Government investigates better protection for home-owners, as a final building consultant goes to the wall leaving cash-strapped councils as 'last man standing' in weathertightness crisis
When Compass Building Consultants was finally liquidated last month, it left behind it a deep pit of liability for Auckland Council and unresolved problems for those living in the leaky homes it said were weathertight.
It arose from the ashes of a sister company, Compass Building Certification, that was liquidated under the shadow of looming High Court and Weathertight Homes Tribunal cases. From small projects such as homes in Wellington's Island Bay and Auckland's Birkenhead, to big projects such as apartments in Kingsland and the Scholar Hotel in downtown Auckland, the judgments recite the same problem: "The building certifiers may have been equally negligent but they have now been struck off and are unable to be sued by the plaintiffs."
Its liquidation wasn't enough for its directors and shareholders to avoid all claims: the demise of sister company Compass Building Consultants was drawn out by legal disputes with four remaining leaky building owners – two in Flat Bush, one in Albany, and the notorious St Lukes Garden apartments in Mt Albert.
Buried in a pile of developer, building company and sub-contractor liquidations these past few months, the final demise of Compass Building had passed unnoticed.
But it highlights the critical importance of reviews announced by the Government yesterday into building consenting and certification, and assessing where the risk and liability should lie when things go wrong.
At the crux is the question of who should be left out of pocket when developers, architects, designers, builders and certifying companies quietly shut up shop, leaving a mouldering mess of defective buildings behind them.
The building industry argues that when more than one party is at fault, the entire liability shouldn't fall on the 'last man standing'; that each party should be proportionally liable only for its own share of the failings – as is the case in Australia.
“I think the crux of the matter is addressing liability. While the law still says companies are jointly and severally liable, where the last person standing takes total liability, it's not right.” – Maurice Hinton, Compass Building director
But the Government maintains its longstanding position that the innocent home-owner must be protected; that if one responsible party in the development goes to the wall, the homeowner should be able to sue the other parties whose failings were responsible for the building defects.
Last night, from beyond the corporate void, Compass director Maurice Hinton spoke out. He argued for proportional liability as in Australia, to avoid the last remaining company or council carrying the can.
That's somewhat ironic, as Compass (in its two incarnations) avoided most liability when Hinton and the other shareholders voted to put first the certification business, then the consultancy, into liquidation.
Most, but not all. Hinton told Newsroom there were four outstanding cases that caused the liquidation of Compass Building Consultants to take five long years, from the shareholder vote in July 2017 through to last month's notice from liquidator Victoria Toon that she would be removing the business from the Companies Register. The deadline for objections was this week.
Two of the four cases were confidentially settled out of a capped $2 million insurance policy. But proceedings against Compass were dropped in the last two cases – believed to include St Lukes Garden apartments, the biggest leaky building case of all.
That leaves Auckland Council, as the building certification authority, left to carry the can. Hinton predicts the council will negotiate a confidential settlement, as he says it has for countless other leaky building cases, to avoid the expense and publicity of a court case.
Building remediation continues at the leaky St Lukes Garden apartments in Mt Albert, but the consenting company Compass Building Consultants was finally liquidated last month.
That’s frustrating for the owners of the 285 apartments in the 15-building complex. The owners of the apartment complex filed a $110m leaky homes claim against the firms involved in its construction and Auckland Council, after discovering serious building defects including fire safety oversights and leaking external walls due to poor quality concrete.
In April 2019, the case was finally resolved with a confidential settlement. And they won’t get any more recompense from Compass, now it’s liquidated.
“The current building consent system was established in 1991 when many new buildings were mostly detached, single-storey, timber-framed buildings. A lot has changed in 30 years in how we design, procure and build so the building consent system needs to keep up with those changes." – Megan Woods, Building and Construction Minister
Compass Building was one of 18 companies to take advantage of deregulation under a 1991 Building Act change, allowing private companies to act as consent and certification authorities. But all of them stopped issuing building consents in the wake of the leaky building crisis, after the act was rewritten to require all consent authorities to carry full civil liability insurance.
Now, the only consenting authorities are the 67 city and district councils, and more recently, a unit within state housing agency Kāinga Ora named Consentium. With the liquidation of Compass's certification business, its consulting company continued doing building consent and inspection work for another 10 years – but only on contract for councils. The councils would have final sign-off for both consents and code compliance certificates.
Hinton, now 68 and retired, was adamant organisations shouldn't have to pick up the entire liability for a defective build, when they bore only part of the responsibility.
"What's frustrating about it is the fact that we didn't have an option in the end. We did have some insurance, but we carried on and it cost us a lot of money," he said. "But some of the companies that were involved in some of those leaky buildings are still charging ahead, building buildings at the moment.
"The drive to build at pace and within budget creates an incentive for some practitioners to do the minimum they need to get the project ‘over the line’ ... These attitudes and behaviours increase the risk of things going wrong." – building consents review paper, MBIE
"That's why I think the crux of the matter is addressing liability. While the law still says companies are jointly and severally liable, where the last person standing takes total liability, it's not right.
"If it was proportional liability like in Australia, then a judge would say, right, here we go these people have got 10 percent or five percent responsibility. And unfortunately if the claimants can't locate that people that have got the rest of the responsibility, then they only get that 10 percent."
Yesterday, Building and Construction Minister Megan Woods announced a review to modernise the Building Consent system, with the public and the construction sector invited to have their say.
“The current building consent system was established in 1991 when many new buildings were mostly detached, single-storey, timber-framed buildings. A lot has changed in 30 years in how we design, procure and build so the building consent system needs to keep up with those changes," she said.
“The building consent system review will not revisit the current joint and several liability rule as this rule provides the greatest assurance that building owners will be compensated for any loss that results from building defects. However, the review will closely examine how we manage and allocate risk within the building system."
"Despite the perceived and real problems around the consenting process, you’d have to say they aren’t insurmountable. Look at the 50,000 or so that have been granted in the past year." – Kelvin Davidson, CoreLogic
What the review would do, she said, was focus on how to unlock productivity growth, stimulate urban development where it is needed, and make homes more affordable for all. "We also want to provide assurance to building owners and users that building work will be done right the first time, and ensure that buildings are well-made, healthy, durable and safe.
Twenty years ago, the sentinel event was the leaky homes crisis; now, it's the ability of our houses, commercial and public buildings to withstand global warming. "The effects of climate change will further impact the way we build in the future – energy efficiency and carbon emissions will become core considerations when building."
According to building consents issues papers published this week by the Ministry of Business and Innovation, designers, builders and consenting authorities all look to another party to take responsibility for building safe and compliant structures. "These attitudes and behaviours increase the risk of things going wrong, place greater pressure on building consent authorities to identify issues, and increase the risk of defects requiring rework," says one paper.
""The incentives on practitioners to get it right the first time may also be insufficient. A consistent theme coming from previous reviews is that the drive to build at pace and within budget creates an incentive for some practitioners to do the minimum they need to get the project ‘over the line’.
"At the same time, there are very few tools to hold practitioners to account for their performance, with the building owner bearing the costs associated with any delays in obtaining a consent or failed inspections."
"Inexperienced architects, engineers, builders and project managers were undertaking work above their skill level and experience ... These challenges are exacerbating long-standing concerns about skill deficits and the quality of supervision and performance across the system and may increase the risk of defects." – building consents review paper
The review comes as new figures from CoreLogic show the cost of building a new home is increasing at its fastest rate on record because of persistent labour and material shortages.
CoreLogic's Cordell Construction Cost Index showed new dwelling consents hitting a record 50,000 on an annualised basis, showing strong underlying demand for new houses. Just over half of these were for smaller dwellings such as townhouses.
"Despite the perceived and real problems around the consenting process, you’d have to say they aren’t insurmountable," Kelvin Davidson told Newsroom. "Look at the 50,000 or so that have been granted in the past year."
He argued land supply and provision of infrastructure had been bigger hurdles, but he acknowledged concerns about delays and bureaucracy in granting building consents – seen as a reflection of risk-averse councils being overly cautious. "People have complained about delays and bureaucracy for many years now, so any improvements would no doubt be a good thing."
An MBIE survey found performance processing building consents varies significantly across the 67 local authorities. While the majority of building consent authorities are managing to meet statutory requirements for processing consents most of the time, "many are struggling". MBIE estimates around one-quarter are falling far short of compliance with the requirement to process consents within 20 working days. "This, in turn, could lead to a risk of poor-quality decisions, and an increased risk of defects requiring rework at a later date," the review paper says.
The building sector is facing significant workforce challenges to keep pace with record building demand, and expectations to deliver to deadline and within budget, it adds.
According to Statistics NZ’s Business Operations Survey 2021, around 90 percent of construction businesses reported moderate to severe difficulty when recruiting tradespeople.
"These challenges are exacerbating long-standing concerns about skill deficits and the quality of supervision and performance across the system and may increase the risk of defects," the review paper says. "Respondents to a 2021 evaluation of the building consent system commented that inexperienced architects, engineers, builders and project managers were undertaking work above their skill level and experience."
