Leaky home risk may shift

Owners of leaky buildings such as Hobson Gardens would have to identify all responsible parties and claim a share of the costs from all of them. Photo / Natalie Slade

The risk of recovering the cost of leaky building repairs could be shifted from councils and builders on to homeowners under changes considered by the Law Commission.

The commission has released a discussion document for its review of liability in cases involving more than one defendant.

At present, the joint and several principle means if two or more people are responsible for the same loss then each defendant is potentially liable for the entire cost of the loss.

The commission said the principle had become controversial in recent years as a result of the leaky homes crisis and financial crises.

Councils have repeatedly complained they are the "last man standing" in leaky building cases because if construction firms or developers collapse councils are left with the entire bill for the damages.

The commission is investigating a move to proportionate liability, under which each defendant is liable for a share of the losses, relative to their responsibility in causing the damage.

The change would mean councils would have to pay only the amount they were deemed responsible for in relation to other parties. If other parties such as builders or developers were insolvent or absent, the council would not have to pick up the bill.

Lawyer Paul Grimshaw, who specialises in leaky building cases, said this law change would not favour homeowners. "At the moment if a builder paid 50 per cent, an architect paid 30 per cent and the council paid 20 per cent, the plaintiff can go get the money off the council. The council then turns around and gets the 80 per cent off the other ones.

"But if there's a proportionate liability system and the builder is insolvent, then the owner recovered 30 per cent from the architect, 20 per cent from the council and that's it.

"They lose 50 per cent of their judgment," he said.

The commission is asking submitters for advice on how to fill the holes in a proportionate liability system left by insolvent or absent parties.

Roger Levie of the Homeowners and Builders Association suggested a surety system similar to Britain's. If one of the defendants could not pay their share, the homeowner would be covered by an insurance scheme for the remaining losses.

The commission's issues paper noted that under proportionate liability, the plaintiff (such as a leaky-home owner) would have to identify all the responsible parties and claim a proportionate share from all of them. This was a fundamental shift from the current situation, where the onus was on defendants to identify all the parties so the cost of settlement could be shared.

Homeowner advocates said people who bought leaky buildings might struggle to find all the parties to recover their losses.