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The Building (Earthquake-prone Buildings) Amendment Bill – what it means to you

What is an earthquake-prone building?
The Building Act 2004 defines an earthquake-prone building as one that would be likely to collapse in a moderate earthquake & cause injury or death or damage to other property. In practice (under the building code), an earthquake-prone building is defined as one which is less than 34% of the New Building Standard (‘NBS’).

How earthquake-prone buildings are currently dealt with in New Zealand?
Under the current system, each council is required to have a ‘Dangerous, Earthquake-prone & Unsanitary Buildings Policy’. However, the Ministry of Business, Innovation & Employment (‘MBIE’) is concerned ‘Earthquake-prone buildings in New Zealand are not being managed in a consistent, timely & cost effective way’.
The inconsistency lies where some councils are ‘not actively identifying earthquake-prone buildings or requiring building owners to deal with them’. Other councils have given building owners a very long time to resolve the problems or are requiring strengthening to a higher standard than is required by law.

Councils’ individual earthquake-prone building policies will now be replaced with a new nationally consistent policy. Under the proposed changes, central government will have a greater role in providing leadership & direction in relation to earthquake-prone buildings.

Key aspects of the Bill:
  • establishes a five year period during which councils must undertake seismic capacity assessments of all non-residential buildings and multi-storey and multi-unit residential buildings in their districts;
  • establishes a fifteen year period from the date of the council’s assessment during which a building owner must (if their building has been found to be earthquake-prone) either strengthen or demolish it. To avoid demolition, earthquake-prone buildings must be strengthened to at least 34% of NBS;
  • provides for a register of each building’s seismic capacity to be maintained by the MBIE;
  • enables owners of earthquake-prone category one heritage buildings under the Historic Places Act 1993 to apply for extensions of up to ten years to complete strengthening work;
  • enables councils to issue seismic work notices and creates offences for failure to comply with seismic work notices and imposes fines of up to $200,000.

Building Owners (see also ‘Landlords and Tenants’ section below)
Due to the significant engineering and construction expense earthquake strengthening will require, the cost implications for building owners of strengthening works are huge. While the Government has agreed to look at the issue of financial incentives, the recent budget did not address the costs and affordability issues associated with undertaking earthquake strengthening work.

Building owners have seen their insurance premiums skyrocket over the last couple of years and in some parts of the country there are rumours that building owners are abandoning their insurance altogether (a step that building owners should be very wary of taking, particularly if it is a condition of their mortgage that the property is fully insured).

Landlords & Tenants
Landlords & tenants will need to ensure that leases contain specific clauses to deal with earthquake strengthening issues. The important factors to consider include:
  • who will undertake the work;
  • when will the work be undertaken;
  • rights of access to carry out the work;
  • rent concessions during the work period;
  • the percentage of NBS to which the owner will strengthen the building;
  • tenant contribution to the cost of work, if any;
  • rights of termination should strengthening work not be undertaken.
Employers (Occupational Safety & Health considerations)
WorkSafe New Zealand (‘WorkSafe’) has provided some guidance on how employers & building owner’s obligations will be enforced under the Health & Safety in Employment Act.

Essentially the position statement provides that:
  • if building owners & employers are doing what they are supposed to be doing under the Building Act, WorkSafe is not going to enforce a higher standard of earthquake resilience under the HSE Act;
  • if employers & building owners do not comply with their obligations under the Building Act & someone is seriously harmed following an earthquake, the employer or building owner could face enforcement action under the HSE Act;
  • WorkSafe expects employers & building owners to proactively identify & manage these types of workplace hazards on a regular basis.
The general public/local communities

BusinessNZ’s submission on the Bill has noted the policy ‘could lead to many buildings across the country being demolished needlessly’ & ‘common sense actions like removing unstable facades would be more realistic than significant strengthening to meet national standards’. BusinessNZ argue the new earthquake-prone building policy is unnecessary because normal market pressures were leading to buildings being upgraded or demolished in any case. The high insurance premiums being attracted by earthquake-prone buildings were automatically leading to building owners either strengthening or demolishing them.

While the Bill is intended to strike a better balance between protecting people from harm & managing the costs of strengthening or demolishing earthquake-prone buildings, from the submissions made so far, it is looking like the right balance is yet to be struck. It will be interesting to see how the Bill progresses through Parliament.
From an insurance perspective it is important you are aware what, if any, implications & processes you have in place; how your current policies would respond in the event of an incident, & whether your cover is adequate & even appropriate. I have written previously on the condition precedent to an insurers liability in policies & the importance therefore of your requirement to the duty of disclosure of material facts. For more information, please feel free to contact me here at the office on 03 548 2211 or my mobile on 027 548 2211.


Kenn Butler
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