Super City spends $134 million settling leaky building claims

Property

The Auckland Council has spent $134 million settling leaky building claims in 2018/19, $49 million over budget

3rd Oct 19, 4:05pm by Stephen Forbes

The cost of leaky buildings remains an ongoing drag on the Auckland Council’s finances, with the latest figures showing it spent $134 million settling claims in 2018/2019.

The Auckland Council’s recently released annual report states:

“The provision for remediation of weather tightness claims expense exceeded budget by $49 million as a result of the high costs associated with multi-unit claims.”

It says the Auckland Council is required to include for weather tightness claims covering active, reported and unreported claims in its accounts.

“Weather tightness claims include costs of remediation of weather tightness issues as well as the remediation of other defects included in weather tightness claims for which the council is liable e.g. structural and fire system defects.”

The report shows it currently has 510 reported claims on its books and of those 395 are multi-unit dwelling and 115 are single dwellings. Council projections estimate a further 549 dwellings are currently unreported, of which 487 are multi-unit dwellings and 62 are single dwellings.

As of June 30 it had allocated $238 million for weather tightness claims, with expected settlements in 2020 projected to cost $88 million, $62 million in 2021 and declining thereafter. This includes active claims that have been reported to council, as well as those which council estimates it will have to pay for in future years.

Mayor's response

Auckland Mayor Phil Goff says the leaky buildings crisis has cost the city $600 million and it remains an ongoing problem.

He says Auckland Council outlined its concerns in a submission on the Government’s proposed changes to the Building Act and Building Code in June.

Goff says the council would like to see an end to the use of joint and several liability, as well as new standards requiring designers, builders and product manufacturers to guarantee their work.

“Why do we the ratepayers have to keep bailing out shonky builders, designers and product manufacturers?”

Legal liability

Under joint and several liability where two or more parties are liable for the same loss or damage to another party, because of separate wrongful acts, the rule holds both or all of the wrongdoers 100% liable for the loss caused.

The party that suffered the loss can claim against one wrongdoer to recover the whole of the loss. The defendant can then seek contribution from any other wrongdoers.

In many cases involving leaky buildings, councils have been the only party property owners can take legal action against if the builders and developers involved aren’t trading under the same name. This has meant in many cases they have been able to avoid legal liability.

“We would prefer proportionate liability,” Goff says.

But he concedes a liability cap may be the next best option.

“I think these are changes that are needed.”

Slow progress

In April the Minister of Building and Construction Jenny Salesa announced plans to change both the Building Act and Building Code. She said as part of the overhaul it would look at how risk and liability are managed in the industry, as well as looking at improvements to the regulation of building products; strengthening occupational regulation and increasing penalties for those who don’t comply with the law.

The Ministry of Business, Innovation and Employment (MBIE) released a discussion document to accompany the Government’s proposed changes. The MBIE paper recognised some of the problems the existing legal framework had created for councils. But it didn’t recommend getting rid of joint and several liability.

The legislation outlining the Government’s proposed changes to the Building Act hasn’t yet been introduced to Parliament.

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7 Comments

by Dale Smith | 3rd Oct 19, 5:47pm 1570078035

You would think that paying this every year would be enough of an incentive to actually provide the solution to stop it happening in the first place, rather than shift who is liable to pay for it when it inevitably goes wrong.

And if you want to be the monopoly authority and charge the fees to match, then it is appropriate that you take your share of the responsibility.

This cost is only the tip of the iceberg of the total cost. They also have the contingent cost for leaky home 2 syndrome that is starting to come through now as well.

by The Person | 3rd Oct 19, 10:18pm 1570094286

The council is saying they don't want to have to charge fees to cover the whole risk. They are not trying to avoid taking their share of the responsibility, they are saying they don't want to have sole responsibility. Just make the builders have compulsory insurance like in Oz. Insurers won't fall for simple tricks like winding up a company and starting a new one to avoid responsibility for your actions.

by Dale Smith | 4th Oct 19, 11:43am 1570142587

Yes I agree that is what they are saying, but my point is this, the fees are a revenue stream to them which they will still want even if their responsibility drops, and as their amount of time spent drops as the burden for some of the work they did is passed onto someone else.

I would be very happy to see a compulsory insurance but insurance is meant to cover exceptions to the norm. What we have now, is the exception IS the norm and no insurance company would want to cover that, or if it did the cost and the policy exclusion would make it hardly worth it.

The real blame lies with Central Govt. that have allowed building laws to become decoupled from the building science of building to a warm, dry, healthy standard, which can be achieved affordably. The council are having to administer a system that results in first, unaffordable homes, and then 2, poorly build homes that leak, and are costly to run.

My only issue with council policy, is they would have still been quite happy to take the money and responsibility, if the system had not also caused the monster that leaky homes as become. Now they just want the money.

And many of the same building regulations that allow this still exist, plus the other unintended consequences (except to those that understand how houses operate, which seems to be no one who is in charge) like leaky home 2 syndrome.

To council this money is revenue, will to the rest of us it is non-value added cost (waste).

Where is the voice of council to make real changes to how our houses are built? But as they say, 'It is is hard for someone to understand something when their income is dependent on them not understanding.'

Now that the cost of leaky homes is north of $600 million, maybe that might be enough of a cost to make them make real changes, but until then, if they are wanting to be the monopoly that they are, then the buck does stop with them.

by Davo36 | 3rd Oct 19, 7:14pm 1570083278

Yep, the councils need to be indemnified from this. Might be the only way they process building consents in a timely and cost efficient manner.

by Dale Smith | 4th Oct 19, 11:57am 1570143433

The quality of consented plans is bad enough, even with the responsibility. Can imagine what would happen if you took that away.

Public are getting the worst of any world at the moment, costly housing that is of a low standard.

First what need is a system that gets houses built to the right standard, so we don't get leaky homes etc. Then we need a way to achieve this in a timely and cost effective manner.

Our present standards mean that even if you build perfectly to that system then your house will more than likely not perform to the standard required of providing a warm, dry, healthy home, and therefore there will be liability passed down over time.

Whether it be council or someone else, they are having to pass as compliant, houses that will never perform as needed.

by glimmertwin | 4th Oct 19, 8:47am 1570132074

I note that Phil Goff makes no mention of the council building inspectors or governing body who during this debacle have been responsible for signing-off on leaky buildings.
And no doubt the same in-ept,over-paid bureaucratic governing body continue to police the industry. The rate payers are having to fork out but in return should demand way more accountability from Phil Goff and or the council of the day.

by unaha-closp | 4th Oct 19, 2:15pm 1570151735

Auckland style CCOs have been found to be completely separate enterprises (the Lauren Southern free speech debacle is not subject to judicial review due to this complete separation). Auckland might now establish its inspectorate branch as a CCO. When the next wave of building faults becomes apparent, the council can cease trading as that CCO and establish another.

Would that work?