Leaky Homes: Is the Saga Finally Over?
Leaky buildings in New Zealand comprise single and multi unit dwellings, some mixed use residential in combination with other uses, offices, rest homes and hospitals, schools, tertiary and pre school buildings, hotels and other accommodation, and institutional buildings. It is the design, materials and construction, rather than the use, which is the common factor in these leaky buildings.
Public awareness has increased rapidly since 2001. The media has been a frequent provider of stories since 2001. These flare up from time to time, much like a forest fire, reactivating the issue in people's minds. The recent television documentary by John Gray of HOBANZ, A Rotten Shame, together with the Government's Financial Assistance Package (FAP) has greatly brought the issue to the fore again.
The Hunn Report released in 2002 raised the nation's awareness of leaky buildings, especially in the Government's mind. Many home owners have since suffered with horror stories spread by word of mouth. In terms of understanding the size of the problem, the Price Waterhouse Coopers Report in 2009 confirmed it was much larger than many had previously thought. However denial remains among homeowners and others as the problem lies hidden behind our claddings and linings.
Today I will explore three areas. First the dispute procedures for leaky homes and the proposed FAP, secondly the Building Act and Building Amendment Bill No. 3, and lastly improvements that are still needed if we wish to resolve all the causal factors that gave rise to this leaky homes saga.
Leaky Homes resolution Process
The investigative part of the leaky home resolution process is often undertaken by the Weathertight Homes Resolution Service (WHRS), which is part of the Department of Building and Housing(DBH). This service is to be extended to include the FAP.
The resolution part of the process is managed by the Weathertight Homes Tribunal (WHT), within the Department of Justice. There are the alternatives of private investigation and litigation through the courts, or private mediation. Another option is to take the loss and move on which is enforced on many by limitation issues, but chosen by some who wish to avoid the cost and time incurred in recovering money.
The WHRS currently provides assessment reports through contracted assessors. These reports have generally improved over the years, but the standard is still variable, due in my view, to a lack of adequate peer review. Assessors usually lack actual remediation experience. Most of the assessors are members of the New Zealand Institute of Building Surveyors (NZIBS).
The NZIBS has around 94 Registered Building Surveyors, plus student and transitional members. Of these, 86 are Certified Weathertightness Surveyors having attended a theoretical and practical course, then sat and passed their exam. About half of the Certified Weathertightness Surveyors have significant experience or knowledge of remediation, but not all of these are WHRS Assessors. Of these surveyors, 20 are on the NZIBS Remediation Panel. These surveyors have been through and passed a further course, obtained what is adjudged adequate experience, have been examined and then interviewed the Institute.
Financial Assistance Package
The FAP Bill has just been passed and the commencement date at the time of writing this paper is still not known. The commencement of the Act can be in stages over 12 months from enactment. It is intended to financially assist homeowners, known as claimants, by contributions from the Government and others, and access to finance. I will not cover the finance issue.
The FAP is voluntary for claimants, Councils and others who choose to join in. The Government contribution is believed to be set at 25% and Councils at 25%, but neither are stated in the Act. The 25% has been announced; so it must be intended, perhaps through the gazetted eligibility criteria. If other parties do not choose to contribute, ongoing claims against these others are allowed, presumably through the WHT.
The eligibility criteria is based on the claim needing to be an eligible WHRS claim i.e. the construction of the house needs to be less than 10 years old from the date the claim was lodged. The claimants also need to meet contribution criteria that will be gazetted by the Chief Executive of the DBH. This is not available at the time of writing this paper.
There have been concerns raised about Bodies Corporate, but I understand these have been resolved. This a concern remains with mixed use where it may be difficult to achieve the 75% if a large proportion of owners are commercial and not affected by the leaks. In the past this issue has been resolved by the High Court effectively partitioning the Body Corporate for the purpose of the leaky home legal action and repairs.
The intention is the FAP is to form a contribution agreement between the claimant and the contributing party i.e. the owner and the Crown. Council can choose to join in as can other parties involved in the claim such as the builder, designer and so forth. These are called additional contributing parties. Obviously the cost of repair needs to be agreed. There will be terms and conditions that need to be agreed with scope here for some interesting and possibly inappropriate ideas. However there is considerable experience among lawyers with these types of agreements to counter this.
The agreed costs can either be based on projected costs or actual costs. The projected costs appear to be in two stages. Initially based on the Assessor's estimate and then on tender of the works. What about later cost blowouts? People signing up to the agreement would not want projected costs to be able to escalate. They will want full and final settlement. Typically this is currently covered by allowing a contingency sum; typically 10% with the owner then taking the risk.
Actual costs are easier to calculate. I assume they will include an interest component as interest is an actual cost.
The agreed cost of repairs are for weathertightness damage only. It can be for complete demolition and rebuilding. Obviously there will be interesting arguments if other faults are identified which are not weathertightness related when the rebuild option is chosen. Other costs that can be included are valuation reports, design fees, project management fees, building and resource consent fees, alternative accommodation and shifting costs.
The contributions to the agreement can either be money, services or goods or perhaps even a combination. Most agreements historically have been based on money, as it is owners typically wish to avoid having the original builders do the work. My experience is performance type agreements are problematic. A example is the "Dicks" case where the builder agreed, pursuant to a mediation settlement, to come back and fix the house, but early in the process found it all too difficult and did not perform.
In other instances the builder may do 90% of the work, but then walk away leaving it to the owner to complete. At that stage owners have chosen to do the work rather than incur further legal and expert costs. However there are instances where performance agreements have proved quite successful, but with special provisions such as performance bonds included.
A contribution of materials may not be accepted as many owners wish to change the cladding materials.
Not included are legal costs and expenses including expert costs and general damages. General damages are commonly claimed and awarded so are very much part of the quantum calculator in most mediations.
One concern with the FAP is that it will add a further layer of complication in the deliberations for owners. I cannot see how owners in many cases can reach a decision without the advice of their lawyers and experts.
There is a danger the FAP may lead to inadequate repairs due to unrealistic expectations and/or the advice of inexperienced people. The influx of new people will be influenced by the volume of work stimulated by the Government's contribution. I also understand the DBH wishes to remove experience building surveyors from the process as an unnecessary expense. I have heard that inexperienced Assessors will give advice and that Council inspectors will identify decay and mould. If this is true I do not known how this can be "reasonable grounds" for issuing Code Compliance Certificates.
We have already seen failed repairs, even with cavities, as large amounts of decayed timber have been left in place.
Repair-first remains a much better option as there would be less doubt over the "agreed cost". Obviously those with less resources who cannot choose this option will remain disadvantaged.
I believe that cases will still need to progress to the WHT to motivate the other contributing parties and for case management. The scheme may benefit some but hinder others. The devil is always in the detail in these types of schemes. The greatest benefit appears to be to Councils, in that they are effectively being subsidised by central Government.
Weathertight Homes Tribunal
The WHT approach is too simplistic in my view for what are often complex cases. My experience is that it is procedurally lacking at times, though simplicity does have its benefits. One of the major problems has been the low calibre of adjudicators. The Government will not pay adequate money to attract the right people. This has led to inadequate decisions which have been frequently overturned in the courts. This does not bode well for the FAP.
Costs savings are not being realised in many cases, given the numbers of appeals that takes place.
On the other side, one of my biggest concerns is the preponderance of wrongful claims as owners and their lawyers can name innocent parties, with little consequential risk. Such parties often settle just to avoid legal and expert costs. It is legalised blackmail and a blight on our system. There should be a need for prima facie evidence of wrongdoing, and not merely that they were involved in the project. Parties can apply to be struck out, but the variable nature of the WHT and the unethical behaviour of some experts leads to ongoing injustice.
In the first instance the assessor is unable to understand or know the various parties' involvement, so the naming of parties in their reports should not take place. There should be a requirement for naming to be based on reasonable likelihood of a case being made, or whatever is the correct and fair legal process.
The High Court has set the standard with the clarity of their decisions. These have been generally upheld under appeal. Consequently, private mediations or subsequent negotiations are often successful and the need for protracted hearings is limited. Cases that do proceed to Court are expensive. Judgements are more than often appealed, but more to settle areas of law. Those of the losing side, especially Councils, wish to test every matter to find ways to relieve themselves of this huge burden that has been placed upon them.
Building Act & Amendment Bill
The Building Act 2004 was intended to provide consumer protection. All it does provide is feed stock for legal claims. This is an inappropriate and expensive way to resolve building defects and disputes. Slowly the Licensed Building Practitioner scheme is taking hold, but this is only part of the solution. It makes the individual responsible and perhaps unfairly so as they may become targeted rather than the organisations they work for. This has raised concern among people in the industry and with good reason. The Building Code Review faded out with the recession and in my view was unnecessary at that time.
There has been improved Council performance, but this is variable across the country. In the area of leaky building remediation we see great attention from the Auckland Council where in other parts of the country a much less rigorous approach is taken. However Auckland Council applies less scrutiny to the design and construction of new buildings. Here the designers and builders may well be less familiar with weathertightness, so we are still seeing mistakes being made.
Guidance from the DBH has improved. Their problem can be timeliness, which unfortunately is inherent with bureaucratic and political control. Their product certification scheme only has 18 approved products; a bioelectrical toilet, a concrete foundation block, a cavity slider door, two plumbing pipe systems, a water flushing valve, wire netting, a bidet spray system, steel wall framing, a concrete floor system, six approvals for boron treated timber, despite being covered by NZ Standards, and two wall cladding systems. All up they have enough approved to build an un-insulated, unlined toilet with bidet, but with no windows or roof! The scheme is not delivering any meaningful benefits and should be abandoned.
The Building Amendment Bill No. 3 has been heralded as a brave new world, but really it is just fiddling around the edges. It is supposed to produce clear accountabilities. The current law is quite clear. The problem is if things are done badly, despite having wonderful paperwork, we are left with a litigious, expensive and slow resolution rather than one that is of real benefit to the homeowner. There is the owner - builder exemption from restricted work; a political move but of dubious benefit to future home owners. It will lead to anomalies and problems going forward. There is a move to risk-based consenting, which is sensible, but there is a danger that complex buildings will become 'simple' in an attempt to circumvent this system.
Last we have a Code of Ethics for Licensed Building Practitioners. This seems sensible, but may do little to solve disputes. Other issues have been raised such as nationally consistent building consents and the thorny issue of joint and several liability. The later appears to have been dropped. I think we will have to live with "joint and several" as proportional liability would leave most homeowners much less unprotected under the building current regime.
Alternative to Legislated Solutions
The causal factors that led to leaky buildings were revealed by the Claddings Institute in May 2000 after an industry-wide forum on leaky buildings - well before Hunn and subsequent public awareness. These were inadequate science, poor education and lack of accountability and responsibility. Since that time I have often wondered why so many good people throughout the industry made such poor decisions when it came to dealing with leaky buildings. I believe the underlying cause was self interest; not necessarily greed, but other factors such as belief systems and company loyalty.
I do not believe the Building Act 2004, its amendments and proposed amendments do anything to address the remaining unanswered issues of poor education, lack of accountability and self interest of the industry which is not aligned with that of the homeowner.
So what is required?
I agree with the Minister that we need a national building consent authority. But I go further and I believe that this should approve and monitor design companies, approve and monitor building companies, approve products and systems, track and bar individuals who have a bad track record, and provide timely advice to industry. To achieve these things it needs to investigate defects to determine whether they are due to faulty design, faulty building work, faulty products, or system failures and then correct the designer, the builder or the supplier. Those parties would have a self interest to maintain their position, so they would cooperate and when necessary make good the defect. Such an organisation would provide real consumer protection.
How can this be achieved?
Building organisations have home warranty schemes, but more for marketing and to recruit members, than to protect homewoners. Products are appraised, but when they fail there is little recourse. Suppliers come and go as do builders and designers. This whole bureaucratic-legal system simply does not work for the homeowner.
The better model would be a national home warranty provider, governed by a board of representative architects, engineers, designers, building surveyors, builders, the trades and consumers. It would need to be a national Building Consent Authority. It could use and existing resources within the industry. If set up correctly it would eventually be self funding so it would not be a burden on the ratepayer or the taxpayer. To be successful, in my view, it must be voluntary so that it is risk-focused rather than politically motivated.
The best example I have found internationally is the National House Building Council in theUK. Its website is www.nhbc.co.uk. It was established in 1936 to tackle "jerry building" between the world wars. Its Buildmark Warranty was established in 1965. It has an annual average income of £170M over the last 5 years. In the last recorded financial year it paid out £72M in claims. It is not an organisation that avoids payouts; it actively gets involved, manages issues and where necessary compensates homeowners. Importantly it has built up net reserves of over £1 B.
So is the leaky homes saga finally over? The clear answer has to be no. There has been a lot of good work done, but the current legislated solutions which are not working as hoped but then being repeated are simply not working.