Council’s new duty of care – Part 1

On 11 October 2012 the Supreme Court held that council owe a new duty of care. It has come about from the litigation about the Spencer on Byron development, which is leaky. The court by a 4-1 majority has held that the Court of Appeal was wrong to allow the strike out of the claim against council. What this means is that the court recognises that council do owe a duty of care to commercial owners of property for defective building work. Previously the law meant only residential owners could sue. This had created some rather odd distinctions in mixed use apartment buildings.

Here the building is principally a hotel, with 6 penthouse apartments. Council’s duty was to take reasonable care that buildings were constructed in accordance with the building code. The body corporate and owners now need to prove that the duty of care has been breached by council and that they should be entitled to damages as a result of that breach. That will be where the debate now turns.

What this means is that councils face potentially bigger contingent liabilities. Perhaps bigger fees and bigger rates at Auckland Council as a result and certainly very careful checking of applications for building consent, inspections and signing off on code compliance certificates. In commercial projects Council have tended to rely more on the appointed professional team. This might change now with more scrutiny being applied. It is also possible that those who design and construct commercial buildings will now also owe a duty of care to the ultimate owners, whether the property is residential or commercial.

Having said that this decision technically relates only to council’s duties under the Building Act 1991. There is a 10 year long stop on liability for defective building work so there may not be many claims out there. The relevant sections of the Building Act 1991 came to an end on 31 March 2005. So the window might be relatively small for defective building work claims that can still be made, say building work completed between late 2002 and early 2005; that is unless they are already in the legal system. No doubt those are the kind of assessments councils will currently be having to make.

Whether or not the Building Act 2004 is different and has effectively changed the scope of council’s responsibility remains to be seen too. Some of the judges noted that they would likely come to the same decision under the new Building Act.

For those of us focusing on trying to complete new development this decision may make things harder rather than easier for a time.

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