Leaky Buildings, Multi-Unit Developments and Dispute Resolution.

Leaky Buildings, Multi-Unit Developments and Dispute Resolution.

21 Apr 2017

By Justin Cotton of Lovegrove & Cotton Construction and Planning Lawyers

“Leaky buildings are a major concern facing high-rise developments throughout Australia with water ingress being the major defective issue. Such buildings are considered ‘leaky buildings’ in the construction industry and owners and owners’ corporations alike, should consult an expert construction law firm to advise and handle the dispute resolution process in having the issue resolved.”

New Zealand experienced one of the biggest failures in building control in the western hemisphere courtesy of the leaky building syndrome maelstrom. It is expected that by the time all of the leaky buildings “rinse through the dispute resolution system”, in excess of $20 billion worth of rectification costs will have been expended.

It is of great concern that the media is publishing regular accounts of leaky buildings in a number of Australian jurisdictions. Australia may well be at the early stage of leaky building syndrome. Leaky building disputes are typically characterized by the following characteristics:

  • Water penetration that corrupts the integrity of wooden components of the as built product such as frames;
  • Concrete cancer that may emanate from saturated concrete or mortar;
  • Fascia deterioration;
  • Floor lifting or undulation or “drummy” tiles;
  • Leaky balconies and corruption of materials adjacent to the balconies.

The problem with diagnostics

Finding the source of the water penetration problem is very challenging as is finding the “water penetration map” of the building.

How extensive is the water corruption? Where does it start? Where does it finish? These are questions that are invariably leveled in diagnostic examination.

Equally challenging is working out the rectification methodology. In our experience that rectification methodology has to be realistic, comprehensive; it cannot be a “band aid”.

The dispute resolution process

If an owners corporation is determined to do something about compelling contractors and/or building practitioners to make good repairs, then the owners corporation will have to generate a resolution to initiate legal proceedings and commit expenditure and considerable energy in all of the front end forensic and diagnostic investigation dynamics, to generate a sound platform for successful litigation.

The legal team retained will insist that they are armed with technical reports that crystalise:

  • A clear description of the malaise in terms of its extent and how it manifests;
  • An address of the causation of the problem;
  • A set of recommendations regarding the diagnostics in issue, and how to rectify;
  • Costings.

One of our lawyers Kim Lovegrove, inherited a unit in a ‘leaky building’ in New Zealand. His late mother in her late 70s, without having consulting him, purchased a bedsitter in an Auckland property. Unbeknownst to her she had purchased an apartment in a leaky building. Perhaps her advanced years were such that she neglected to undertake conventional due diligence. Alas her conveyancers did not sufficiently impress upon her the significance of buying into a leaky building.

When Kim`s mother passed away he ensured that the unit that comprised part of the family inheritance did not find its way into the family trust, for to do so would have culminated in a contingent liability within the trust vehicle. Kim Lovegrove as quickly as possible resolved to sell the unit and the estate took a massive “haircut” by virtue of the fact that he made full disclosure of the fact that the unit was a “leaky”, which needless to say had a deleterious impact upon the purchase price.

It was very sad to note that a real estate agent that Kim “parlayed” with said that a couple of people had committed suicide and had leapt off their balconies. One of the major challenges associated with rectifying leaky buildings are that levies have to be generated to go towards rectifying the leaky malaise. Some people simply do not have the funds and instead of their home being their castle they are very much incarcerated by their home because they cannot afford to contribute to the remediation levy. Nor can they afford for that matter to off-load their apartment in circumstances where they might be forced to sell the property for less than 50% of the purchase price particularly in circumstances when they are mortgaged up to the hilt.

It follows that we fully sympathise with property owners who get caught in a leaky building maelstrom. That aside, it is paramount that leaky buildings are fixed and in the main the only way to generate the fix is to initiate legal proceedings against those who were responsible for orchestrating the debacle in the first place. This will require the initiating of proceedings in a court or tribunal.

The lawyers that you retain must be very good construction lawyers who have a thorough understanding of construction law. Further the building reports must be “stellar”.
The owners’ corporation committee must also be prepared to go the distance. The resolution of a leaky building dispute takes time, takes patience, takes resolve, but in the overwhelming majority of cases these disputes are resolved at some stage by mediation. Cases of this persuasion rarely go the full distance at trial because the nature of the defects is very hard for the contractors to shy away from, as the workmanship is prima facie defective and from a construction point of view destructive.