Buying a leaky building: Can a subsequent purchaser rely on their sale and purchase agreement?

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The Weathertight Homes Tribunal (WHT) decision of Paul White and Wilna White v Rodney District Council & Others (TRI-2007-100-000064) involved a leaky home in Whangaparaoa, sold to the claimants by the vendors, Mrs Kerkin and her late husband, who became the second respondents to this claim.

Whilst the usual claims in negligence were brought against both the council and the Kerkins by the claimants, the Weathertight Homes Tribunal was also asked to consider whether the claimants would have a further claim, in contract, against the Kerkins based on the vendor’s warranty and undertaking clause in the Agreement for Sale and Purchase.

Background

The two-storey home at Army Bay, Whangaparaoa, was constructed between June 1993 and November 2001, with a final Code of Compliance Certificate being issued for the home by the Rodney District Council on or about 30 November 2001.

The second respondents lived in the home from early 1994, and, at some stage after moving in, but prior to the council issuing its CCC in November 2001, they retro-fitted a length of tin to the internal ceiling under the large northern deck to address a leak.

On or about 15 December 2001, the Kerkins entered into an agreement for the sale and purchase of the property to the claimants. Shortly thereafter, and most likely after the purchase agreement had gone unconditional, the claimants, Mr and Mrs White, engaged a building inspector to carry out an inspection of the home.

The building inspector’s report identified a number of significant water ingress concerns, and outlined a number of short and medium term remedial works recommendations.
Whilst the claimants did obtain building quotes based on the building inspector’s recommendations, no remedial works were, in fact, carried out. The house continued to leak.

In late September 2002, the claimants approached their conveyancing lawyer to seek remedial action from the second respondents, the vendors, for serious defects in the construction of the home.

Discussions between the parties were unsuccessful, and so the claimants filed a claim with the WHT alleging negligence against the Rodney District Council and alleging negligence and breach of contract against the Kerkins.

The Sale and Purchase Agreement

The sale agreement entered into between the claimants and second respondents on or about 15 December 2001 was standard, with the parties using the Real Estate Institute of New Zealand and Auckland District Law Society form of Agreement for Sale and Purchase of Real Estate (7th Edition, 2 July 1999).

The agreement included the then standard Vendor Warranty and Undertaking Clause 6.2 (5) which reads:
“6.2 The vendor warrants and undertakes that at the giving and taking of possession…
(5) Where the vendor has done or caused or permitted to be done on the property any works for which a permit or building consent was required by law:
(a) The required permit or consent was obtained; and
(b) The works were completed in compliance with that permit or consent; and 
(c) Where appropriate, a Code Compliance Certificate was issued for those works; and 
(d) All obligations imposed under the Building Act 1991 were fully complied with.”

The claim in contract

The claimants alleged that in breach of clause 6.2(5), the second respondents caused or permitted work to be done which required a building consent (which was obtained on 3 June 1993) and that the house was not built in accordance with the Building Act 1991, nor did it comply with the Building Code.

The expert witnesses all agreed that water ingress had occurred, particularly to the balconies, cladding, internal roof gutters and roof parapets and, accordingly, the house did not comply with the Building Code in January 1992.

In determining whether the second respondents did, in fact, breach clause 6.2(5) of the Sale and Purchase Agreement, the Tribunal looked closely at the role the Kerkins played in the development of their house.

It was found by the Tribunal that the Kerkins’ involvement in the construction of the house was considerable, with Adjudicator K D Kilgour going so far as to say the Kerkins were “the genesis of the leaky house”.

Mr Kerkin had carried out works on the home himself, including tiling the decks and later painting the tiles with a defective sealant. The second respondents made decisions to depart from the plans and specifications, and decided on the types of material, cladding and roof, and how the decks were to be clad.

Moreover, the second respondents engaged the services of various contractors to do distinct portions of the building work and, in doing so, failed to give sufficient attention to what was actually done by each contractor in that it was much of this construction work that was later deemed defective, and which subsequently allowed water ingress, resulting in damage to the house.

There was also evidence that the house was leaking before the second respondents sold it to the claimants, in that a tin sheet had been retro-fitted under the internal ceiling beneath the deck some time before November 2001.

Decision

The Tribunal, satisfied that the second respondents were, in fact, the head contractors and/or project managers of the construction of their house, held that the Kerkins were in breach of the warranty given in the Sale and Purchase Agreement, and that such a breach of clause 6.2(5) resulted in the damages claimed by the claimants.
The Tribunal deemed the second respondents to be liable to the claimants for the full amount of the damages sought, being $316,002.68.

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