We have all read this situation in the media before - a purchaser buys a property that has apparently been repaired but discovers after settlement the building repair work to the property is defective or there is undiscovered damage which now makes the original EQC claim 'over-cap' ($100,000 plus GST).
An over-cap claim is usually managed by the original homeowner's insurer but in these circumstances, the extra repair costs cannot be recouped from the insurer as the new homeowner did not have insurance on the property at the time the earthquakes happened.
On 15 August 2019, the government announced that it has set aside $300 million for a new policy which allows owners of on-sold properties to claim the cost of repairs where repairs were poorly carried out, or damage missed and the repair bill will exceed the EQC liability cap (the Government now calls these "on sold over cap payments").
This announcement was made days before a pending test case in the Christchurch High Court to determine EQC's liability for incomplete or incorrect assessments, incorrect repair methodologies and defective repairs and EQC's liability for the full cost of repairs once determined. The test case, as far as we know, is still going ahead.
For homeowners in this position to qualify under this policy they will need to meet the following criteria:
- The property was purchased in Canterbury after 4 September 2010 and on or before the announcement of this support package made on 15 August 2019;
- The previous owner settled a claim with EQC on an under-cap basis before the property was on-sold and these claim(s) were assigned to the new owner on settlement;
- Since settlement, the homeowner has discovered the property has incomplete or insufficient repairs either as a result of botched repairs or damage that was not properly assessed or missed (EQC has advised that this includes damage that has been missed entirely and the insurer will not cover the repair);
- The cost of the repair combined with the amounts previously paid by EQC for the property is more than the EQC cap amount; and
- The homeowner is unable to access private insurance to cover the cost of repairs.
For homeowners who do meet the above criteria they have until 14 August 2020 to register for the "ex gratia payment" by EQC. The payment is equal to the agreed cost of repair. EQC has advised us there is no limit to this amount. This payment is based on a scope of works that takes into account the work required to repair the damage and any other reasonable cost of that repair work. EQC has advised that this is a payment only and not managed repairs but the repairs could be managed by EQC on a case-by-case basis depending on the claimant (i.e. they are elderly).
We will expect that this cost is based on reports prepared by EQC's assessors, not the homeowner's assessors, which could still lead to disputes over a final figure between EQC and the homeowner. We would be able to assist any homeowners with any concerns in this regard.
We also expect that while the Government will make the ex gratia payment to the homeowner, there is likely to be a condition that all money must be spent on completing the repair work with a legitimate building contractor – the idea being that the Government are trying to ensure that any EQC damaged properties are properly repaired to protect future unsuspecting homeowners.
EQC has made it clear that this new policy does not negate a purchaser's responsibility to undertake their own due diligence with an independent building inspector or engineer before confirming an agreement for sale and purchase. EQC have further advised that EQC inspections are for the purpose for assessing potential insurance claims and these assessments cannot be relied upon to determine a property as 'sound'.
We would always recommend to each purchaser to undertake their own due diligence investigations for a property and to make sure that each report (i.e. building or engineering) that is relied upon has been prepared solely for the benefit of the purchaser. Reports that have been made for the benefit of a vendor cannot be relied upon for a purchaser.
While some homeowners will be rejoicing in this news, it may come as a disappointment to those who have been in the same exact scenario and forked out their own personal funds to bring the house up to standard. EQC does not provide any written guidance on whether this ex gratia payment retrospectively applies to homeowners who have spent thousands on these repairs themselves however this may be a possibility for those who have found themselves in this situation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.