Original article found at NZLawyer magazine, issue 173, 18 November 2011

The Unit Titles Act 2010 (Act) came into force on 20 June 2011, and since then bodies corporate have largely been concerned with the immediate changes required in relation to governance and management under the new Act, including mandatory changes to body corporate rules. The Act requires that all bodies corporate hold an AGM within six months of the new Act coming into force, and as this deadline looms, they are faced with a number of additional operational considerations including the establishment of a long-term maintenance plan and whether or not they will adopt long-term maintenance, capital, and optional contingency funds, all of which are likely to have an enormous impact on the ongoing physical and financial management of their properties.

The maintenance plans
There is now a compulsory requirement to draft and maintain a long-term maintenance plan for the common property, outlining capital works required to maintain that property over a minimum 10-year period. Under the new Act, the definition of common property for which the body corporate is responsible has increased to include all building elements and infrastructure including the roof, balconies, decks, cladding systems, retaining walls, gutters, pipes, wiring in common ducts, and lifts – and while this is not an exhaustive list, it provides good insight into the extent of the body corporate’s responsibility for the maintenance and upkeep of the building. Although the essential components of the long-term maintenance plan are set out in regulation 30, the requirements are very broad, and very little direction is given in respect of the required form and content of the document, or in fact who is qualified to prepare it.

To complement the long-term maintenance plan, there is also a provision to set aside money as a long-term maintenance fund – or what is often referred to as a sinking fund – into which money is paid on a regular basis by body corporate levy to provide for the maintenance requirements set out in the maintenance plan. The fund, unlike the plan, is not compulsory, although to not have a fund seems to completely negate the purpose of the plan, which aims to more efficiently plan and predict maintenance works required and the expenditure needed to fulfil the plan without having to resort to one-off, lump-sum, unplanned payments as and when issues arise.

Long-term maintenance planning is commonplace internationally, and the concept of ‘reserve planning’ and its complementary ‘reserve fund’ is well-developed in North America. ‘Associations’ – the equivalent of New Zealand’s body corporate – are required to adhere to strict requirements in respect of form and content, and long-term maintenance planning and funding models are prescribed by law. Physical and financial analysis is therefore of paramount importance and there are serious consequences for non-compliance. Looking at the North American reserve planning systems provides some valuable insight into the way effective maintenance planning is implemented, and although it is a very new concept in New Zealand, it is an indication of how we should look to protect what is often our greatest financial investment and asset – especially in light of the losses that have been suffered through deregulation of the building industry and the leaky building epidemic.

Before a long-term maintenance plan can be put in place, it is essential that the current condition of the property is established. This requires an assessment of every building element, the materials used, their life expectancy, and current condition, as it is impossible to accurately forecast future capital expenditure without doing so. The condition survey will provide a starting point – day 0 – for the long-term maintenance plan, and will similarly assess the financial reserves held by the body corporate for the purposes of determining contributions to the long-term maintenance fund.

Meeting the provisions of the Act
In light of the leaky building epidemic, there will undoubtedly be some concerns for bodies corporate as they are required to meet the provisions of the new Act. There are still many buildings that undoubtedly suffer from water ingress (by virtue of the construction methods and materials used), but until now, unit owners have been able to adopt a ‘head-in-the-sand’ approach and ignore what is obvious – and what will undoubtedly become an incredibly long costly process of investigation, remediation, and potentially legal action should they choose to address it. Of course, by virtue of the drafting in the new Act, it may be possible to continue ignoring the problem. There is no requirement that a long-term maintenance plan should be drafted by a registered or chartered building surveyor. As no building surveyor or professional is going to be able to go on to the property for the purpose of developing a long-term maintenance plan without identifying the obvious issues, unfortunately, bodies corporate will start to look at other options. There are already a number of companies popping up offering quick and cheap maintenance plans which satisfy the minimum requirements of the Act, and it is inevitable that some bodies corporate will resort to the amateur approach. There will be those who see a fast buck to be made in this situation; a simple solution in order to placate the perceived requirements of a client who sees the Act as another piece of legislation to be skirted around rather than being approached head on.

There is certainly, at this stage, a sense that the minimum to comply with the statutory requirements is adequate. However, ultimately, it is not, and money spent now will return future benefits with interest. Add to that the impact of the tight financial times – once again, it is not hard to see why the easy option may be preferred, but to do only the bare minimum as far as maintenance schedules and funding are concerned will, as time goes on, increase the expense both in building remediation and professional fees. The age-old problems will continue to arise whereby members of a body corporate simply cannot afford the cost of remedial or maintenance work, particularly where that work is required to be carried out in the short-term future. Sadly, past experience has shown that the property industry has opted for the cheap option and this has, in our view, been a major contributor to the crisis surrounding ‘leaky buildings’. Have we not learnt from prior experience and mistakes?

It is therefore arguable that the only people suitably experienced and qualified to provide a proper assessment of long-term maintenance requirements are registered or chartered building surveyors working with registered or chartered quantity surveyors who can establish costs. Surveyors are trained to properly assess a building and its components. They are qualified to prepare a long-term maintenance plan, prefaced by a comprehensive condition survey broken down into the individual elements of the building through a detailed understanding of building and construction, and they work alongside quantity surveyors who can accurately assess expenditure for the complementary long-term maintenance fund. A long-term maintenance plan prepared in this manner will be comprehensive and complete, and will be easy to review every three years (at minimum) as required by the Act.

A living document
Ideally, a maintenance plan will be a live working document which will enable bodies corporate to – within the framework and recommendations of the plan – adjust it to best suit their needs. Long-term maintenance plans should, following the lead of other similar jurisdictions and the increasingly available technology, be easy to use, manage, and update, although quite obviously even if a proper plan is put in place, it does not ensure compliance. Compliance will have to be a self-regulating mechanism.

Notwithstanding the risks involved, there are going to be many inadequate maintenance plans and funds established both now and in the future until the true impact of substandard planning and inadequate assessment of a building, its elements, construction, and condition is realised. Consider a plan which inaccurately assesses that $30,000 a year should be put aside to maintain the roof, which subsequently in two years’ time in fact requires replacement at a cost of $300,000. Unfortunately, this type of scenario is going to occur, and it is not only going to catch out the amateurs looking to make a quick buck, but also trained professionals, if a proper assessment and condition survey has not been completed.

A well-maintained building will always provide value to the members of the body corporate. Complying with the Act and producing a maintenance schedule as required, recording both past and predicted future maintenance, will be something that purchasers and their legal representatives will be asking for, and a body corporate which has inadequate information will be exposed to the market. Not enough time and money invested in good planning now will inevitably result in large amounts of time and money invested in the future, when the impact of the new Unit Titles Act 2010 and inadequate planning is truly realised.

Richard Maiden is a director, and Rebecca Ward in-house legal counsel at Prendos New Zealand Limited. Richard can be contacted on richard@prendos.co.nz, and Rebecca can be contacted on rebecca@prendos.co.nz.

Original article found at NZLawyer magazine, issue 173, 18 November 2011

If you have any questions or would like more information about anything in this article – contact Prendos today on 0800 773 636

Prendos Director, Sean Marshall, was delighted to present the Prendos Property & Construction Law Award at the recent NZ Law Awards.

Prendos has been sponsoring the Prendos Property & Construction Law Award for the last 5 years. This years Awards Dinner event was held on 10 November at the Viaduct Event Centre, represented by Company Directors Greg O'Sullivan, Richard Maiden, Sean Marshall and Business Development Manager Martine Fernandez.

The calibre of nominees in this category was very high and the finalists were: BlackmanSpargo Rural Law Ltd, Cavell Leitch Law, Meredith Connell, Queen City Law, Peter Ferguson – Simpson Grierson and Wynn Williams & Co. 

The event was held on a beautiful spring evening at the new Auckland Viaduct Event Centre on 10 November, and the winner was Queen City Law.  Marcus Beveridge is seen here accepting the award from Sean Marshall.

Click Here to watch this episode of Target at the TV3 On Demand website.

The Weathertight Homes Resolution Service ("WHRS") is now offering a financial assistance package ("FAP") to eligible leaky home-owners.  The package will see the Government contribute 25% towards the cost of repairing an eligible leaky home with the possibility of an additional 25% contribution by the relevant council.  Other parties can opt to join in. 

The council's contribution is dependent on their involvement in the consent process, and also assumes they have opted into the scheme.  The remainder of the repair costs will be funded by the homeowner and action can be taken against other parties who have not joined in, for example the designer, builder and other subtrades, through usual legal processes.

Eligibility is determined using the same criteria currently in use by the WHRS.  A claim must be brought by the owner of the house, the house must principally be used for residential purposes, the house must have been built or altered within the 10 years immediately preceding the date of lodging the claim, it must have been leaking, and there must be damage as a result of the leaks. 

Participation in the scheme is optional and even if you are found to be eligible and opt into the scheme, there is the opportunity to opt out again once a full assessment of your position has been made and you have a better idea of the repairs required, your qualification for FAP contributions, and your ability to fund your portion of the repairs.  If you are considering making use of the financial assistance package we would recommend registering a claim with the WHRS as soon as possible.

There are other dispute resolution processes available to owners of leaky homes which should still be considered.  It is important to properly investigate the options available to you, and we would advise obtaining legal advice as much will depend on the individual facts of your case.

For further information about the financial assistance package visit the Department of Building and Housing's website at http://www.dbh.govt.nz/ws-proposed-financial-assistance or http://www.leakyhomes.govt.nz or call Weathertight Services on 0800 324 477.

John Green, Director of the Building Disputes Tribunal appears in and provides commentary on the leaky building crisis in 'A Rotten Shame'. John Gray (of HOBANZ) presents this compelling and shocking documentary, investigating the leaky building disaster in New Zealand.

If you'd like some advice on what to do about your home, call us on 0800 773 636

Click on the image below to watch A Rotten Shame on the TVNZ website

 

The 105-bed Mason Clinic needs major repairs. Photo / Richard Robinson

The leaky building crisis has hit a public hospital for the first time, and an industry expert expects more to follow.

The 105-bed Mason Clinic, Auckland's regional forensic psychiatry facility, needs major repairs, its operator confirmed yesterday.

The Waitemata District Health Board's secure clinic in Carrington Rd, Mt Albert, houses offenders with mental illnesses or intellectual disabilities. It serves the Northland-Auckland region and, for the intellectually disabled, the North Island north of Taupo.

The prospect of leaky hospitals adds to the Government's headaches over leaking private homes and schools. It has been estimated that fixing buildings at the 160 schools identified earlier this year as leaky will cost $1.5 billion.

The Mason Clinic opened in 1992. At least $15 million has been spent on erecting the original and later buildings, which total eight units in six main buildings.

Alan Wilson, the health board's chief operating officer, said an investigation of the clinic by building consultants CoveKinloch in May found that extensive remedial work was required.

"Five inpatient units have been assessed as having significant moisture problems. These units account for 78 beds out of a total of 105 beds at the facility.

"These units will require recladding and in some instances reroofing.

"The units have been deemed safe for occupation, although the issues identified with each building will need to be addressed as continued moisture ingress will, over time, pose health risks."

The clinic's office and administration centre is also leaking.

Three areas have been deemed unfit for occupation: one bedroom in a secure rehabilitation unit; a flat used by the visiting families of patients; and the cultural worker's office.

Mr Wilson said the cost of the repair work was still being worked out and a plan was being developed for consideration by board members.

"It will, however, most likely involve fixing one building at a time, with affected residents in each inpatient unit transferred to a temporary facility while this work takes place.

"We are still looking at various location options for this temporary facility, including off-site."

When asked if the DHB had started any legal action over the weather-tightness failure of the buildings and the repair costs, a spokesman said it had sought "a legal opinion".

Leaky building expert Philip O'Sullivan, of building and quantity surveying firm Prendos, said he was aware of leaky resthome/hospitals, but the Mason Clinic was the first public hospital he was aware of to be identified as leaking.

"If it is the first, it won't be the last. It's no surprise."

He said the same poor workmanship, designs and materials had been used in hospitals as those that had led to the leaky home crisis.

Health Minister Tony Ryall's office said the Mason Clinic was the only leaky public hospital of which the National Health Board had been notified.

By Martin Johnston | Email Martin

Original article in NZH: http://www.nzherald.co.nz/health/news/article.cfm?c_id=204&objectid=10738344

Cutting the capital value of a property on the basis of its appearance – how fair is that?

If a house is soundly built under improved codes and showing no signs of leaking, why should valuers paint it with the brush of suspicion?

The short answer is that council rating valuations reflect market selling prices, and valuers must take note if the market is discounting a certain style of property, even if the buyer logic is flawed.

But John Gray, champion of people caught up in the leaky home saga, thinks such a "blanket approach" is unfair.

He calls rating valuations "a waste of time" because the true value of a property cannot be set until its condition has been established through a proper building inspection.

In his view, up to 30 per cent of homes that are leaking now, or will over time, do not involve monolithic cladding.

"It is incredibly unfair to start valuing homes on the premise that Mediterranean homes with monolithic cladding are leaky or potentially leaky, when other homes which may not have that appearance may pose a greater risk," says Mr Gray.

"This [the valuer-general's directive] is going to perpetuate that myth."

Mr Gray says there is nothing wrong with monolithic cladding if it is properly used and installed.

"Buyers may be turning on their heels when they see a monolithic home, but that home may be well built and watertight – and the home they eventually buy down the road made of some brick veneer, say, could be poorly built and slowly rotting."

Greg O'Sullivan, a principal of Prendos, the building consultancy which first spoke out against the leaky home problems, himself owns a sound monolithic-style home and accepts the market reality of dropping capital values.

"It may seem unfair," he says, "but rating valuations are driven by market forces and fairness and rating valuations are not always mutually compatible."

By Bruce Morris

Original article: http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10735865

The Unit Titles Act 2010 and accompanying Unit Titles Regulations 2011 came into force on the 20th of June 2011. 

For existing bodies corporate, a number of provisions of the Act do not come into force immediately and can be phased in over a 15 month transition period.  This includes the requirement for a long term maintenance plan and a long term maintenance fund. 

Section 138 of the Act requires the body corporate to "…manage, maintain and keep in a good state of repair the common property…" and to that end section 116 requires that a body corporate must have a long term maintenance plan for at least 10 years.  Clause 30 of the Regulations requires that the plan must be reviewed at least every 3 years and disclosed to unit purchasers, along with past and future anticipated expenditure on maintenance matters.  However whilst the plan is mandatory, the sinking fund, or long term maintenance fund is not, and under section 117 of the Act bodies corporate are able to opt out of this provision by Special Resolution.  In most instances it is unlikely (and would be impractical for) a body corporate not to establish such a fund and the fund is particularly appropriate for large developments to accommodate predicted maintenance costs and provide for regular contributions by unit owners to underpin the plan.

The deadline for a body corporate having a maintenance plan in place is 1 October 2012, although at any time prior to that date, a body corporate can vote by special resolution that any or all of the transitional provisions apply earlier.  Procedurally, although it is not entirely clear in the Act, it appears that existing bodies corporate will need to hold an AGM within six months of the commencement of the Act in order to make decisions relating to the long term maintenance plan and fund.  Of course this may not coincide with a body corporate's current reporting and accounting cycle, and it must be taken into consideration that if decisions are not reached at this meeting a second will need to be held before 1 October 2012 otherwise it may be too late and the default provisions will apply.  It is therefore advisable to start planning for these changes earlier rather than later.

Prendos is experienced in the compilation of maintenance plans and the forecasting of future cost.  Contact Sean Marshall or Richard Maiden to discuss your options further today.

CONSTRUCTION
Christchurch – building the future
Richard Maiden and Rebecca Ward review the impact of the Canterbury Earthquake Recovery Act 2011 and the Canterbury Earthquake (Building Act) Order 2010 on the repair of earthquake-damaged buildings

The recent earthquakes in the Christchurch area have caused massive damage to its buildings and infrastructure requiring the region to embark on a major programme of reconstruction.

To ease the ‘red tape’ surrounding the legislative requirements for building work, the government passed the Canterbury Earthquake Response and Recovery Act 2010 (now repealed and replaced by the Canterbury Earthquake Recovery Act 2011 (CER Act)) and the Canterbury Earthquake (Building Act) Order 2010 (CE(BA) Order). While heralding immediate and obvious benefits, these pieces of legislation raise a number of concerns because the far-reaching consequences of the changes they endorse may not, in their entirety, be realised for some time to come.

Building consents
An issue at the forefront of this legislation is the immediate need to make dangerous or unsanitary buildings safe. The CE(BA) Order (as amended on 13 December 2010) empowers Christchurch City Council, Selwyn District Council, and Waimakariri District Council to (amongst other things) demolish buildings owned by others and may require owners of damaged building to demolish them, based on inspection and categorisation as to the degree of damage.

Under section 38 of CER Act, the Chief Executive of the Canterbury Earthquake Recovery Authority (CERA) is also given extensive powers and may “carry out or commission [building] works” as he sees fit. Building Works include demolition as well as erection, reconstruction, removal, and disposal of any building. Under normal circumstances, a building consent would be required for such works, and at section 38(6) of the CER Act, the requirement to obtain resource and/or building consent is reinforced but qualified by stating that this requirement can be varied by an Order in Council made under that Act. In addition, section 6 of the CE(BA) Order extends the provisions of section 41 of the Building Act 2004, adding at section 41(1)(e) the circumstances in which a building consent is not now required and includes the exemptions, modifications, and extensions pursuant to the Order.

On a practical level, this means that where a building consent would usually be required for the demolition of a building, in the Canterbury regions, now it is not.

As yet, there appears to be no revision to the present and existing requirements to obtain a building consent for general building work as opposed to demolition work, and the only exceptions are provided in Schedule 1 of the Building Act. Paragraph 1(a) of that Schedule allows any “lawful repair and maintenance using comparable materials, or replacement with a comparable component or assembly in the same position, of any component or assembly incorporated or associated with a building” to proceed without a building consent. However, paragraph 1(a)(ii) excludes any “component or assembly contributing to the building’s structural behaviour or fired safety properties” and similarly in paragraph 1(a)(iii) any “repair or replacement (other than maintenance) of any component or assembly that has failure to satisfy the provisions of the building code for durability, for example, through a failure to comply with the external moisture requirements of the building code” is excluded and still requires a building consent.

Complying with the Building Code
We do not believe that earthquake damage can be construed as a building durability failure, but the compromising of the structural behaviour or fire safety of a building by an earthquake would generate the requirement to obtain a building consent. Consequently, once the initial period of demolition has passed, we foresee overworked Council officers desperately trying to process a huge volume of applications for the rebuilding and repair of earthquake-damaged buildings.

It is important to remember that while the resource and building consent requirements may have been relaxed, it is still a requirement that any building works must comply with the Building Code. The Building Code applies equally to demolition and new construction, including the rebuilding of demolished buildings and the repair of existing buildings, and it is in this area that extreme care should be taken by all parties in the building process, including owners, professional advisers, builders, and what are known as subcontract trades such as plasterers, plumbers, roofers and the like.

And so we are left with a looming problem for the future. In an attempt to promote the rebuilding of Christchurch as quickly as possible, there is a risk of constructing buildings, refurbished or new, that do not comply with the Building Code. And in light of the fact that the Building Code is performance-based, many buildings may in the short-term be seen to perform, but in the long-term are likely to fail. For those of you in the ‘leaky building’ arena, this statement will have some resonance. It is so often the case that damage to buildings goes unnoticed by a lay owner for many years, or is alternatively concealed within the structure of the building, and by the time it is found, it is too late to carry out economic repairs. Carrying out building work or repairs to existing buildings that is compliant with the Building Code is a complex process and requires a high degree of technical knowledge, and in the haste to rebuild Christchurch, there is the very real risk these standards will slip.

Ensuring long-term durability
Required remedial works will obviously vary depending on building type and age, and there will be a wide range of damage suffered as a result of the earthquakes impacting on weathertightness and long-term durability. Despite any relaxation of the requirement for a building consent, compliance with the Building Code is still required, and in the rebuild and repair of existing buildings, particular attention should be paid to the impact of code clauses E2 (External Moisture) and B2 (Durability). With this in mind, potential future and subsequent building owners will need to exercise extreme caution when purchasing buildings in the Christchurch area.

There are many examples of commonly experienced earthquake damage, from flashings above windows and doors becoming dislodged allowing water entry, to the movement of foundations. While the movement of roof flashings (causing water entry) may seem a relatively minor defect, this would in all probability go unnoticed for months ,if not years, depending on the amount of water entry, but, nevertheless, it would be sufficient to promote fungal growth in any timber present.

Cracks in cladding (on timber-framed buildings) or in the surfaces of masonry buildings will cause water entry. It is not enough to simply repair a crack, as water which has entered the wall will have little ability to dry out, thus causing fungal decay behind a repaired wall and a festering problem for future discovery.

Foundation movement has significant issues for long-term durability – not only with structural integrity but with the adequacy of damp-proof membranes. If a damp-proof membrane beneath a concrete floor slab has been ruptured by seismic movement, then the ability of the floor to comply with the Building Code is compromised, and the floor is likely to develop damp patches, causing damage to anything in contact with it, such as floor coverings, skirting boards, and the like.

The waterproofing of basements raise similar problems to foundation movement, and the rectification of both can usually only be achieved by removal or chemical injection and/or a chemical coating.

Some buildings may be constructed on reinforced concrete or timber piles which are joined to a concrete floor slab, and seismic movement may compromise both the piles and the junctions to floor slabs. An area of expertise better left to structural and geotechnical engineers, but of concern to any building surveyor.

There will also be instances where the level of the ground has risen, and we see potential claims surrounding the issue of the levels between the internal floor slabs and the exterior ground surface causing a weathertightness problem, ie the wall cladding becoming too close to the ground.

There are obvious issues where drainage pipes and other underground services have failed, and structural movement will have caused obvious stresses and failure of building elements including roof trusses, seismic restraints, and fire protection.

Earthquake failure vs poor building practice
The difficulty for the future in building failure investigation will be discerning between failure due to the earthquake and failure due to poor building practice, including poor building practice during the rebuild. A crack in a building’s cladding can usually be identified as to its cause and time of occurrence, but, of course, there will be claims that the earthquake caused the damage to the cladding of a building (we have a client currently in Auckland who believes this to be the case!).

Should the Chief Executive see fit to relax the provisions of the Building Code for Christchurch in order to speed up the rebuilding process, then we see an ample supply of work for building surveyors, lawyers, and dispute resolution professionals in future years.

Richard Maiden is a director and Rebecca Ward is legal support with Prendos. Richard can be contacted on 09 486 9420 or richard@prendos.co.nz, and Rebecca can be contacted on 09 970 2619 or
rebecca@prendos.co.nz.

NZLawyer magazine, issue 160, 20 May 2011

Every so often a job comes along that is different.  This one involved leaks around showers in a large two level accommodation building with concrete floors.  What made it both interesting and difficult was the inherent risk of the closeness of the ground water table to the floor slab. 

Showers were wetter on the ground floor than the first.  The ground floor leaks were generally more pronounced at both ends of the building.  Investigations included drilling observation water wells through the ground floor slab at each end and in the middle of the building and monitoring water levels over time during different weather conditions.  The ground water level was found to be relatively stable.  It was suggested there could be overloading of the subsoil drains causing occasional fluctuations.  Investigation trenches were dug, but nothing to support this as a cause was found.  We then used video cameras to inspect the subsoil drainage system and the adjacent stormwater system.  We found the subsoil drainage was working well, except in the middle of the building, where these drains were dry.  Here we found the ground water was leaking into the stormwater system, thus lowering the water table. 

We destructively investigated one of the showers.  The under-tile waterproofing membrane was too thin, but we could not rule out the ground water being a contributing cause given the correlation between dampness to showers on the ground floor and the groundwater level.  We were faced with a dilemma!  Should we repair the showers with the risk of ground water causing further damage? 

One of the showers had to be decommissioned due to mould contamination.  We were monitoring the moisture content in the bottom plates adjacent to the shower areas and found this particular shower was drying out.  This strongly supported the view that leaking through the membrane was the problem, but we still had a nagging doubt, given the close proximity of the water table. 

This decommissioned shower then became damp again.  The volume of water indicated a plumbing leak rather than groundwater.  We decided to remediate this shower followed by others and to monitor the moisture content of the bottom plates to determine if groundwater was a contributing cause.  As we progressed we became more and more satisfied that groundwater was not a cause of the dampness. 

In total 80 showers were rebuilt.  Of these, 90% had membrane failure, 20% had plumbing leaks and there was no contribution from groundwater.  The monitoring program also confirmed the repairs were effective. 

Moisture monitoring, when undertaken in the right circumstances and for the right reasons, can have benefits.  The more important lesson is that undertaking remediation, rather than persisting with investigations is usually the more reliable way of determining the causes of faults.
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