April 2013... The case of an Auckland couple who took the Auckland Council to the High Court over a “leaky home” has been reported in the media recently. The case stands out amongst the multitude of leaky building cases because the damages awarded to the couple were substantially reduced on the basis that the couple were “the authors of their own misfortune”. It serves as a reminder of the need to take reasonable care when entering into property transactions, especially when purchasing at a mortgagee sale.
In 2009 Mr and Mrs Johnson purchased a property at Takapuna for $3,910,000. The property was being sold by the mortgagee and the purchase price had significantly reduced from the asking price that applied when the property had been marketed a few years earlier.
The Agreement for Sale and Purchase was on the standard form which is used in most property transactions. However, the usual vendor warranty that they had obtained all building consents and code compliance certificates for work they had carried out on the property was deleted. This is common practice in a mortgagee sale situation as the bank wants to limit its liability as much as possible.
Between 1998 and 2002 alterations were carried out on the property. A building consent had been issued to carry out work described as: “Add extra rooms upstairs and underground basement”. In 2004 a council inspector carried out a physical inspection of the work and a code compliance certificate was issued “…in respect of all the building work under the above building consent. The council is satisfied on reasonable grounds that work complies with the building consent on the basis of the council’s inspection of records”. It was accepted that the work on the property was more extensive than the work described in the building consent, and that the alterations were defective and meant that the house was not weathertight. The house had been entirely re-clad without a building consent. The Council admitted that it was negligent in issuing a code compliance certificate in respect of the alteration works.
Mr and Mrs Johnson claimed that the Council should pay them $1,925,000 for the costs of repairs and other sums for consequential losses. They argued that the public should be entitled to rely on code compliance certificates.
There was considerable debate and conflicting evidence as to what advice Mr and Mrs Johnson had received on the purchase and what discussions they had had with various people at open homes, but the Judge concluded that Mr and Mrs Johnson had concerns about the weathertightness of the property before they signed the Agreement for Sale and Purchase. The Council successfully argued that this amounted to contributory negligence because Mr and Mrs Johnson had failed to make enquiries that a reasonably prudent person would have taken. The Judge noted that the code compliance certificate related only to a small part of the alterations that had been carried out, and therefore the code compliance certificate could not be relied on to provide the assurances as to quality of construction as they had in other leaky building cases. The Judge described Mr and Mrs Johnson’s purchase as “a calculated risk” and noted that “financial security led to a willingness to take a signficiant risk, together with a degree of relative indifference to, or at least casualness in respsect of, risk.”
Where a defendant (the Council) successfully argues that the plaintiff (Mr and Mrs Johnson) has been contributorily negligent, this does not defeat a claim against the defendant for negligence but the damages recoverable will be reduced to such an extent as the Court thinks just and equitable having regard to the plaintiff’s share in the responsibility for the damage. In Mr and Mrs Johnson’s case the damages they were able to recover from the Council were reduced by 70%.
This case reinforces that purchasers need to enter into agreements with “their eyes open” to potential issues, particularly when buying at a mortgagee sale. In these situations purchasers must take extra care because they do not have the protection of the usual vendor warranties and where a reasonable person could be expected to identify issues affecting the quality of the property it could be unreasonable to place total reliance on a code compliance certificate.
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