Follow your head not your heart when buying your dream home.
That is the effect of a recent decision1 in which the High Court slashed the claim of a couple who bought a multi-million dollar property despite clear evidence that it had leaky building issues.
We explain the Court's thinking and set out the steps purchasers should take to avoid finding themselves in a similar predicament.
The house was purchased in April 2009, by which time leaky building issues were well-known. The plaintiff purchasers chose to proceed despite the fact that:
- the house was offered at a mortgagee sale with none of the usual vendor warranties in the sale and purchase agreement
- the style of construction was such the house was at a high risk of containing weathertightness defects (stucco cladding, flat roofs, no eaves and a number of enclosed balconies)
- the house had earlier been completely re-clad without Council sign-off (something apparent from the Council file)
- there were obvious signs the house leaked, which the purchaser saw during an open home (a musty smell, timber framing in visibly poor condition and rusty steel beams)
- the purchasers asked about weathertightness issues during the open home and said the house seemed "risky" and "dodgy", and
- the purchasers had obtained independent legal advice but had taken none of the further steps the Court inferred they should have taken.
Almost immediately after they settled, the purchasers obtained expert weathertightness reports all of which listed numerous defects in the way the house had been built. Those defects were visible at the time of purchase and required extensive repairs.
How the court saw it
Weighing up these factors, the Court decided that the purchasers were largely the authors of their own misfortune and had been careless in the way they went about the purchase. For that reason, the Court reduced by 70% the damages to which they would otherwise have been entitled.
An important factor influencing the Court was the plaintiffs' attitude towards the purchase. It seems that this property was their "dream home" and they decided to take a "calculated risk" in purchasing it despite the obvious warning signs.
The Court did not accept that the circumstances of the mortgagee sale, which provided limited opportunity to carry out proper investigations, excused the plaintiffs from taking steps to protect themselves. They always had the option of simply not buying the house if they felt it was too risky.
Nor did the Court agree that purchasers in the plaintiffs' position are entitled simply to rely on code compliance certificates instead of conducting their own enquiries, particularly where there was clear countervailing evidence of defects. The leaky building crisis has shown that these certificates are not always reliable.
A 70% reduction is at the upper end of the contributory negligence spectrum. While all cases of contributory negligence turn on their own facts, this decision shows that the Court will take a hard line where the circumstances justify it.
The Court agreed with conveyancing experts who said that prospective purchasers should take the following steps to protect themselves before committing to a sale:
- obtain independent legal advice
- search the Council file on the property and confirm that all building work has been properly certified, and
- obtain a pre-purchase building report from a suitably qualified expert.
Where time or circumstance do not allow for proper investigations, it is wise to submit a conditional offer or consider not going ahead with the purchase at all.
This case also demonstrates that notwithstanding any negligence committed by those involved in the construction of a home, the Court will expect the purchasers to take realistic, sensible and practical steps to assess the wisdom of their purchase.
Reckless blindness to available evidence will not generate much sympathy. Nor will an emotional attachment to the property when it overcomes a prudent assessment of risk.
Our thanks to Humphrey Glennie and Simon Elliot for preparing this Brief Counsel.
1 Johnson v Auckland Council  NZHC 165
The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.