13 Nov 2012
Duty of care owed by Councils to commercial building owners
On 11 October 2012, the Supreme Court released its decision in the case of Body Corporate No. 207624 v North Shore City Council  NZSC 83 (Spencer on Byron). The Court held that territorial authorities owe a duty of care under the Building Act 1991 to the owners of all buildings when carrying out their functions under the Building Act 1991. Previously, the duty of care had only been held to exist in relation to buildings constructed for residential purposes.
Please contact us if you would like to discuss the impact of this decision or what it means for you.
What is this decision about?
The case concerned the building known as the "Spencer on Byron", situated on Byron Avenue, Takapuna. The building was principally operated as a hotel, but also had six penthouse apartments. The hotel rooms and apartments had been subdivided into unit titles, and sold to individual owners. The building leaked.
Many of the owners of the hotel and penthouse units, as well as the body corporate, brought proceedings in the High Court claiming against a number of parties, including the North Shore City Council. The Council applied to strike out the claims made against them on the basis that the Council did not owe a duty of care to owners of commercial buildings, relying on the residential - commercial divide in the earlier Sunset Terraces case.
The High Court held that a duty of care was not owed to the owners of the units which were used principally as hotel rooms, but the Court left open the question as to whether a duty was owed to the owners of the six penthouse apartments. The Court of Appeal upheld the decision of the High Court in respect of the hotel units, but went further and struck out the six penthouse apartment claims as well.
The owners appealed the decision to the Supreme Court, where the majority (Elias CJ, Tipping, McGrath and Chambers JJ) held that the Court of Appeal should not have struck out the owners' claim, as a Council owes a duty of care in respect of all buildings.
What does this mean for Councils?
Previously, Councils in New Zealand had only been held to owe a duty of care to owners of residential buildings in respect of their functions under the Building Act 1991. This decision confirms that the duty is owed to all building owners and no distinction is to be drawn between commercial or residential buildings.
As Spencer on Byron was built in 2001, the Supreme Court decision is confined to Councils' functions undertaken under the Building Act 1991 (which was repealed by the Building Act 2004). The question of whether Councils owe a duty of care in relation to commercial buildings constructed under the 2004 Building Act has been left open, with Chambers J (writing the decision in the majority of the Supreme Court) suggesting that it is likely that a duty would be owed. However, in the dissenting judgment, William Young J points to several differences in the Building Act 2004 which point away from the duty in relation to commercial buildings being owed under the 2004 Act.
It is therefore unclear at the present time whether a duty of care is owed to commercial building owners pursuant to the Building Act 2004.
Due to the 10-year longstop provision in both the 1991 Act and the 2004 Act, this decision will only allow new claims against Councils to be brought in respect of buildings constructed after September 2002. As the approach to monolithic cladding and council practices changed significantly in late 2003/ early 2004, it is not known whether there will be a significant number of new leaky building claims as a result of this decision.
Does this apply to just leaky buildings?
This decision applies to all functions undertaken by the Council under the Building Act 1991, for which it would otherwise only have been liable in respect of residential dwellings. It is not confined purely to "leaky" buildings. Whether or not the Council is liable in any particular instance will depend upon the issues such as:
- The role the Council undertook during the period of construction;
- Whether the Council's actions fell below the standard of a reasonably prudent Council officer;
- Other factors, such as any disentitling behaviour of the building owner.