A step back in time for the once bitten?

By Darise Ogden, Managing Editor, NZ LAWYER. When Building and Construction Minister Shane Jones announced his proposed changes to the building consent process last month, I couldn't help but wonder what, if any, effect that would really have on the building industry. Would slashing the "red tape" really encourage developers to build low-cost houses in the areas they're most needed - ie up north? Somehow, I don't think so. Says one lawyer, why would they choose to go up north and build something cheap, when they can build something on the waterfront?

More pertinently, should we really be cutting the corners on houses being built for people who can least afford to be saddled with a costly repair bill? Surely these are the very houses on which the scrutiny of council inspectors should be focused? And what about those houses that are part of a complex multi-owner development? Making the consent process easier will not rid the development of the complexities created by multiple owners. Says Sharp Tudhope partner Alasdair Christie, as with low-cost housing, these sorts of developments require a rigorousness that ensures the building is properly built.

An attitudinal shift

If you talk with property lawyers experienced in dealing with councils around New Zealand, a number of things become very clear rather fast. The first is that there is a lack of consistency between councils and the way they process building consents and their various amendments. Some lawyers have been surprised by the negativity they’ve experienced in dealing with certain council employees; others have complained of excessive delays brought about by councils that are “anti-developer” and “anti-development”; still others, however, have said they have experienced no such problems with their local councils. Was this because, perhaps, those councils had not suffered the fall out from leaky buildings?

Another thing that becomes startlingly evident when talking with some property lawyers is the dissatisfaction they feel with the way certain councils manage the building consent process. Hesketh Henry partner Joanna Pidgeon says the main problems facing developers are delay and the volume of information now required, which, she says, is two to three times that required previously.

Pidgeon suggests the delay is caused by a slackness in the service levels being offered by monopolistic councils. However, Christie suggests the delay in processing building consents has arisen out of a far more cautious and conservative inspection industry. “To be fair to councils,” he says, “if anything happens, they’re the ones in the firing line.” This is an industry that has been so severely bitten by the leaky building crisis that cutting corners when it comes to signing off consents is now a relic of building history.

Both issues appear to arise out of the demise of the private building certifiers. Says Pidgeon, prior to the passing of the Building Act 2004 (the 2004 Act), there was contestability in the industry. To compete with the private building certifiers, councils provided great service – especially to those clients they termed “key clients”. Now, she says, they have a monopoly. The service levels, it appears, have dropped accordingly.

Christie agrees that there is definitely a perception that the system is designed to prevent you from doing things rather than encouraging you to do things in a proper fashion. However, he says, you can’t blame them for being more cautious: some of the current council inspectors once worked for private building certifiers, and after finding themselves attempting, and failing, to justify their decisions in Court, they are now far less likely to use their discretion and judgment.

Despite Jones’ proposal to slash the “red tape” now gripping the building industry, Pidgeon does not expect there to be much of a change unless there is “an attitudinal shift” within the councils themselves. With caution becoming so entrenched in the industry, it is unlikely that Jones’ changes will themselves bring about this attitudinal shift.

Going back in time

In the 20 years or so prior to the passing of the Building Act 1991, Christie says there had been calls from the building industry for the process of constructing buildings in New Zealand to become less bureaucratic, less dogmatic, and cheaper for people. The changes sought were meant to improve the building industry, provide opportunities for more creative and flexible building, and to make the process cheaper by removing unnecessary complexity and complications.

The introduction of private building certifiers, although not embraced by councils throughout the country, brought some councils immediate relief – they were no longer responsible (ie liable) for the properties certified by the private building certifiers. However, such relief was short-lived, due in part to the advent of the leaky building crisis and the consequent failure of the private building certifiers to obtain insurance. The 2004 Act came into being, and, says Christie, took us backin time, in a sense, with all of the responsibility returning to councils – councils which, post-leaky building crisis, now carry “a much greater awareness of questions of liability”, he says.

A monopolistic power

The power councils can now wield under their returned monopoly is definitely something with which property lawyers and their developer clients must contend. Christie points to the power given to councils regarding the code compliance certificate. If you don’t get it within two years, he says, then arguably you have to start again. How many developers are falling foul of this?

Some developers are facing inordinate delays every time they wish to amend a detail on a development. Pidgeon spoke of one client who was forced to stop work on a property because he had chosen to use a different brand of Gib board than that specified on the plans filed with council; he had to file an amendment (at significant cost) and the building site had to be shut down for three weeks while the council processed the amendment.

Financial ruin

It’s not difficult to see that the collapse of financial institutions and rising interest rates is having a negative impact on the building industry. Driving to work last week, I passed a building site that is now sporting a Mortgagee Sale sign. Unfortunately, it would appear the original developer could no longer service its loan. Cleared of its previous structures, the site was now ripe for development – if anyone could afford to buy it and take on the process.

There’s nothing unusual about this. A colleague lives beside yet another building site where work has halted due to the developer having run out of money. On Thursday, 24 April, a large Wellington building company went into liquidation, leaving $5 million of construction projects in limbo, and more than $1 million owed to creditors. Liquidators Shepherd Dunphy, reported The New Zealand Herald, blamed Pilbrow Residential’s collapse on its decision to expand into housing design.

Could the delays imposed by some councils be forcing building companies to the brink? Can they continue to service loans while they wait for the council to consent to a change in something as seemingly innocuous as branded Gib board? They can’t work on the development until such time that the amendment receives council approval, so work stops, but employees still need to be paid. Interest increases, loan payments go up, and still they wait for a council employee to sign off the amendment so that they can recommence work.

But what is the alternative? Do we return to the days of most recent yore – days that spawned the leaky building crisis, an unenviable number of claims of negligence (before both the Weathertight Homes Resolution Service and the various courts) and, arguably, the reluctance of building inspectors to use their discretion in ways they may have done previously?

The leaky building crisis is far from over. A few years ago, an expert showed me a piece of structural timber from a leaky building in Auckland. It hadn’t rained for several days, and yet that piece of timber, when squeezed, dripped water as if it were a wet sponge. Yet another building expert took me through a house where the family’s son had been sleeping in a room with walls coated with “toxic mould”. So sodden was this house that the ceiling collapsed in one of the rooms when they raised the roof.

Perhaps some councils do need to reassess their attitudes towards developers and builders. It is clear there is a perception in the building industry that certain councils are anti-developer. According to some property lawyers and their clients, there are councils that make no effort whatsoever to advance a development, introducing delay after delay, and seeking paperwork never before required in a concerted effort to make sure every T is crossed, every I dotted, and every box ticked.

There is no doubt that this frustrates developers, builders, and homeowners alike, but can we really blame the councils? When it comes down to it, who is it that, at the end of the day, has the deep pockets so loved by disgruntled and disaffected homeowners? With developers disappearing (only to rise from the ashes to form yet another company elsewhere), building companies going into liquidation, and directors remaining absolved of all liability through the limited liability regime of the Companies Act 1993, is it any wonder councils are slavishly ensuring all their boxes are ticked?

Will the Building and Construction Minister’s proposed changes fix the issues facing the building industry? It seems unlikely in the short term. Perhaps in another 20 years or so, the clamour for less bureaucracy and dogmatism will again be heard. Time, as they say, will tell.

First published in NZLawyer, 2 May 2008. For more legal news and opinions, go to www.nzlawyermagazine.co.nz.

Posted: 6 May 2008