A proposal to lobby government to cap how much councils can pay in defective building cases has gained support of councils across New Zealand.

The proposal, lead by Napier City Council, passed with 93 per cent support of the local government sector at its recent conference.

Currently, councils, as regulatory authorities, are often left as the "last man standing" in claims when buildings are found to be faulty.

When other parties involved in cases, such as builders, are unable to cover the cost or go into liquidation, ratepayers are left to cover the shortfall.


CEO of Napier City Council, Wayne Jack, said the current system puts the burden unfairly on ratepayers.

"The unfairness of the current system is compounded by the ability of the other participants to limit their liability.

"Private sector parties have the ability to wind up contracting entities on a regular basis and/or let companies go into liquidation rather than recapitalise them to meet claims.

"This creates a significant moral hazard, where the building sector can, and does, shift its financial risk on to the public."

He said this needed to be fixed by amending the Building Act.

"The Government is currently undertaking a building system legislative reform.

"Without a change to the liability settings, the reform will fall short of what is required, whether or not a mandated guarantee and insurance product is put in place as proposed."

The proposal is for Local Government New Zealand to lobby central government to act of a 2014 Law Commission report, which recommended a cap on the liability of New Zealand councils.


Napier City Council recently was caught up in such a case, regarding apartments on Humber St in Ahuriri, which were found to have structural issues, including a leaky roof.

While the ratepayers will not know how much the case cost them - due to a confidentiality agreement - the remedial work is expected to cost over $9 million.

In total, Local Government New Zealand passed a record 21 remits, of the 24 which were presented to the conference.

This included proposals such as phasing out polystyrene use, banning the sale of fireworks and updating liquor laws.