New Zealand: Buyer beware: Christchurch property markets may have hidden costs

Litigation

A recent article in the press a couple of weeks ago highlighted that there are several houses in Christchurch which were never correctly fixed after the Canterbury Earthquakes and as a result may be financially toxic. People purchasing these houses run the risk that they may be buying into an insurance nightmare, all over again or alternatively may be purchasing a property with hidden damage which may need to be repaired at their cost down the track.

This highlights the need for prospective purchasers of properties to be properly informed about the house they are purchasing and to take professional advice on a dwelling's condition prior to settlement.

Many potential homeowners take professional advice on the condition of their prospective home before they purchase it, but building surveyors do not always get it right.

The Courts have recently dealt with cases where vendors, estate agents and building surveyors have been sued for misrepresentations about the condition of a property. These misrepresentations invariably induced the purchaser to buy a property with hidden damage, which in turn led to the purchaser suffering a loss.

In one such recent case, The Trustees of the Ninfield Trust v Spence Consultants Limited and another [2017] NZHC 398, the property was a leaky home, although the same principles will apply. The building surveyor prepared a moisture assessment report which recorded that there were no signs of serious leaks or moisture concerns internally. The report satisfied the purchasers that the house they were purchasing did not have weathertightness issues. The trustees purchased the house relying on the report. Shortly after the purchase, however, the trustees established that the property had moisture damage which required hundreds of thousands of dollars to repair. The trustees pursued the building surveyor for the losses suffered under the Fair Trading Act and in negligence.

The court found on the evidence that there was a misrepresentation by the building surveyor in stating that the property was well maintained and in good order, when it was not, as well as a misrepresentation by omission in failing to point out moisture damage when it was clear that there was. The Court found the building surveyor company liable under the Fair Trading Act. It was found further that a disclaimer clause that was alleged to apply to the report, absolving the building surveyor company of liability for the report, was not enforceable in the circumstances of the case. The individual building inspector was also found to be personally liable under the Fair Trading Act as he was a director and shareholder of the building surveyor company, produced all the reports for the company, was personally involved in preparing the report in issue and was for all intents and purposes the alter ego of the building surveyor company.

Whilst this case deals with a leaky home, the principles of the case will still apply to building surveyors assessing earthquake damaged homes. We expect to see more of these cases arising as earthquake repaired homes are on-sold to others.

If you find yourself in a situation in which you have purchased a property on the strength of a building report, and you have subsequently established, or suspect, that the house you have purchased has hidden damage which ought to have been picked up in the report, we may be able to assist you.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.