The liability of vendors pursuant to clause 6.2(5) of the standard Agreement for Sale and Purchase

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It is often the case that one of the named respondents in any given leaky building claim will be the party that sold the property (the vendor).
One of the claims usually brought against the vendor is based upon the following clause in the standard agreement for sale and purchase:

Clause 6.2(5) of a Sale and Purchase Agreement states:
(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:
• The required permit or consent was obtained; and
• The works were completed in compliance with that permit or consent; and
• Where appropriate, a code compliance certificate was issued for those works; and
• All obligations imposed under the Building Act 1991 were fully complied with.

The approach taken by many plaintiffs or claimants has been that if a house is discovered to be a leaky building after sale but within six years from the date of sale, then the vendor is in breach of 6.2(5)(d).

The rationale is that if a house leaks then it is non-compliant with the Building Code, thus there is a provable claim in contract against the vendor.
For this very reason, claimants have always looked fondly towards vendors as respondents where they have arranged for building work to have been carried out while owning the property.

However, there have been two Weathertight Homes Tribunal (WHT) decisions that have thrown considerable doubt upon a claim brought pursuant to this clause.
In particular, the decision of Brown v Christchurch City Council & Another Procedural Order No 4 was a decision where the adjudicator had to consider a removal application by a vendor where this contractual provision had been asserted against it.

In deciding on the removal application, the adjudicator considered closely 6.2(5)(d). The following findings were made within this decision:
• 6.2(5)(d) must be read in the context of the preceding sub-clauses 6.2(5) (a)-(c), the intended meaning of “All obligations” is therefore governed by the scope of the preceding sub-clauses.
• It is the obtaining of permits which is the crux of the warranty provision — the purchaser wants to know that the building, or any alterations, have been compliant with the Building Act, and the means of securing that assurance is for the vendor to warrant that the requisite permits have been obtained from the council and the completed structure approved by the council. 

• Where there is ambiguity in meaning, an aid to the interpretation of the clause is to cross-check the natural meaning against the factual background.

In the present case, the warranty is to be read in the light of the fact that councils are responsible for oversight of domestic house construction in New Zealand, and the clause is there to ensure that the subject property has been vetted and approved in accordance with council and building code requirements.
• To give the clause a wide meaning would result in a person who, whilst as owner is protected, but as vendor becomes potentially liable for any building faults. It would expose the vendor to the very risk which the Court of Appeal held is totally inappropriate.

Decision

In this decision, the adjudicator held that the interpretation that council and the claimants sought to place on 6.2(5)(d) would effectively place the vendor in the position of underwriter to the inspection and certification regime of the council.

This flies in the face of conveyancing reality. It was held that the vendor had no liability in contract, and ought to be removed.
There is further support for this analysis of the warranty in the decision of Chapman v Western Bay of Plenty District Council & Another Procedural Order No 3.

Conclusion

In conclusion then, the ability to claim against vendors based upon this clause looks to be in doubt if these decisions by the WHT adjudicators are correct.
In particular, I am drawn to the logic that a home owner, whilst protected against an errant certification process whilst it owns a house, (ie. it can bring a claim against the local council), on sale becomes the insurer of that same certification process against defects subsequently found in the house.

I am instead drawn to the interpretation that 6.2(5) has a cumulative effect that is, in fact, satisfied if there is a consent, an inspection process and a Code Compliance Certificate issued.

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