Adina Thorn for National Business Review
Delay can sometimes be an effective legal strategy.
However, when it comes to leaky buildings, delays may end up costing ratepayers many hundreds of millions of dollars, no matter whether the delays are due to congested courts, plain old tardiness or cunning strategies.
Historically it has always been easier for local bodies to call for another report, rather than get on with the job. For example, Auckland’s ring road, designed 40 years ago, is still several years off completion.
The only problem with this approach is that costs escalate madly and that is what ratepayers can expect to face in the area of leaky buildings.
An added factor is that building companies go broke and people move on, which means councils and their insurers are increasingly Ending themselves sharing that potentially expensive role of being the “last men standing” when it comes to settling claims.
These claims are already estimated to be somewhere in excess of S6 billion and grow-ing, so standing at the end of this claiming process is potentially an expensive place to be.
Mainzeal left council as last man
The recent receivership of Mainzeal highlights the problem, with that company a joint defendant with the Auckland City Council on one claim, with a council spokesperson quoted as saying: “As is often the case, the other parties have gone bank-! raptor disappeared or can’t pay and the council is left with the burden of the costs.”
There may be some comfort for ratepayers in that insurance companies are there to play a back-up role. But, as the Christchurch earthquake has highlighted, there can be problems associated with achieving insurance payouts, particularly when there are many parties involved.
The costs of claiming against policies can be high as well as being time-consuming, often mending to years as the fine print is argued over.
Many of those people making leaky building claims can’t help but feel that the delays in having the claims heard are simply designed to “burn them off” due to the escalated costs they face.
As reported recently, a North Shore couple with a Down Syndrome daughter is claiming that their three-year dispute with the council has placed them under extreme stress.
After winning a High Court case against the Auckland Council to have their dispute taken to mediation they are still waiting for that to happen four months after the date originally set.
In this case, the council is seeking to involve other co-defendants, but the case does raise the wider question of whether dragging out claims is in the best interests of ratepayers and whether councils should be seeking to settle claims earlier, especially when there are solvent co-defendants.
Delays add costs
It does look as if the liability of councils is going to continue to rise in this area. Rate-! payers should be aware that the longer their I councils she to resolve their part in the leaky building crisis the water the likely financial cost of meeting the liabilities for all involved.
The massive backlog of leaky building claims and the failure of many property developers mean councils, ratepayers (and insurers) are increasingly in the gun. Failures such as that of Mainzeal also mean that some sub-contractors involved in claims may go to the wall, again escalating affected councils’ likely share of responsibility.
Under the government’s Financial Assistance Package, it will contribute 25. of the remedial costs where the council also pays 25% and the homeowner pays the balance. Claims under this are limited by a 10-year twilight clause running from the completion of the building.
While the government has Ilinited its liabilities through this mechanism, councils have been unable to do so where claims are made directly against them, with owners able to sue in the normal way and possibly recover more than 50% of remedial costs. Councils, therefore, remain exposed.
In addition, councils may also face a rising level of claims for damages due to people having to live in poor conditions, for example, where there is excessive condensation causing fungal and bacterial contamination.
In this climate, councils need to be thinking about settling earlier, especially when they have solvent defendants alongside them. This would be in the interests not only of the claimants in leaky building claims, but also of ratepayers, since the costs involved will be less than those faced if the council is ultimately found liable in court.