Leaky homes lesson

By - , Build 141

The Court of Appeal has reinforced the importance of buyers taking prudent steps before buying a property. In this case, it found the buyers took a gamble buying a suspected leaky house without a building report.

THE COURT OF APPEAL recently reduced a finding of contributory negligence by purchasers of a leaky home from 70% to 40%.

Remediation required

In April 2009, Mr and Mrs Johnson purchased a Takapuna property for $3,910,000. The property had been altered between 1998 and 2004, and it had a Code Compliance Certificate.

Shortly after their purchase, the Johnsons engaged consultants to investigate the property. The resulting reports led to the Johnsons engaging building surveyors to investigate further, which was when they discovered that they had purchased a leaky home and were required to carry out remedial works totalling $1,925,000.

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High Court decision

In the High Court, the Johnsons only recovered $370,500 towards their loss. The main reason was that the High Court found their own negligence had partly caused their loss – up to 70% of it.

The High Court also decided that the appropriate basis for damages was the difference in value between what they had paid for the property and its actual value.

The appeal focused on two main issues – the High Court Judge’s approach to contributory negligence and whether the Judge had applied the correct measure of loss. However, the Johnsons also contested the Judge’s award of general damages in the sum of $10,000 and the High Court’s refusal to make any order for their costs.

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Court of Appeal found errors

The Court of Appeal found that the High Court Judge was wrong in respect of some of the facts that he had relied upon in assessing the Johnsons’ contributory negligence.

He had concluded that the Code Compliance Certificate that had been issued only covered a small part of the alteration work and, importantly, that it did not cover some recladding work.

He said that, if the Johnsons had carried out proper inquiries, they would have learned that the Code Compliance Certificate did not cover all of the alterations. However, the Court of Appeal found that the Code Compliance Certificate did cover all of the alterations to the property.

The Court of Appeal also found the High Court had drawn an unfair inference that Mrs Johnson had received legal advice about the need to obtain a building report. Mrs Johnson had not been asked whether or not she had ever received such advice at the hearing.

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Buyers alert to leaky home likelihood

However, the Court of Appeal was satisfied that the Johnsons were alert to the possibility that they were purchasing a leaky home and were negligent in failing to obtain a building report before they acquired the property in those circumstances.

Given that the reports they obtained shortly after their acquisition of the property led to the discovery of the defects, their failure to take this step before purchase was a cause of their loss. The Court of Appeal decided their level of blameworthiness justified a reduction of their claim of 40%.

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Cost of repair used for damages

The Court of Appeal agreed with the Johnsons that the correct measure of damages in their case was the costs of repair. It noted that the house had been purchased as a family home and that it was a unique property. There was no evidence that the house was a candidate for demolition.

However, the Court of Appeal upheld the High Court’s general damages award of $10,000. The key difference between this award and awards to other leaky home claimants was the fact that the Johnsons were not living in the house and did not suffer the stress of living in a leaky home. The Court of Appeal awarded the Johnsons 50% of their costs in the High Court.

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Prudent steps not taken

In this case, the Johnsons were found to have taken a gamble in purchasing their home. They did not take prudent steps in deciding to buy the property.

If a purchaser acts with such a lack of care and, as a result, acquires a property with defects, then they will be a cause of their losses along with other parties who may have contributed to the defects at a property such as builders, designers and councils.

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