In the wake of Canterbury’s devastating earthquakes, the Supreme Court has handed down a decision providing building owners, councils and insurers a clear steer on seismic strengthening.
Late last year, the Supreme Court ruled in a case that councils cannot require building owners to increase the seismic strength of existing buildings to more than 33% of the standards that would be required for new structures (University of Canterbury v Insurance Council NZ Inc.).
What the current Act says
The Building Act 2014 says that an existing building is earthquake prone if it:
• has less than 33% of the strength required for a new building under current standards (New Building Standards); and
• will be likely to collapse causing injury, death or damage to other properties
If a building is earthquake prone, a Council can issue a notice requiring work to be carried out to strengthen the building.
The Supreme Court case
In 2010, the Christchurch City Council adopted a policy to deal with earthquake-prone buildings, stating it would generally require existing buildings to be strengthened to at least 67% of NBS.
The University of Canterbury lodged a claim with its insurer for the cost of repairing its quake-damaged buildings. Part of the costs claimed was based on the Council’s requirement to strengthen buildings to 67% of NBS – which came at an extra $144 million.
Under the University’s insurance policy, it was covered for any additional costs required by law. The University contended the Council’s policy constituted a legal requirement. If it was found to be correct, the insurer would have been up for the $144 million the University needed to meet the Council’s seismic strengthening threshold.
However, the Insurance Council’s view was the Council’s insurance policy was limited to making sure its buildings were at least 33% of NBS, but no more.
In its decision, the Supreme Court confirmed Councils can require property owners to undertake work so their buildings are no longer below 33% of NBS, but that Councils cannot require owners to undertake work to a higher standard than 33% of New Building Standards. The University could not, therefore, claim from its insurers the additional $144 million costs of upgrading to 67% of NBS.
What does the decision mean?
The result is good news for insurance companies, but not for property owners hoping their insurers will foot the bill for upgrading buildings to more than 33% of NBS. However, property owners can now be sure Councils can’t require them to upgrade their buildings to more than that.
Changes to the law
The Building (Earthquake Prone Buildings) Amendment Bill was introduced into Parliament in December 2013. The select committee is due to report back soon.
The Bill proposes to improve the process for managing earthquake-prone buildings by providing a greater role for central government, clarifying the minimum threshold of what can be required, and defining a single national timeframe for the work to be carried out.
It retains the existing definition of an earthquake-prone building at 33% of NBS, and reinforces Councils cannot require building owners to complete seismic strengthening higher than that.