Ratepayers face leaky home blowout

Leaky homes shrouded in tarpaulins are a common sight in Auckland.

Rotting homes are behind a huge rise in legal claims against the Auckland City Council which have more than tripled from $57 million to nearly $200 million in 12 months.

Figures pointing to the ballooning cost of the crisis are buried in the fine print of the council's annual report.

Senior councillors and officers have refused to say how much ratepayers' money is being put aside. All but a handful of senior councillors and staff have been gagged from talking about the growing cost.

Finance general manager Andrew McKenzie last night said the legal claims were part of the council's "contingent liabilities" and did not represent what the council believed it would have to pay. Leaky building claims accounted for the big rise, he said.

The council budgeted separately for claims it expected to pay, he said, but he refused to release that figure, saying it was commercially sensitive.

"We don't want to set expectations of what level council will pay out on claims."

However, he did disclose that the leaky building issue had had a "minor" effect on rates this year. The overall rates rise was 6.8 per cent and 13.4 per cent for households.

The contingent liability figures are in the annual report under legal claims against the council. Claims for contract challenges, building defects (leaky homes), land issues, consents, flooding damage, valuation and other disputes were $194.1 million this year, compared with $57.2 million last year. The 2004 figure was $35.6 million.

The $194.1 million was for litigation against the council "threatened in writing" or "actually commenced". The report said it was possible the council could recover $80.8 million of the claims.

Former finance committee chairman Doug Armstrong, who last year predicted leaky buildings could cost ratepayers $270 million, said he was prevented from discussing the matter.

Half the 15,000 to 40,000 rotting homes are in Auckland City, where blocks of multi-unit apartments and houses stripped of plaster cladding and covered in tarpaulins are common.

Lawyer Tim Rainey, of Grimshaw & Co, said the $194 million figure was not surprising. It was in line with the level of leaky building work "coming through our door" in the past year.

"The leaky building crisis does not show any signs of abating at all, and the number of affected properties and the cost of rectifying may be even greater than some of the early predictions labelled ridiculous by leading people within Government."

Mr Rainey said his law firm was acting for more than 50 multi-unit claims in the High Court ranging from $500,000 to $20 million. Two-thirds were in Auckland City.

He said the council would usually end up wearing about 20 per cent of the total judgment but "what we are finding increasingly is that the parties you would think are primarily responsible - the developers, builders, architects and subcontractor" - have wound themselves up to protect themselves.

Settlements to date showed Auckland City was contributing about 50 per cent of claims and its exposure to the problem was growing, he said.

In a confidential update to councillors in September, part of which was released to the Herald under the Official Information Act, officers warned that other parties such as builders, engineers and project managers were getting out of settlements and "council's share of the liability could be expected to increase".

Since 2000, the council has had a $2 million excess on liability insurance for any one claim, but no claims for leaky buildings have come anywhere near the excess.