Ratepayers face huge repair bills

The potential for leaky home payouts to send rates bills soaring is spreading shudders through local bodies.

Councils are starting to pick up the tab for builders, contractors and other liable parties because they can't or won't pay their share.

In the biggest case to date, Auckland City was found liable for $128,000, but its ratepayers face a bill of nearly $600,000 because of the "joint or several liability" law.

Under the law, when several parties are found to share liability but some do not pay, claimants can pursue full payment from one party - known as the "last one standing".

While the latest case affects Auckland, other councils say it is a matter of time before their ratepayers face the same expense. Many already face claims. In Thames-Coromandel, 9 have been lodged with the Weathertight Homes Resolution Service. Hamilton City faces 25.

With the Government refusing to concede any liability for the leaky homes scandal, councils whose building inspectors signed off faulty houses are the most likely to pay.

Councils must then try to recover the other liable parties' debts - a fraught and costly task. Builders and contractors found liable, if not already in liquidation, are increasingly filing for bankruptcy.

The prospect worries Auckland, which expects to be named in the bulk of more than 1100 claims lodged with the resolution service.

Hundreds more homeowners, particularly those with larger claims, are heading for the courts.

Nationwide, the service has about 3270 valid claims and the tide of those coming in has not peaked.

"There has already been an impact on rates - money that could have gone to other things [hasn't]," said Auckland City's chief executive-designate, David Rankin.

"It's a multimillion-dollar problem and there's more to come. We don't know how many people are out there with leaky buildings."

Councils can cut potential losses by settling claims through confidential mediation, avoiding rulings.

Auckland City has paid out more than $5 million in about 70 settlements so far, which would be equivalent to a 1.7 per cent rates rise.

Mr Rankin said Auckland had yet to deal with large claims from multiple owners in developments.

The case highlighting the potential impact is Ponsonby Gardens, the first claim by multiple owners heard by the weathertight service.

In a decision in March, adjudicator Tony Dean apportioned liability between site manager Steve Lay, project manager Bruce Christian, architect Peter Townsend, waterproofers AWL and the council.

AWL placed itself in liquidation on the eve of the hearing last October, and Messrs Lay, Christian and Townsend have appealed.

Ponsonby Gardens claimants believe that Mr Lay (liable for $243,700), Mr Christian ($138,000) and Mr Townsend ($50,500) lack the ability to pay, meaning liability shifts to the council.

North Shore City has settled 33 claims through court or weathertight mediation at a cost of $411,000. A further 303 claims are lodged with the resolution service alone.

Building Issues Minister Chris Carter said a local government call to replace joint and several liability with proportionate liability had been considered but rejected for the new Building Act as being unfair to claimants who had suffered enough.

But the situation would be eased by a planned law to prevent developers escaping liability by setting up "phoenix companies" put into liquidation when projects end.

The Government hoped to introduce a bill giving the ability to impose criminal charges on errant directors. "This will ensure councils are not the last one standing."

Leaky building cases by area:

Rodney District 91
North Shore City 303
Auckland City 1138
Waitakere City 91
Manukau City 64
Hamilton City 25
Thames-Coromandel District 89
Tauranga City 46
Wellington City 212
Christchurch City 126

* Cases lodged with Watertight Homes Resolution Service as of May 26. Not all councils are listed.