Leaky homes: A crisis with no end in sight

LEAKY HOME SYNDROME: When moisture penetrates a property and builds up behind the cladding, it causes mould to grow and eventually rots the timber frame. About 80,000 homes in New Zealand are thought to have been affected.
HOBANZ
LEAKY HOME SYNDROME: When moisture penetrates a property and builds up behind the cladding, it causes mould to grow and eventually rots the timber frame. About 80,000 homes in New Zealand are thought to have been affected.

Ian Fergusson discovered he owned a leaky home when a building report dropped into his mailbox.

Six months after buying an inner-city townhouse, he and wife Glenys were caught up in the $11 billion nightmare facing more than 80,000 householders around New Zealand.

The three-bedroom property, built just over a decade ago, is one of 41 in a block. "We were unaware before we bought that a report had been commissioned by some of the other units," Mr Ferguson said.

"That report arrived to us through the mailbox. We thought, `That's a bit scary.' The previous owner was obviously aware of that, sold it and decided not to tell us, which was unfortunate."

When the property sprung a minor leak a couple of years ago, they had it fixed. "It was relatively cheap. We were actually reasonably lucky in that the house is actually still in not a terrible condition. You can certainly tell that it's going to get worse, but it's not been too bad, so far."

However, the Fergusons, in their early 30s, are unable to sell. "We intended to buy it for a temporary period of time, while we were living in the city centre. We'd quite like to move further out now.

"We can't honestly sell it. We can't sell it for an amount anything close to what we paid for it. I'm aware that other people have tried to sell in the complex but have been pretty unsuccessful. I think it's well known they are leaky now."

As new legislation, aiming to solve the legal and construction quandary once and for all, winds its way through Parliament, the Fergusons are in limbo.

They are among the 6359 people who have registered claims with the Weathertight Homes Resolution Service (WHRS). But, since Building Minister Maurice Williamson announced the financial assistance package last year, it is unclear which homeowners are eligible for the deal.

Under it, the Government pays 25 per cent if local councils pay the same amount and homeowners pay half. Applicants can apply for a loan guarantee underwritten by the government, as long as they meet bank lending criteria. Those who sign up forgo their right to sue the government or local councils.

However, many owners fear they are excluded from the package because they have already begun repairs. The uncertainty has caused distress and confusion among many already at the end of their tether.

"If we started repairs today, would we be eligible?" asked Mr Ferguson, a policy analyst and economist from Parnell, Auckland. "If we started repairs in six months, would we be eligible?

"If we are able to start the repairs and know that we would be able to get the funds when they became available, then that would make our lives a lot easier."

Leaky-home owner Stephen Graeme Rawlings didn't wait to carry out repairs on advice from Mr Williamson's office. Recladding work was needed to prevent any further damage to his home.

He told Parliament's local government and environment select committee that he contacted the minister's office in August to check he would be eligible for the package if he went ahead. He was told to keep a record of work being done.

"With that assurance, having received two quotes and a quantity surveyor's report, I contracted a design company for drawings and obtained a building consent."

The work began in September but, as the job was nearing completion, he received another email saying he might not be eligible.

"My costs have been approximately $90,000. I don't know who else is in my position, but I am not happy."

They might be waiting for some time yet. The eight retail banks have yet to agree to fund the loans.

Although a spokesman for the Bankers Association says there is "goodwill", negotiations with the department of building and housing are dragging on, with no deadline in sight.

The banks are reluctant to lend against damaged properties without a 100 per cent guarantee from the government.

The Building and Housing Department referred questions to the minister's office. A spokeswoman said: "Negotiations with the banks are ongoing and we will not be discussing them at this stage."

But if the deal falls over, will the Government really be that troubled? Legislation sets a 10-year cutoff for claims.

The peak year for leaky home construction was 2002, so many damp homes are now approaching the 10-year liability limit. Drawing out progress on finding a solution past 2012 would be attractive to a government already seeking to trim its spending.

Roger Levie, a founding member of the Home Owners and Buyers Association (Hobanz), said: "That's exactly what's going on. The Government and the companies liable are managing people off this 10-year cliff. I think that time moves the issue from a legal to a moral one. That's unfortunate."

He believes the package is likely to apply only to a very small number of homeowners. "I would suggest it is considerably less than 10 per cent. It does nothing for all the people outside the 10 years – that's tens of thousands of homes."

Paul Grimshaw is a leading lawyer in the field. He is advising his clients to ignore the deal and continue with litigation. "This sort of deal is a good deal for the Government and a good deal for the council, and a bad deal for the owners.

"A homeowner would have to be very carefully advised as to whether they should opt into a scheme where they pay 50 per cent or whether they should go through the courts and get potentially 100 per cent back."

Solo mum-of-two Joanne Macredie owns an apartment in a leaky complex of 76, which she rents out to cover the mortgage. "Seven years after the apartment was originally purchased it is still a leaky home; these buildings are a health hazard," she says.

Currently repairs cannot be carried out until at least 75 per cent of owners agree. "Those of us willing to just get on and fix the apartment are outnumbered by those that cannot or will not raise the funds, making it extremely difficult to start repairs."

Ms Macredie wants allowances made to lend to multi-unit body corporates where not all owners meet bank lending criteria or are willing to commence repairs. "Once they are repaired, owners can sell their apartments at full cost so they can get the full benefit of the sale if they wish to."

"It's unclear how owners of multi-unit buildings are going to be treated," Mr Ferguson said.

"There's nothing to stop all 41 people in my complex going and applying separately to the Department of Building and Housing. But that seems like a really laborious administrative problem, when, if we could just make application for all of us then it would make it so much easier."

Ms Macredie is also worried councils who contracted "sign off" on buildings to private firms will not be held accountable for their 25 per cent. "Our apartment complex was signed off by a contractor of the council and the council refuses to take responsibility," she told the select committee.

"Most of the contractors do not exist any more due to a loophole in legislation that allows them to start trading under a new name. It is not owners of leaky buildings' fault that their below-code buildings were not signed off by their council."

For Rob Craigie, the issue is more straightforward. His elderly parents are barred from the scheme because their leaky home was built in 1993.

"Repairs have been quoted at $150,000. It is unjust that the financial assistance package will not be available to them because it is outside the 10-year period."

Ngaire Patricia Molloy, 69, still works to pay the $163,000 mortgage on the damp home she shares with husband Robin Gorton, 72.

"The truth is that no-one has taken full responsibility for the tsunami that has hit us and in fact no-one appears to be trying to solve the situation satisfactorily, even now," Mr Gorton says.

"The solution is taking too long. We can't sell our leaky home and downgrade as there are few realistic buyers.

"Our home is our life's equity. So we die in an unhealthy, leaky home."

 Council airs fears over 'double hit'

The new financial assistance package may leave local councils open to a "double hit" of lawsuits over leaky homes, Wellington City Council says.

In a submission to the local government and environment select committee, it says the current tribunal is expensive, stressful and time-consuming, and that the Weathertight Homes Resolution Service is "not the most effective way" of dealing with the crisis.

The council has decided to take part in the package. About 8.5 per cent of active WHRS claims at November 2010 involved Wellington properties. But although the council supports the bill, the submission says it will not prevent the continuation of existing claims and the possible finding of liability against a local authority. "It prevents new attempts to name or join a territorial authority ... nothing ... requires existing claims or applications against territorial authorities to be abandoned."

It doesn't stop co-defendants or third or subsequent parties pursuing a local authority even if a homeowner has signed up, the submission says. "This leaves territorial authorities vulnerable to ongoing liability and the `double' hit phenomenon where an existing claim is able to access the FAP."

 Steer clear of assistance package, says lawyer

Lawyer Paul Grimshaw believes signing up for the financial assistance package is "not a very good idea at all". "As it stands at the moment, it would be more advantageous to go through the court system. If you have people in the claim that can pay – and that's most of the claims – like councils, builders, that sort of thing, why would you be advising anyone to take 50 per cent when they can get 100 per cent?"

A case in which no one is liable is "rare". Often claimants who take a case through the High Court win more than 100 per cent of the repair costs. "You get repair costs back but, on top of that, each owner gets between $15,000 and $25,000 for stress and anxiety and on top of that they get most of their legal costs."

Mr Grimshaw also takes issue with a clause in the bill that refers to "agreed repair costs", because the figures that come out of the Weathertight Homes Resolution Service in terms of repair costs "don't remotely resemble the actual repair costs. They take an estimate and everyone knows an estimate is not actually what it costs".

Roger Levie, of Hobanz, says many cases are solved by confidential mediation and, in these cases, the average recovered is 70 per cent of costs.

"You've got to do the maths: the reality of what is happening in confidential settlements against 50 per cent or 25 per cent from the government system. Most people are going to be better off by pursuing it from the court or tribunal."

Steven McAneney, of the Leaky Home Forum, believes only councils – or territorial authorities (TA), as they are called in the legislation – win from the financial assistance package (FAP).

"If repairs to a claimant's home were estimated to cost $200,000, and a TA found to be an eligible respondent ... the likelihood that the Weathertight Homes Tribunal would find the TA liable for 100 per cent of the repair cost is high," he said.

"If the homeowner were to utilise the FAP, they would lose out ... the TA would end up only paying $50,000 ... If a leaky-home owner were to utilise the FAP, the amount they would have to borrow from a bank will increase significantly."

The Dominion Post