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Auckland Council says its yet to be determined provision for leaky commercial buildings won't be as big as its NZ$417 mln one for leaky homes

Posted in Property
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By Gareth Vaughan

The Auckland Council is yet to finalise the size of its provision for leaky commercial buildings but its Treasurer Mark Butcher says it won't be as large as the NZ$417 million provision the Council has for claims stemming from leaky residential homes.

In a decision against the old North Shore City Council, now part of Auckland Council, in relation to the Spencer on Byron Hotel, the Supreme Court ruled in October that councils owe a duty of care to the owners of all buildings whether they be residential or commercial, with this duty to ensure those buildings comply with the building code. In its investment statement for last week's NZ$125 million retail bond offer Auckland Council said the Supreme Court had extended its duty of care in relation to leaky buildings to non-residential buildings.

In a Double Shot interview with interest.co.nz Butcher said the Council was going through the same process as it did to come up with the NZ$417 million provision in its accounts for residential leaky homes, which was based on an independent actuarial assessment.

"We would not expect it (the non-residential provision) to be as big," Butcher said.

There were a number of reasons for this, with the first being that the window for claims is shrinking.

"One is the 10 year stop gap on liability under the Building Act. So you have 10 years from when a code of compliance certificate is issued to make a claim. So that means that we are liable currently for any claims from December 2002 onwards."

"Secondly there’s a last man standing approach," Butcher said. "And what we’ve found under the residential (leaky home issue) is that council is last man standing and that developers, builders have all gone into receivership or moved on."

But in contrast, the commercial building activity was mostly done by large scale construction-development companies still in existence, plus big professional architectural firms, which carry insurance.

"So the last man standing is probably not as relevant with non-residential (leaky buildings) as it is with residential (leaky homes)."

"So long story short, we’ve seen a very small number of claims. We haven’t got the final numbers yet because it is independently assessed by an actuary. We’ve really got to wait until they go through that process. (But) the credit rating agencies (Standard & Poor's and Moody's) have already looked at it, and they’ve said from their perspective there is no issue."

Butcher said with residential claims the council provides for them, then when they are paid it borrows to cover the cost over a 30 year term. It would do the same thing for non-residential provisions.

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