Leaky Building Syndrome: Will Australia Be the Next to Suffer?
By Kim Lovegrove RML, FAIB, Senior Lawyer, Lovegrove & Cotton.
Is Australia set to follow in the footsteps of Canada and New Zealand and face its own leaky building syndrome disaster in the near future? Canada had the ‘leaky condo crisis’ – over four billion dollars’ expended on condo remediation work. New Zealand has had its own leaky building maelstrom, which has cost the country, according to some estimates, up to 23 billion dollars.
Australia may be embarking upon its own dire journey as more and more cases are being filed by strata communities for leaky apartments.
The leaky building syndrome appears to be relatively new phenomenon, a modern day industry-specific maelstrom. Looking at both Canada and New Zealand, can we determine whether Australia, which is experiencing its own leaky building genesis, can avoid or at least contain a leaky building scenario that as it stands looks ominous?
Condominium owners bore the substantial brunt of the ‘leaky condo’ or ‘rotten condo’ debacle and the highest estimates of properties affected are upwards of 31,000. It is very hard to be definitive about the number of ‘leakies’ in Canada and New Zealand as it can take many years before the leaky malaise expresses itself fully. Water damage can be a slower burner, hence, it may be some years down the track before the magnitude of the building fabric corruption becomes sufficiently pernicious to make the property uninhabitable.
Nevertheless, the problem in Canada, although not as monumental as New Zealand, has assumed major proportions. In a report titled The Vancouver Experience, written by Don Hazleton of the Building Envelope Research Council and featured in a piece published by the Claddings Institute of New Zealand, it was stated that the leaky condo crisis has, in aggregate, resulted in the most expensive residential remediation paradigm in the history of Canada.
The cost of the Canadian leaky condo
In financial terms, more than $4 billion has so far been expended on remediation of leakies. According to research gathered in a background briefing paper prepared for the NZ Parliament in 2002 on leaky buildings, the average repair cost per apartment in a British Columbian leaky was $CA 23,000.
In terms of human cost, there has been a great deal of unhappiness as condominium owners have become incarcerated in their own homes, as they have become captive to the funding of sometimes immense remediation costs and special levies. Sadly, many of the current victims are elderly and derive meagre incomes, as they are often a demographic that lives in abodes built in the 1980s.
In addition, as the area has become a fertile area for litigation, consumers have had to cough up large sums of money to fund expensive lawsuits against some of the more nefarious elements of the construction industry, and the stress and financial burden of running these cases has been terrible for many hapless litigants. Like New Zealand, the leaky building paradigm spawned a hybrid industry where a new breed of specialist lawyers and moisture diagnostic consultants carved out a living, and in the case of some, a very lucrative living.
Aforementioned pensioners face the greatest challenge in light of their dwindling revenue streams and, by all accounts, according to an observation made by the previous New Zealand Minister for Construction Maurice Williamson, there does exist the ability for Canadian pensioners to have the remediation costs taken out of their estate when they die. Rank and file tax paying citizens are compelled to appropriate monies from their estates to pay for repairs that emanate from the state’s systemic failure.
Health is also affected regardless of whether it is mental health or respiratory ailments emanating from toxic mould.
Some of the factors that led to the rotten condo crises in Canada
Ill-conceived, compromised design and expedient construction methods garnished with shoddy workmanship were all factors that compromised construction outcomes.
However, one of the main causes of the rotten ‘condo crisis’ in Canada concerned fraught building envelope design and construction method. A 1998 Commission of inquiry found:
- design features were inappropriate for the climate
- a reliance on face-sealed wall systems
- a fundamental lack of awareness regarding principles of enclosure design suitable for climate
- a lack of meaningful inspection at critical stages of construction
- the regulatory system was unable to understand that failures were occurring and failed to address them
Another issue concerned the metamorphosis of Canadian building regulations that resulted in problems associated with condensation. Regulations passed in the 1980s were responsible for introducing changes to require greater sealing of external walls to prevent infiltration of vapour from the interior of the building. Sealing of walls prevents the walls from “breathing” and drying out in warmer months.
Increased resort to acrylic mediums such as stucco rendering compounded the problem. When speaking of a project, named The Manhattan that was plagued by the leaky condo crisis in 2004, Times Colonist writer Malcolm Curtis wrote, “water [can leak] into the building around windows and ‘joins’ in the stucco exterior…Like other condo buildings of the era, The Manhattan was well insulated but water entering the structure had nowhere to go. Workers are now ripping out the stucco and sodden insulation and will be installing a drainage system to ensure any seepage wicks away from the building.”
Typical of boom conditions, the 1980s bore witness to a hyper-competitive, cost-cutting environment that attracted too many construction actors who paid homage to the commercial rather than the consumer imperative. In their haste to complete projects, they were less than vigilant in achieving sound quality outcomes. A lack of independent peer review coupled with less than fully resourced statutory inspectorates ensured that compromised construction outcomes were more than infrequent occurrences. The same could be said about the market conditions in New Zealand in the early 1990s.
Although the overwhelming majority of leakies in Canada concern condominiums, Canada like NZ, has encountered major problems with leaky educational facilities which have required many millions of dollars’ worth of expenditure to right that damage. In an article titled Leaky BC schools to cost millions to fix, published by the Canadian Press on September 7th, 2008, it was reported that leaky schools would end up costing the taxpayer 380 million dollars.
“Of just over 700 schools built across British Columbia at the height of the shoddy construction era…..almost 400 schools are leaky or being assessed for leaks,” the article said.
Like most affected jurisdictions, it was a combination of factors working in combination with a number of actors. The factors were ill suited materials and the actors were under qualified building practitioners and ‘artisans.’
Deficient building regulations and municipal laws ensured that building controls were not as holistic as they should have been. The codes did not keep abreast with the new modes or building design influences of the 1980s. The codes did not adapt to ensure that the new design concepts were compatible with local climatic conditions and realities. Design scenarios changed but regulations did not change with sufficient alacrity and sensitivity.
The deficiencies in the inspectorial and oversight regime were compounded by a lack of independent peer review for various phases of construction. The net effect was that constructors who were not ordinarily motivated by best practice took short cuts or paid lip-service to and had insufficient regard to adherence to regulatory codes and standards on point.
Problematic design ensured that exterior mediums such as walls and facia lacked sufficient precipitation resistance elements to prevent water ingress. In a bizarre twist in the late 1980s, Californian-inspired designs became fashionable – bizarre in the sense that California is a far more arid jurisdiction and not climatically defined by the high levels of precipitation and hot and cold extremes that one associates with much of Canada. It thus beggared belief that design philosophies fashioned for totally different environments found their way into totally incompatible local habitat contexts.
In the late 1990s, a commission of inquiry into the ‘leaky condo crisis’ was initiated and chaired by David Barrett, many recommendations were forthcoming not the least of which were:
- the need to implement changes to codes and building regulations at both Federal and provincial level
- the establishment of licensing regimes for key construction actors, be they builders, designers and the like
An interest-free loan program was initiated and ran for more than a decade. It gave homeowners the ability to obtain interest-free loans to finance remediation for their leaky condos.
Some Canadian municipal jurisdictions such as British Columbia amended their local laws and imposed far more prescriptive codified regimes particularly in respect of building envelopes design and build.
Mandatory requirements for rain screen installation upon exteriors emerged. Furthermore, there was insistence upon the deployment of building envelope specialists to review and inspect building envelopes. Correspondingly, the accreditation or licencing of such specialists evolved to ensure that purpose specific skill sets were brought to bear to improve moisture resilience and imperviousness in the as built dynamic.
But just when you thought it was safe to go out into the water, a second wave hit.
A piece in Vancouver Sun titled Leaky Condo Crisis rears its head again in B.C. reported that, “A second wave in British Columbia Leaky Condo crisis is beginning to emerge, fifteen years after the first one subsided.”
Strata managers, in disclosing the status of condo wear and tear and leaky legacy in many instances for the purposes of depreciation calculations, revealed that some of the remediation works that had been carried out in previous years had failed to repair the original defects and deficiencies.
In a 2007 document produced by the British Columbia home protection offices, it was estimated that more than 71,000 condos that were built between 1982 and 1999 would experience leaks. A strata council member, Cherif Abdalla was quoted as saying that each condo owner was “looking at paying 71,000 dollars, which is putting residents – mostly seniors… in a tough spot.” Further, the Vancouver Sun piece cited the example of a Vancouver citizen who felt that it was likely that she was facing foreclosure because she couldn’t afford to finance 135,000 dollars in repairs.
Leaky building syndrome NZ – ‘an unmitigated fiasco’
It is estimated that in the order of 80,000 New Zealand homes fell prey to the Leaky Building Syndrome. The financial fallout estimates range from anywhere between $11 billion and $23 billion and when you consider that NZ has a tiny economy, the leaky building New Zealand disaster had a far more widespread and profound impact.
One of the strongest condemnations of New Zealand leaky home debacle can be found in a paper delivered to parliament by Sue Kedgley in 2011, titled Leaky Homes Caused by De-regulation prepared for parliament. The paper was with respect to the Weathertight Homes Resolution Services (Assistance Package) Amended.
“We cannot emphasise sufficiently that the leaky building crisis is an unmitigated fiasco, the largest man-made fiasco in our history, with costs likely to be 22 billion,” Kedgley stated.
The MP added that the number of people that would be affected by said fiasco would be approximately 80,000 people, and noted that the leaky home disaster was “An abject lesson in what happens in the huge cost of de-regulation.”
In the mid-1990s, the late BIA Commissioner John Hunt – a well-intentioned man – was heralding the brave new world of freed up building control. Hunt was evangelical in extolling the virtues of the NZ new performance based code as being very much of the best practice persuasion in terms of the prevailing deregulationary ethos that had at the time captured the imagination of the politicians. At the time, I was pilloried for portraying a fairly pessimistic view of the new NZ Building Act and said code in an article I wrote for the Construction Industry Bureau on the potential impact of the deregulatory reform initiatives. Central to my thesis was the idea that the new regime was “deregulationary but devoid of safeguards.” It also inspired me to write a paper titled Deregulation with Safeguards that was presented in absentia to the Society of FIRE Protection Engineers in Washington DC. The key tenet of the piece was: do not deregulate unless you generate safeguards that designed to ensure that the freedoms that are part and parcel to deregulation are not abused.
My pessimism however was undercooked as none of us knew at the time the magnitude of that which would unfold over the next couple of decades.
For fear of belabouring the point, the debacle was indeed hatched in the early 1990s in circumstances when the then Building Act was amended and less prescriptive regulations gained currency and kudos. In a background briefing paper prepared for Members of Parliament published on the November 6, 2002, it was stated that “the ramifications of the problem are wide-ranging…the undermining of confidence in an industry central to the NZ economy, the risk to the health and safety of homeowners from toxic mould and structural failure.”
The NZ press has maintained a constant vigil regarding the toll that the leaky debacle has visited upon Kiwis. The 2016 piece titled Wellington City Council reveals the true cost of leaky homes reported that the leakies have cost billions of dollars with costs only expected to escalate as related health problems emerge. The piece noted there were second generation and sometimes even third generation leaky building repairs. The report concluded by laying blame on government “relaxation of building rules, local councils for signing off on consents and work… developers, designers and constructors.” The diagnostics are pretty similar to those of the Canadian experts on point.
The enormous cost of the New Zealand LBS
In 2009, Price Waterhouse was commissioned to prepare a report on the total cost of the LBS. It concluded that $12.2 billion would be the aggregate cost; other estimates exceed $20 billion. Roger Levie, founder of HOBANZ, was quoted in 2014 as observing that only 15 per cent of leakies had been remediated and owners invariably footed the bill anything up to 60 per cent of repair costs.
Some of the causal factors that gave rise to the LBS
Water penetration seeps into and inevitably corrupts building envelopes, cladding, and fascia. The moisture is consistently topped up and abetted by high and regular rainfall, which is very characteristic of a high precipitation country like New Zealand. Moisture then assumes domicile in construction fabric and begins to corrupt the integrity of the material and building elements.
That environment results in the building’s timber framing staying wet, raising its moisture content to levels that allow fungal growth. It is the fungal growth that literally eats away at the timber framing that creates the structural and health risks of the inhabitants.
Non-treated radiated pine
In the mid-1990s when the building regulations changed or more precisely were freed up they heralded a proliferation in the use of non-treated kiln dried radiate timber framing. Extraordinary when one considers that ‘ this timber reduces the tolerance of buildings to moisture.
Timber framing began to emerge as a mainstream material for residential construction.
The above-mentioned Parliamentary Background paper also reported upon other factors that contributed to the leaky paradigm or matrix:
- inadequate flashings to facilitate channelling away of water
- dearth of eaves and parapets
- problematic cladding systems
- the use of sealants that had a propensity to fail or weather in lieu of opting to use flashings
- problematic balconies that abetted significant wind transported water penetration.
Damage control and the fallout
The costs have been huge and the impact upon many New Zealanders has been enormous. It has forced the government to overhaul its building regulations and return to more prescriptive regulation, and has also culminated in the establishment of a more robust licensing regime from building practitioners. The registration regime in part used the Victorian Building Practitioners Board as its template. Ironically, the BPB has been pretty much disbanded in Victoria, as the traditional iteration is limited to presiding over old inquiries.
The government also introduced initiatives to help individuals repair leaky homes. Under the Weathertight Home Resolution Services Act, individuals claiming for Leaky homes were able to make a claim through the Weathertight Homes Tribunal or make a claim through the Government’s Financial Assistance Package (FAP).
The FAP scheme began on July 23, 2011 and expired on July 23, 2016. It provided remuneration, under the Weathertight Homes Resolution Services Act, for costs involved with the process of ‘weather-tightening’ homes in New Zealand. It offered eligible applicants a contribution up to 50 per cent toward the costs of fixing a leaky home (25 per cent from the crown and 25 per cent from participating territorial authorities).
Such costs included approved repairs being costs associated with necessary repairs identified in an approved weathertight repair plan.
In addition, associated costs not directly related to construction such as accommodation and storage, and pre-repair valuation fees were entertained. These types of costs included fees for consultants, project management, contract workers’ insurance, surveyors, structural engineers and remediation specialists. It may also include remuneration for alternative accommodation arranges, of which the FAP scheme may cover 25 to 50 per cent of the total cost. However, any work that pertained to ‘betterment’ would not be covered under the scheme.
These costs would be scrutinised against finalised invoices for the project. The final costs of the project would therefore be established, confirming the costs of repairs based on the invoices, and this would take into account any variations that arose during the course of the repair.
The Tribunal has been running for a number of years, but the litigation continues as class actions often take years to resolve. In the NZ leaky space the saying ‘six degrees of separation’ does not apply as tremendous amount of New Zealanders have been affected by the maelstrom.
Is Australia next?
A leaky building syndrome is unfolding in Australia, although it has not yet reached the crescendo levels encountered in Canada and New Zealand. The ABC reported that with respect to Sydney, “a survey of strata owners conducted by the Research Centre in 2010 found that a startling 85 percent of respondents in buildings built since 2000 said their buildings were defective.” The same article also reported that according to one estimate, 70 per cent of the buildings leak.
The ABC also reported that the problem was not limited to NSW as the Victorian Building Authority harbored fears that “waterproofing was possibly a systemic issue.” Some Victorian consumer advocates already believe a crisis is unfolding but the real problem is the scale of the issue is largely unknown at this time.
The Australian Capital Territory is encountering its own leaky building syndrome. One of the most common causes of the leaky buildings in the ACT revolves around high rise balconies where the balcony floors are the same levels as the internal floors. Absent any downward sloping gradient on the balcony, wind blows rainfall onto the balcony joinery which invariably leaks into the apartments. This causes internal water pooling, water migration, carpet and joinery corruption and joinery and window frame rusting along with a whole host of other pernicious legacies.
An absence of proper balcony planter box tanking is another cause, as the planter boxes leak. In one class action, the concrete planter boxes had encountered serious water generated corruption “concrete cancer” and the leaks spread through a variety of seepage channels throughout the building. There were even stalactites in the underground garage. After a couple of years of the builder applying “band aid” remedies, a legal team was instructed to issue a class action against the builder and the dispute ultimately settled on the basis that the builder had to comprehensively waterproof the planter boxes the resolve the malaise.
To date none of the Australian governments have introduced measures akin to those of their antipodean neighbor NZ as the problem does not seem to be of the same scale. But it is a work in progress and there is a palpable increase in the amount of press on leaky homes and leaky condos. Leaky building cases as a result of the issue range from class actions for strata communities to individual homes owners who have had to evacuate their own homes on account of toxic spore counts.
There is, however, very significant consumer concern about the problems that afflict strata communities when confronted with the prospect of having to remediate their leaky abodes. Some of the strata communities don’t have the financial resources to mount a lawsuit against actors responsible for the design and construction of these buildings and one of the reasons they can’t afford to litigate is that they are compelled to spend great sums of money on remediation.
These concerns are reminiscent of those of their Canadian and New Zealand counterparts: shoddy workmanship, contractor insolvencies, winding up of phoenix companies and mortgage foreclosures by virtue of the fact that the homeowners can’t afford the remediation costs. The VBA’s observation that the issue is possibly systemic does not bode well and lends credence to consumer advocacy fears that a crisis may be in the making.
The take out
New Zealand and Australia have been the victims of very deleterious leaky building paradigms. Canada’s experience was unprecedented and culminated in the most expensive remediation calamity in that country’s history. The New Zealand experience was far more far reaching and damaging and the woes that have been left in the wake of the LBS in NZ are still being felt by large numbers of New Zealanders.
There were different drivers that gave rise to the LBS in Canada and NZ. Untreated pine was very much the arch villain in NZ, whereas problematic design and the importation of design concepts better suited to arid climates finding their way into the Canadian construction ecology gave rise to Canada’s woes.
Despite those differences, there are a number of common denominators that unite these three Commonwealth countries, including but not limited to:
- boom time conditions
- lowest common denominator, low cost construction habits and practices
- slapdash workmanship devoid of pride and an obliviousness for the regard for the end user compounded by a preoccupation with profit maximization
- regulations that have not been amended quickly enough to adjust to the proliferation of high rise construction and the design implications that characterize that habitat
- no ‘early warning detector systems’ that enable policy makers to quickly adapt and respond to that which does not bode well.
It follows that if Australia or any other country for that matter wants to either arrest or prevent the metamorphosis of their own Leaky Building Syndrome, regard must be had to the experience of other countries. Lessons must be derived from the benefits of hindsight, the fallout and the diagnostics and policy makers must urge their governments to do what is necessary to proactively and holistically address that which must be addressed. A failure to do this will generate a very adverse community dividend both in terms of the impact upon the public purse and the happiness barometer.
Lovegrove & Cotton Lawyers to the building industry
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