Risks of property reports for vendors

Consultants’ reports for vendors of properties are fraught with risk. In my view, it is unwise for consultants to carry out property inspections and prepare reports on behalf of vendors. These types of reports could amount to representations by vendors that could be challenged by future purchasers leading to claims against the vendors and the consultants who prepared such reports for vendors.

In today's very litigious environment (especially in relation to the building industry in New Zealand), I think it is unwise for vendors to commission any reports. Any existing reports known to vendors, in my view, should be disclosed up front, on the basis that prospective purchasers satisfy themselves, without influence by vendors or their consultants, as to the suitability of properties being sold.

In disclosing these reports, the point should be made that prospective purchasers should commission their own reports as they see as being necesssary.

In summary, I think vendors should make full disclosure and take no steps themselves to contradict any existing reports. In my view, this is prudent advice nowadays to all vendors contemplating commissioning their own reports for the purpose of selling property.

This seems to fly in the face of the principles of the Home Information Packs (HIPs) that are in place in England and Scotland.

Financial costs to New Zealand society of leaky buildings

The financial and social costs of this situation are unprecedented in New Zealand and they are growing. This means that the lives of many New Zealanders and the costs to society will be adversely affected beyond the next decade.

The Parliamentary Library, “Background Note, Information Briefing Service for Members of Parliament”, 2002 estimated that 6,000 to 12,000 apartment dwellings may have weathertightness problems and on the basis of an average cost of repair of $20,000 the total estimated cost could be as much as $240 million. They refer to a Consumer magazine article of October 2002 in which it was advised that 220,000 homes were built over the previous decade and of those up to 40% (approximately 90,000) could be at risk with estimated repair costs of between $120 million and $1.8 billion. I assume those figures include apartment dwellings.

The estimated $20,000 repair cost per unit for apartment dwellings is too low, in my opinion. That may reflect the fact that in 2002 there was a greater view that targeted repair would suffice, but in 2008 the dominant view in most cases is that a full reclad with a cavity system is required. I would therefore increase the estimated cost per unit as more like $70,000. The cost of repairing many detached or semi-detached houses is $300,000 to $450,000 and some costs are much higher than that. I would propose, therefore, an average repair cost per dwelling unit as being $120,000. Assuming 90,000 dwelling units at $120,000 each to repair then the total cost would be $10.8 billion.

It is common for claimants and respondents to engage legal representation whether that is in the Court system or the Weathertight Homes Tribunal. Some respondents are successful in being removed from cases and that could cost them up to about $30,000. Others have to endure the full adjudication process only to be found with no liability and that can cost up to about $80,000 in legal and technical expert fees. Most cases settle by mediation but the costs are still significant. It is a common situation for there to be many parties.

A scenario of total average legal and technical expert costs for all parties in both adjudicated and mediated settlements may appear as follows:

Five parties each expending an average of $60,000 = $300,000 in fees per case.
With 90,000 dwelling units from 1992 some of those would be statute-barred as they would not have commenced legal proceedings in time. Assume 70,000 dwelling units were not statute-barred. Some of these units represent terraced houses and body corporate situations where there will be just one action taken on behalf of a group of owners. The fee costs will increase significantly in these cases, such as to $1 million per claim, but the average fee cost per dwelling unit will reduce.
Therefore, say 70,000 units at $200,000 per unit in fees gives $14 billion.

Assuming these figures are in the right order shows that the total fees equate to almost one and a half times the cost of actual repairs to the dwellings. Naturally, both calculations are open to debate as the assumptions could be questioned, but even a sensitivity analysis would show that the total costs to society are enormous and this is a situation that has not been recognised.

The total health care expenditure in New Zealand was about $10.7 billion in 2002 (Ministry of Health, 2004). The above figures indicate that the total cost of repairing leaking homes could be up to about $24.8 billion; over two and a half times the annual health expenditure of New Zealand. This is a burden placed upon a large number of New Zealanders.

There are further flow-on costs that become more difficult to measure but could well cost more than the initial problem. They include the following:

• Funding of the Weathertight Homes tribunal, adjudicators and assessors.
• Additional regulatory costs of the DBH
• Additional costs of processing building consents
• Court costs

Many parties to litigation are covered by insurance policies and the leaky building syndrome is having a direct affect of increasing premiums where those policies are still being offered.

Reference

Parliamentary Library, “Background Note, Information Briefing Service for Members of Parliament”, 2002/10 06 November 2002, http://www.parliament.nz/NR/rdonlyres/464AB9F9-B197-4B53-BE9F-4F411CB67877/360/0210LeakyBuildings1.pdf

Cost of fixing New Zealand's unhealthy homes

The New Zealand Business Council for Sustainable Development has just announced that it will cost $20 billion over the next decade to fix the country's unhealthy and energy-wasting homes. That's all very well, but there needs to be a primary focus on their state of repair and extent of subfloor dampness.

Over the years I have found many older buildings with excess dampness and subsequent mould growth. One significant source of exterior dampness which has had little cognisance is that of subfloor ground leading to severe interior dampness. Another is that of internally-produced moisture from such things as clothes dryers vented to the inside, drying clothes on the inside and a lack of ventilation with windows not being opened. Another is that of unflued gas heaters.

The number one focus should be on dealing with subfloor dampness and lack of ventilation problems and also to try to educate home occupants in the ways in which they can assist in keeping homes drier and more comfortable.