The Court of Appeal in the case of Westland District Council v TC York and Alpine Glacier Motel Limited, has confirmed that a Council will be liable for any damages suffered by a purchaser as a result of the Council having been negligent in preparing a LIM which was ordered by the purchaser.
Mr York and his company purchased the motel at Franz Josef in September 2005. Before he settled the purchase, he obtained a LIM from Council.
Council knew a great deal about the Alpine Fault, including the fact that it was located close to the motel, the likely impact of a major earthquake, and the recommendation from Government that local authorities established fault avoidance zones 20 metres either side of known faults The LIM did not contain any information ab out the location of the fault, the damage that the town might suffer from a large earthquake, or the fact that the government had made that recommendation.
The buyer of the motel say that they did not find out about the possibility of a fault avoidance zone in Franz Josef until November 2010, when Council first raised the possibility of a zone. The zone was formally notified in 2012, and it affected the motel.
Evidence was supplied which showed that the market value of the land and business fell by $2,850,000 as a result of the resulting zone change to the district plan.
The Court of Appeal confirmed that a local authority will be liable if it negligently issues a LIM and a purchaser suffers a loss as a result.
However, in this case, the buyers of the motel were not successful, as they did not bring the claim until the 6 year limitation period in the Limitation Act 1950 had expired (the Court said that this period began to run when they completed the purchase, rather than when they discovered the problem).
This case emphasizes the importance of obtaining a LIM before committing to a purchase, even if the land is bare land.
It also shows that it is important to take action as soon as possible once a problem with the LIM is discovered.
Ota los shows the importance of a purchaser ordering his or her own LIM, rather than relying on one purchased by the vendor or agent.