Battle over blame in leaky homes

Hazard: Mould and rot are often not obvious.

Blue-rinse grandmothers and auburn-rinse young dads file into a Mt Eden school hall on a dank autumn afternoon. For more than two hours, 300 people squat on a hardwood floor as politicians and experts talk about the leaky homes fiasco. The look in their eyes is of no expectation.

National MPs Nick Smith and Richard Worth are barking at the Government's indifference in the absence of incoming Building Minister Chris Carter. It's the first meeting of the Leaky Homes Action Group and a chance to score pre-election points - but everyone knows the rot started under National's watch.

Finally, someone in the audience says what everyone else is thinking: this is not a Labour Government problem or solely a creation of the previous National regime.
"We just want somebody to take ownership of this problem and resolve it. That can only be done by Parliament."

From where these homeowners sit, "the Government" is one of the biggest obstacles to getting their homes fixed.

The voice from the floor, Chris Halpin, is embroiled in two leaky home nightmares. Approaching retirement with their own home paid off, Halpin and wife Paulette went looking for rental investments. Using their home as mortgage equity, they borrowed heavily and bought apartments in two Mediterranean-style developments with trendy monolithic (fibrous plaster or stucco) cladding. Both had hidden leaks and Halpin fears the repair bill for both will run close to $100,000.

Owners in both developments headed to court but ran into the usual obstacles - developer in liquidation, in one case the architect and builder had shot through, and the private certifier which signed-off the construction folded when its insurer withdrew cover.

In both cases, the Government agency that presided over the leaky homes disaster, the Building Industry Authority, refused even to take part in mediation. In one case, the 85 owners settled out of court for far less than the cost of repairs, and in the other no settlement is in sight.

"We're lucky," says Halpin. "An awful lot of people, particularly first homeowners who've maxed-out on their mortgages, don't have the resources and are going to end up bankrupt."

But instead of doing more to help, claimants and lawyers say the Government seems intent on dragging out the crisis to minimise its liability.

It spent $2.3 million last year keeping the BIA (now part of the Department of Building and Housing) out of court and Weathertight Homes Resolution Service cases. It has earmarked $4.5 million for next year.

Lawyers say the BIA has Crown Law, Russell McVeagh, Kensington Swan and two QCs on tap to fight court and weathertight service cases.

Says Tim Rainey of Cairns Slane: "The Crown Law Office say they will not pay anything at mediation settlements. Even if ordered to come along they are refusing to contribute. They've said the only time they will pay is if they've lost in court and it has gone all the way through the appeal system."

Cabinet papers obtained under the Official Information Act show that, by February, the BIA had escaped mediation in 25 of 28 claims in which it was cited. In 14 it simply refused mediation. In eight, a weathertight service adjudicator upheld its application for removal. In three, the claimant withdrew. One was settled out of court and two others were in progress.

The BIA has also been named in seven court cases. One, Sacramento, looms as a test case after a High Court judge refused to strike out the BIA on three of four negligence claims brought by the Sacramento owners (see graphic next page).

This year's transfer of BIA litigation to the Treasury, to avoid a conflict of interest with the weathertight service, has only fuelled belief in the Government's determination to keep the BIA off limits.

The BIA carries $10 million in civil liability insurance (obviously insufficient) but instead is spending millions to avoid any test of its liability. Rainey says the BIA's insurer is "hiding behind the resources of the state to fund the defence of these claims to avoid paying compensation".

Chris Carter, who takes the hot seat as minister responsible for the new Department of Building and Housing on July 1, says the Government's liability will ultimately be decided in court. "Our advice is that the Government will not be held liable." So why is it delaying judgment day?

Carter says one concern is that an adverse ruling could expose other regulators to negligence claims.

Home owners settling for less

While cases are dragged through the courts, claimants are settling for less than the cost of repairs. Others are falling outside the 10-year time limit on claims. Homes are continuing to rot and their occupants are living with stress and health problems caused by toxic mould.

Nick Smith brands the Crown's approach "deep-pocket litigation."

"They're saying, 'Regardless of whether we win or lose we'll go to the Supreme Court because you will run out of money before us'."

Worst off, says Smith, are the 25 per cent of claimants whose homes were approved by building certifiers whose insurance scheme collapsed. The scheme was set up by the BIA in 1995 when National was in power.

"The BIA had advice that the scheme was unlawful but went ahead anyway - it was appalling behaviour," says Smith. "The Crown is liable because [its agency] broke the law.

"The most heartbreaking stories are the people who are now facing bankruptcy because of that."

The leaky homes disaster arose from a "systemic" breakdown - contributing factors ranged from a "permissive" new Building Act, untested new materials, architectural trends, cost-cutting developers and shonky building practices to faulty oversight by councils and private certifiers and a Government agency which stood on the sidelines. 

But the Government is ensuring the buck stops at councils. Crown law continues to argue that the BIA is not legally liable because it was only a regulator and owed no private law duty of care; that houses with excessive moisture are in breach of the building code and that's the responsibility of councils.

"In essence, they are trying to get off on a technicality," says Rainey. "They're saying, 'We set up the BIA but it had no legal obligation to anyone who owns a building to be careful in what it did - and the reason for that is it's a Crown entity'."

"These people are guilty of gross negligence," says Paul Grimshaw, a colleague of Rainey's at Cairns Slane, which says it has 3000 homeowners on its books. "Saying they have no liability is a national disgrace."

The Government's reluctance to pay is understandable - its potential liability for repairs could top $1 billion. But with so many parties culpable, it's more likely it would have to pay a portion of any settlement where the BIA was found liable.

The moral case for the Government to contribute is compelling. In 1991, it ushered in a revolutionary Building Act which reduced regulations to "essential safeguards". With it came a performance-based building code to be overseen by the BIA. The code set targets for aspects such as durability and external moisture but did not specify how they could be reached.

The act's main aim was to reduce development costs and bring more freedom for product manufacturers, architects, developers, builders and councils. The light-handed regulatory approach was to permeate the systemic breakdown, which occurred in the same way that hidden leaks can destroy a house.

The BIA had broad powers: advising the Minister of Internal Affairs on building issues, "disseminating" information and providing educational programmes, accrediting building materials and processes, reviewing councils and private certifiers and ensuring certifiers had adequate insurance cover.

It could also urgently make regulations "where it is desirable in the public interest".

But its role never developed to the extent envisaged. As former chief executive Bill Porteous told an adjudication last October, the authority employed just 13 staff when he started in 1998. It existed on a building industry levy reduced from $1/$1000 in 1991 to 65c/$1000 in December 1995.

During Porteous' tenure, the BIA was allowed to spend only a portion of the levy - ministers capped the amount at $2.7 million, with the balance paid into a levy reserve fund. The funding limitations meant, for instance, that a 1999 review of councils' performance was not completed.

The act provided for the BIA to appraise and accredit building materials and processes but this, too, failed to develop.

In the vacuum, the Building Research Authority of New Zealand (Branz), an industry body which included manufacturers, was the "unofficial" appraiser.

The 2002 Hunn inquiry into leaky buildings heard criticisms that appraisals relied heavily on the supplier's trade literature, lacked rigour and included little testing for weathertightness.

The subsequent Parliamentary select committee inquiry into weathertightness had this to say: "Changes to the building control regime brought about by the Building Act and too greater [sic] reliance on market competitiveness have, we believe, contributed to the systemic failure of the building industry ... It is a concern that [the BIA] did not pick up on the severity of the weathertightness issues earlier."

But here's the jawdropper: "The majority considers the key issue is the future of [the BIA] and not whether it discharged its statutory responsibilities under the act."

Nick Smith says the BIA (under National) was culpable for approving untreated framing timber, allowing monolithic claddings without ventilating cavities and the failed insurance scheme.

It failed to act when news broke of the "leaky condos" problem in Canada and the United States. Worse, from 1998 it ignored repeated pleas to reverse the untreated timber ruling from Auckland-based building surveyors Prendos, which was forwarding samples of destructive brown rot found in untreated timber framing.

"There needs to be an acceptance that the Crown does have some liability and we need to get this fixed as quickly as possible," says Smith.

Leaky home owners just want the rot to stop."Who is to blame? Everyone involved, starting with the BIA," says action group secretary Di Hall. "They were the body that oversaw and authorised building standards and practices, and oversaw councils and certifiers who issued code compliance certificates.

"Of course, architects, builders and local bodies also have to take their share of responsibility and should be made to pay."

Many argue that the Government has alternatives without admitting liability - or waiting for the courts to decide.

Options include interest-free or suspensory loans, or a no-fault compensation scheme. A beefed-up weathertight service could then pursue liable parties, removing the onus of proof from innocent homeowners.

Prendos director Greg O'Sullivan, an early leaky homes whistleblower, says the Government and councils could team up to offer suspensory loans (repayable when the house is sold) to owners who agree not to sue.

Chris Carter says the Government is working on a better deal for homeowners - but is not yet willing to accept liability.

"As a minister, I have a responsibility to all taxpayers and it would be completely irresponsible to accept liability ahead of a court ruling."

He says if the Government review identifies alternatives, the liability issue "may end up being not that relevant".

But first, he says, a major scoping exercise is needed to uncover the size of the problem - a recommendation of the Hunn Report which has not been acted on.

The excuse: "A lot of people are reluctant to admit they have leaky home issues because they want to flick their house off, while councils are nervous about [the numbers] because of liability relating to building consents."

How long will the review take? "It's a long process. We have to know how big the problem is, how much it will cost and what our options are. I have asked for urgency."

Carter says he's concerned to find out whether homes are being repaired following awards or being adequately repaired by builders who settle "out of court".

He has a responsibility as minister to ensure a quality housing stock and it's a concern that people are living with damp and rot.

Smith says weathertight service decisions have already provided a clear profile of the most vulnerable homes. "We should be going over every building permit that meets that high-risk profile and checking the homes.

"I'm worried about multi-unit developments where you have 25 people on a balcony at a 21st and you have another Cave Creek tragedy."

That's a line Greg O'Sullivan tried on the BIA in 1999.

True extent of crisis yet to be revealed

How big is the problem? Three years after the Hunn inquiry recommended a full stocktake of suspect homes, it's possible only to estimate.

National's Nick Smith says 10,000 homes are faulty and it will cost $1 billion. Building surveyors Prendos say it's at least double that number and the crisis has yet to peak. Prendos director Greg O'Sullivan reckons the repair bill could reach $5 billion.

The Government points to the 3000 claims lodged with the Weathertight Homes Resolution Service. At least as many are going through the courts - one Auckland law firm alone has 3000 clients on its books.

But thousands have yet to take either option. Some may not yet be aware they have a leaky home. It can be an insidious problem. "Places can look pristine," says O'Sullivan. "People are told to look for mould but it's hidden."

He says problems are beginning to show in 12- to 15-year-old houses which are outside the 10-year limit on claims.

It's suspected that many owners aware of problems are onselling if the rot is hidden or after bandaid repairs.

Up to a quarter of owners whose homes are assessed by the weathertight service do not proceed with a claim. Because the process is confidential, no one knows whether - or how well - these homes are repaired.