Councils face deluge of leak suits

The Supreme Court's support of apartment owners in the Spencer on Byron block has opened the floodgates. Photo / Dean Purcell

Landmark Supreme Court decision opens door for owners of non-residential buildings to sue

The floodgates are open for owners of all buildings less than a decade old to sue councils after a landmark Supreme Court ruling yesterday, a legal expert says.

Paul Grimshaw, a partner at Auckland law firm Grimshaw & Co, said the decision in favour of Takapuna's Spencer on Byron apartment owners had a potentially "enormous" impact because owners of non-residential properties now had more power.

It could affect people with shops, offices and industrial buildings either inspected by and/or signed off by councils.

He said those with non-residential properties now had the right to sue councils for defects, including leaks, where previously only people with residential property - houses, apartments, units or flats - could sue councils.

The Supreme Court yesterday overturned a Court of Appeal decision and ruled the owners of leaky apartments in Spencer on Byron could continue their fight to sue the old North Shore council, but stopped short of finding anyone negligent.

The Spencer on Byron has 249 hotel rooms spread over 18 floors. The 20th and 21st floors have six penthouses which do not form part of the hotel operation.

After the ruling the Auckland Council announced it would defer a $175 million retail bond offer. "Until this decision, there has been some doubt as to whether or not the owner of a commercial building was entitled to sue a council for damages reflecting the cost of bringing the building up to standard," a council statement said. Auckland Council's financial statements include provisions for potential future liabilities for residential properties with weathertightness issues, but not commercial properties.

The council launched its bond offer on Tuesday but said it would relaunch it once it had considered the implications of the decision.

John Gray, Home Owners and Buyers Association president, said Spencer owners had won only the right to continue to run their claim in the High Court. "So they haven't won yet but one would presume that the claim will progress to a successful conclusion based on existing building negligence claims provided of course the evidence supports the claim against the council," Mr Gray said.

Mr Grimshaw said the Supreme Court had found the council liable.

Philip O'Sullivan, of building consultants Prendos, said the decision resolved what had become a rather silly distinction between residential and non-residential buildings.

"The approach to consents and inspection taken by councils was and remains similar for all buildings, though with larger commercial projects there is often a much greater reliance on professional input as councils do not have the necessary skills or resources."

Auckland councillor Cameron Brewer said the ruling probably meant the council would have to borrow "even more money" to deal with the crisis. additional reporting APNZ