A registered structural engineer will carry out an Initial Evaluation Procedure (IEP,) which will assess the seismic strength of a building and its seismic deficiencies. If the building is assessed as earthquake-prone, the IEP should be followed by a Detailed Engineering Evaluation (DEE).
Who pays for the seismic assessments?
Most leases will not provide for any particular party to carry out or pay for an IEP or a DEE.
Landlords may be willing to carry out the IEP on the basis that being able to demonstrate that the building is not earthquake-prone will enhance its desirability in the market. Tenants who are coming up to a renewal or are considering extending the term or taking a new lease, may require landlords to carry out the IEP as a precondition.
Tenants in a multi-tenanted building can get together and share the cost. High-profile tenants may be particularly motivated to ensure that their tenancies are not earthquake-prone.
Who pays for any strengthening works?
Other than in Christchurch, where previous earthquakes have caused damage which has weakened buildings, if a building is earthquake-prone it is usually due to design defects.
Most leases do not oblige either party to repair design defects.
A landlord and tenant may be willing to agree that the landlord will undertake strengthening works where the tenant agrees to pay a return on the capital outlay expended by the landlord at a fixed percentage. These types of arrangements may also require the tenant to extend the duration of the lease to ensure that the landlord gets a fair return on capital.
In a similar vein, many leases contain an improvements rent provision which allows landlords to charge a fixed percentage per annum of the cost of work required to comply with legislation (for instance, if a local authority has issued a notice requiring strengthening works), usually up until the next rent review date where the improved quality of the building is expected to be taken into account in setting the new current market rent.
If a workspace is earthquake-prone can the tenant cancel the lease or stop paying rent?
It would be unusual for a tenant to be entitled to cancel a lease or stop paying rent due to a building being earthquake-prone. Before the Christchurch earthquakes, leases provided only for cancellation or rent abatement in the event of physical damage to the building.
However, where a landlord or tenant has received a notice to fix from a local authority under the Building Act, it may be argued that the building is no longer capable of lawful use for the purpose for which it was let, which in some circumstances may entitle a tenant to cancel.
Will the local authority require strengthening works?
Whether or not a local authority will take action with respect to an earthquake-prone building, will depend on the particular local authority. Under the Building Act, each local authority must adopt a policy detailing how they will exercise their powers and responsibilities under the Building Act. These policies take into account the local circumstances and particular seismic risk. Each policy must set out a level to which the strengthening work is to be undertaken and a timeframe for that work.
Some local authorities, for example, Wellington City, require certain buildings to be assessed and subsequent strengthening work undertaken within specified times. Other local authorities are content to review the seismic strength of the building at the time of an alteration or change of use of the building takes place. Depending on the nature of your building, the time for remedial work will vary.
How far do the strengthening works have to go?
This varies. The Christchurch City Council and other local authorities are in some cases imposing a requirement to remediate to 67 per cent of New Building Standard (NBS). There is some debate as to whether councils are entitled to require a degree of remediation beyond what is needed to achieve at least 34 per cent of NBS. This issue is unlikely to be resolved until the matter goes before the courts.
Similarly, landlords and tenants may dispute the scope of work required to remediate an earthquake-prone building. Landlords or tenants who remediate to the bare minimum run the risk that an amendment to the Building Code will necessitate further earthquake strengthening work in the future.
If the work is not done, am I at risk?
Under the Health and Safety in Employment Act 1992, a tenant must provide a safe working environment and ensure its employees are not exposed to risk or harm. While we are not aware of any case law suggesting that earthquake-prone buildings are a hazard for the purpose of the HSEA, if an earthquake-prone building fails, the tenant may have a hard time defending a health and safety claim.
Landlords also need to be aware that under the HSEA, they may find that they to have a health and safety obligation which may be breached by permitting an earthquake-prone building to continue being used without remediation. We note that the HSEA may require that landlords and tenants do carry out works so that the building results in an assessment well in excess of 34 per cent NBS.
