Sunset Terraces — a multi-unit leaky building claim makes it to the High Court

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Sunset Terraces is a residential complex situated in Sunset Road, Mairangi Bay. It is a linear unit title development comprising 21 townhouses, each of two storeys. The dwellings were built in 1997 and 1998 using untreated timber framing and monolithic cladding.

The proceedings were brought against the developers, the council and the designer. The court was asked to decide upon many issues.
First, the court was asked to rule upon whether the Body Corporate could sue for all damage to the whole complex — both common property and unit property — including the damage to the units of the three owners who did not participate in the case.

It was ruled that the Body Corporate could only sue in respect of common property. This was due to the Unit Titles Act 1972.
However, it was conceded that the position would have been different had it been a proceeding brought under the Weathertight Homes Resolution Services Act 2006.

The court was asked to consider whether, in fact, a council owed a duty of care to owners of residential units in a multi-unit complex, the argument for council being that it ought not to owe a duty because it is a commercial development.

The court ruled in emphatic terms that the council owes a duty of care to anyone who acquires a unit, the intended use of which has been disclosed as residential in the plans and specifications.

In particular, the court found that the council owes a duty to take reasonable care in performing the three regulatory functions in issue:
• deciding whether to grant or refuse a building consent application,
• inspecting the premises to ensure compliance with the building consent, and
• certification of compliance with the code.

Four of the individual unit claims were successful. These were units for which the owners had no knowledge of water ingress issues prior to purchasing.
One of these four unit owners was only partially successful in that he had transferred his unit to a company after becoming aware of water ingress issues, and so his damages were likely to be limited to the reduction in value he received for the unit from the company ($40,000).

Twelve of the units were owned by individuals under complicated Blue Chip arrangements. The structure was that a Blue Chip company purchased the units, sold them to individuals who then leased them back to Blue Sky, which then subleased to tenants and contracted with owners to manage them.

In relation to these units, the council argued no duty of care was owed to Blue Sky because it was a commercial entity. This argument failed because the units were intended to be residences at the time the council carried out its responsibilities (see earlier finding).

But the court did go on to find that the council owed no duty to Blue Sky because it was only a lessee, not a home owner leasing for profit.
However, the individual owners had assigned their cause of action to Blue Sky in November 2005. The court held that the council owed a duty of care to Blue Sky as assignee, but that the 12 claims failed because there was a break in the chain of causation.

There was no evidence of the 12 individual unit owners relying upon the council in their decision to purchase. Their reliance was on the Blue Chip scheme instead.

Other findings made in this decision were:
• The council argument that because they did not charge much for inspections they did not have a duty to carry out more inspections or do a more thorough inspection was rejected. It was held instead that the council had the power to set its own fees at a level commensurate with the risks it assumed.

• As regards a lack of detail being said to have led to problems with wing and parapet walls of the complex, it was held to be enough that the relevant Harditex technical information was around at the time which filled in the details.

• It is generally acceptable for the council to rely upon producer statements instead of actually inspecting construction work, but not in this case because the developer had shown himself to be unpredictable and untrustworthy.

In particular, the council should have gone further to check out the waterproofing of the decks. 
• The developer was found to owe a duty of care to all or most of the plaintiffs. As regards the four successful unit owners against the council, the apportionment of liability between the developer and the council was ruled to be 85% developer, and 15% to council. 
• The claims against the designer failed. 

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