fall within the prescribed category of contracts can also claim for breaches of implied warranties as well as those specified under the agreement, provided it is done within the 6 year limitation period.

In Lee v North Shore City Council [4]  the home owners made a claim against their vendors for breach of vendor warranties under the agreement.  The decision confirmed that such a cause of action is available to home owners if brought within time.

Homeowners may also make claims against real estate agents for misleading and deceptive conduct under the Fair Trading Act 1986, if the conduct in question has caused the loss being recovered. This was the case in Hamid v England & Ors [5] .  Here, the real estate agent failed to disclose to the purchaser that an adjoining unit in the same complex had been re-clad for weathertightness issues.  He also stated that his unit did not leak in response to a question asked of him by the purchasers.

Another party that can potentially be pursued is the pre-purchase inspector, where a homeowner has bought a property in reliance of a pre-purchase report.  An example is the case of Mok v Bolderson[6] where the pre-purchase inspector was found liable in negligence and under the FTA.

The case made clear that even if a pre-purchase inspector properly identifies weathertightness issues, he will still be found to be negligent and the report misleading if he does not clearly address the significance of those findings.

In all, as the 10 year limitation period under the Building Act begins to bite, some homeowners of leaky buildings who purchased their homes after the building was constructed, may find that they have remedies outside of the Building Act available to them in order to recover their losses.  They should seek advice on what, if any, causes of action are available to them before concluding that all is lost.  They should also file their claims within the prescribed time limitation period for the cause of action they rely on.  In some cases this will have to be done as a matter of urgency.

References -

1 - Klinac v Lehmann (2002) 4 NZConvC 193,547, Glazebrook J, High Court Whangarei; Gedye v South [2010] 3 NZLR 271.

2 - Note that later versions of the Sale and Purchase agreement have removed the more general clause relating to "meeting all obligations under the Building Act".

3 -  This applies to contracts entered into from November 2004.

4 - Unreported, High Court Auckland, 12 April 2010.

5 - (unreported, High Court Auckland, 26 September 2011, Whata J)

6 -  (unreported HC Auckland, 20 April 2011, Whata J)

 

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