What potential new Earthquake “Code Compliance” means to Building Owners

Are you a building owner worried about earthquake compliance? Ross Dillon has updated our property law library with a new article on the legal issues surrounding the ongoing questions about earthquake prone buildings. To read the full article as a pdf please click here. To read more about Ross Dillon click here. Queen City Law has an excellent track record representing property owners to read more about our property law services click here. To read about our residential property services click here.QCL-MEDIA-FINAL_4804-ross

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” ( 10 Feb 2012).

danger-do-notThis has serious implications for landlords of commercial buildings (primarily liable), their tenants (who may have some liability, dependent 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).

It is not simply the cost of the repairs (themselves horrifying), but whether repairs are even feasible (particularly for heritage buildings), and what will happen during any period when remedial work takes place, how this can be funded (funding is hard enough to come by for leaky building repairs, let alone strengthening work that will also add nothing to the capital value), and what will happen to the insurance market in the meantime (which has already responded in the obvious way to the costs incurred in the Christchurch rebuild).

Whether insurance will be available to non-compliant 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.compliance

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. Please contact us here