What is New Building Standard (NBS) and How Can it Affect a Building’s Insurance?

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NBS is simply the assessment of the earthquake rating a property is expected to have when built to the current building code.  NBS therefore changes to reflect code changes.  NBS is calculated as part of a seismic assessment of how the building has been constructed.

 

The percentage of NBS rating is not a measure of the building’s ability to handle an earthquake without damage for insurance purposes but is about “life-protection”.  As such NBS is unlikely to alter the insurance premium unless the NBS is substantially below the current threshold.  Any increase in the NBS percentage may however improve the building’s expected performance in protecting life.

 

When a seismic assessment is performed by a structural engineer, this will result in an NBS rating being given to an existing building.  The assessment calculates the percentage NBS achieved.

 

Significantly NBS is measured at the lowest defective point in a building, so if there is a particular weakness which is rated 30%, the whole building will be rated 30% until the defect is addressed.

 

A building with a rating of less than 67% NBS is deemed to be an “earthquake risk”.  A rating less than 34% NBS means the building is “earthquake prone”.

 

If a building, or part of a building, is earthquake prone it is believed it will ultimately have its capacity exceeded in a moderate earthquake and if it were to collapse, would do so in a way likely to cause injury or death to persons in or near the building, or injury/death or damage to adjacent property.

 

If a building is found to be earthquake prone this doesn’t necessarily mean it shouldn’t be occupied.  The Building Act provides a period of years for strengthening or demolition work to be undertaken.

 

New Zealand is categorised into three risk levels

Source: How the system for managing earthquake-prone buildings works

The link below identifies what regions of NZ are in which risk category:

Seismic Risk Areas Map

 

For further information please contact Body Corporate Manager Alex McAllister: alex@bbcl.co.nz

Relief for Residential Investors In Large Scale Remedial Works

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Owners may be aware the IRD has reviewed a large number of elements of the tax legislation.  Included and focussed on a policy decision to encourage growth in NZ’s housing stock is the issue of purchasers of new builds being exempt from the removal of interest deductions on borrowings on residential investment properties.

 

Following a comprehensive discussion  paper the first reading of the Bill passed through Parliament and moved to Select Committee stage.  BBCL and others made submissions suggesting the new-build exemption should be extended to expenditure on existing dwellings needing major repairs (essentially leaky buildings and earthquake impacted buildings).

 

BBCL Director, Craig Leishman, addressed the Select Committee, over the logic of increasing the exemption to include existing complexes whereby major remedial works serves to increase the life of housing stock and to improve the quality of such stock.

 

Craig submitted that by encouraging and supporting an exemption for significant remedial repairs this would prevent existing dwellings from falling out of the current housing stock.  If not included, housing suitable for refurbishment may be seen as a commodity and demolish and rebuild would result simply because of the tax settings.

 

BBCL is pleased to note its submissions were well received and it is now proposed the exemption for new-builds will be extended to include leaky buildings that have been reclad (at least 75% of the dwelling) and with a code of compliance issued on or after 27 March 2020.

 

The new-build exemption will also apply to many earthquake rating impacted buildings and permit interest deductions for 20 years.  The exemption over interest claims are transferrable to subsequent purchasers during the 20 year period.

 

At this stage it is unclear when the next reading of the Bill will occur.   It does look extremely likely investors borrowing to carry out significant repairs will enjoy interest deduction relief on residential units which undergo recladding.

 

Link to full reports below:

 

Please let us know if you would like any further advice on the details of the proposals.

 

BBCL thanks supporting submitters PWC and HA law who supported BBCL’s submissions.

Construction Contracts Act 2002 (CCA)

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Most owners will be aware an Act of Parliament governs construction contracts (commercial and residential) and imposes various obligations on both the contractor and the principal of the contract (i.e. the owner or Body Corporate).

One of the key issues governed by the CCA is the process of making payments and the format of claims.  In this regard:

  1. Since December 2015 payment claims under construction contracts must be accompanied by a Form 1 notice.  The Form 1 notice is a prescribed form in the Regulations which explains the process for the principal to respond to a payment claim.  It also sets out the consequences of not responding in time and not paying the claimed or scheduled amount.
  2. If the correct form is used, then if a payer does not respond within the requisite time set out the payment schedule, then the principal is liable to pay under s 22 the entire amount of the claim on the due date for the payment.
  3. Where Section 22 applies, the Courts and adjudicators will enforce the contractor’s right to payment and not circumvent it simply because the principal may have a counter claim or disagrees with the claimed amount.
  4. From the contractor’s perspective it is important the form is correct, as an invalid payment claim will not trigger the default obligations on the payer to pay.
  5. The case law indicates Courts will not require strict adherence to the CCA requirements and therefore a technical non-compliance will not normally invalidate a payment claim.  Importantly “the complete absence of a Form 1 notice is a substantive breach and therefore invalidates the entire payment claim”.
  6. To object to a payment claim, the principal needs to set out the reasons for the difference between the amount in the claim and the amount the principal schedules to pay.  In this respect the Court has affirmed:
    • Deductions by way of a percentage is acceptable, subject to there being sufficient reasons for the percentage figure.
    • The absence of reasons for scheduling lesser percentages for variations was, in the recent Fletcher v Spotless case found to be inadequate because of the absence of reasons.
    • Fletcher’s referencing “under assessment” was also held insufficient for the purposes of Section 21(3) as there was no indication of the purpose of the assessment.
    • Where contra charges are made, there needs to be specific detail as to how the charges arose and the basis upon which they were calculated.

Key Message for Principals and Body Corporates

  1. The Fletcher case demonstrates the payment schedule must indicate reasons for each deduction.
  2. The sufficiency or otherwise of the reason and the consequence of an insufficient reason is, to some extent, dependent on the size of the deduction and the context of the payment claim as a whole.
  3. Where a relevant deduction is significant, more detailed reasons are likely to be required and non-compliance is more likely to invalidate the entire payment schedule.

In drafting payment schedules, where deductions are made, the key is to give the contractor “full and unequivocal notice of all areas of differences or dispute” to enable it to assess future options. 

Boutique Body Corporate & Community Management – Covid-19 Update

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Update: 30/03/2020 This page will be updated as the situation evolves.

At Boutique Body Corporates Ltd (BBCL) our mission statement includes providing peace of mind for owners and investors.   Now, more than ever, we want to reach out and let you know that we are here for you.  We will be working with you and your committee to establish protocols and guidelines for community living environments that will hopefully aid in slowing the spread of Covid-19. When it comes to community living, all owners have a duty of care to make sure the property is a safe environment for everyone.

How to stay in touch:

Our office is now closed but you can continue to contact us the same way you usually do.  The BBCL team are all operating remotely and can assist if you have questions or concerns about your property or what coronavirus means for your body corporate or community.

Meetings:

Obviously, this is a fluid and currently rapidly escalating issue and we will continue to host general and committee meetings but, for now, our presence will be limited to a virtual environment. Use of video and teleconference technology will play a vital role in reducing the impact of COVID-19 on people and businesses.

We have various options available to conduct meetings by video and teleconference that will enable you to participate via your own controlled environment.  Participation by way of proxy or postal voting is also available for everyone as usual.

What you can do:

Let us know immediately if occupant/s in your property have a confirmed case of Covid-19 or a self-isolating due to recent overseas travel or close contact situations.  We must be able to notify service contactors attending to any emergency/urgent maintenance on infrastructure and services of the current status of all occupants to ensure issues can be attended to promptly.

Please contact your body corporate manager or email info@bbcl.co.nz with details.

Stay informed and up to date via The Ministry of Health , World Health Organisation and The New Zealand Government

Be kind – kindness is an incredibly powerful way to show you are united against COVID-19. We can all make a huge difference by:

  • Checking in on neighbours to see if they need support.
  • Looking after anyone that needs help.
  • Dropping supplies to those who self-isolating.

 

We urge all of you to:  BE SAFE

 

The Airbnb Challenge

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Whilst Airbnb has created an economic opportunity for numerous residential owners, it has brought with it a number of challenges in Body Corporate administration. The conversion of many units from long term residential to short term letting brings with it some inevitable pressures on facilities and occupants which need to be managed to deliver equitable outcomes to all.

 

A recent Tenancy Tribunal decision secured on behalf of a BBCL Body Corporate emphasises the Tribunal will take action where utilisaiton of a unit breaches the quiet enjoyment rights of other unit occupants.

 

The Body Corporate concerned was subjected to roudy behaviour by Airbnb tenants which caused continuing conflict with other occupants and disturbed them on a regular basis.  Over a period of 4 months a number of breach notices were issued against the landlord of the unit but were ignored.  With little alternative option the Body Corporate applied to the Tenancy Tribunal for relief citing rules prohibiting:

  1. Use other than residential without the Body Corporate’s prior consent.
  2. Adverse noise and conduct.

 

The judgment of the Tribunal issued on 3 February 2020 granted the Body Corporate an order:

“Prohibiting the owner from renting or leasing the premises as short term accommodation in the nature of holiday accommodation of a period of less than 3 months.”

 

Since receipt of the judgment the owner has sought the Body Corporate’s approval for consent and put forward a range of control options.

 

Whilst the judgment does not extend to approving the right of a Body Corporate to prohibit Airbnb or other short term accommodation, it clearly sets out the Tribunal can and will restrict letting when an owner simply fails to recognise the obligations of ownership and fails to abate a continuing nuisance.

 

Summary:

  • All occupants must comply with lawful Body Corporate rules
  • The Tribunal will prohibit short term letting in the face of repeated rule breaches

 

A copy of the judgment can be obtained on the link below

UTA_Tribunal_Order 030220

Committee Liability

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Whether it is about personalities, poor legislation, or a combination of both, Bodies Corporate appear to generate a disproportionate amount of time and cost in litigation through our Court system. This includes the Tenancy Tribunal (up to $50,000), District Court, High Court and beyond to the Court of Appeal and Supreme Court.

Increasingly, there are examples of upset owners unable or unwilling to accept the decision of the majority of a Body Corporate, and this has led to increasing litigation. On a number of occasions this may extend to the issue of proceedings against generally unpaid lay Committee Members. The security blanket which Committees have looked to in responding to litigation is the Office Bearer’s Liability cover which most Body Corporates put in place.

Unfortunately, an insurance policy does not necessarily mean, nor guarantee, the insurer will immediately step up and take over a claim, no matter how vexatious or poorly constructed. This response from Insurers creates an unreasonable impost on owners who generally will have been acting in the best interests of the majority of the Body Corporates, as they perceive it.

The Courts have made it clear in the Guardian Retail Holdings case that a committee, if sued, cannot automatically call on the Body Corporate and its solicitors to represent them jointly and meet the committee costs – this applies even if the interest of the Body Corporate and the Committee appear to be completely aligned. The Guardian decision does emphasise the importance of having appropriate Office Bearer’s Liability cover in place. It also illustrates the need for owners to be very aware matters which can give rise to a claim must be notified as soon as those matters are identified, and importantly, prior to renewal of cover for a future period. Insurers may well consider a failure to disclose a disgruntled owner’s threats as being a material event, subsequently disqualifying the Committee from looking to the insurer should proceedings be issued against the Committee.

Instances where litigation against Body Corporates and Committee Members has been instigated is often a response to the stresses generated where a Body Corporate is grappling with design and construction failings.  The large sums of money involved, and the strong views and perceptions of individual parties, have driven this.

Singh v BBCL and Committee 207650

In a recent decision, the High Court has clarified and made clear that “The Committee Members, and indeed the Body Corporate Secretary, has no liability to individual owners in the Body Corporate in the absence of a clear assumption from the Committee of personal responsibility.” In this recent case an aggrieved owner had been involved in multiple claims and cases with her Body Corporate concerning cost allocations and management of a leaky-home repair contract under Section 74 scheme when a defects settlement, achieved many years before, proved woefully inadequate to cover repair costs.

After exhausting all claims against the Body Corporate, the aggrieved owner moved her sights to the Body Corporate Secretary and a number of current and former Committee Members (but oddly, not all). The Committee had acted prudently in its decision-making and ensured all decisions were made either at General Meetings of the Body Corporate or ratified at General Meetings. This made it clear to the Court there was no assumption of personal responsibility by the committee or Secretary to the aggrieved owner, and the decisions the owner took issue with were, in reality, the same decisions the Body Corporate had previously been successful in defending.

The Committee in the Singh case were protected by an indemnity from the Body Corporate contained in a Section 74 Court Order, which authorised the Body Corporate to proceed with the repairs to the complex. As such, the Body Corporate was able, and required, to fund the litigation defence which ran into many tens of thousands of dollars. But for the Section 74 scheme, individual committee members would, upon the insurer initially declining cover, have been required to fund their own defence pending the outcome of the proceedings.   As the aggrieved owner was ultimately bankrupted, this would likely have left the individual committee members significantly out of pocket. The insurer maintained the committee had not been complete in its disclosure before placing cover and suggested the previous insurer, at the time the possibility of proceedings was intimated, could be responsible. Both insurers declined to step up. This overlapping failure to accept responsibility resulted in neither insurer responding to the Committee’s request for acceptance of liability under the Officer Bearer’s Liability cover.

The Ultimate Outcomes

The Court’s decision in Singh v Boutique Body Corporates Limited & Ors [2019] NZHC 1707 sends out two clear messages:

  1. Bodies Corporate should take care in ensuring adequate liability cover exists for Committees.
  2. Committee Members and the Body Corporate should exercise real prudence when notifying prospective insurers of potential claims or liabilities known at the time the policy is put in place, or a circumstance giving rise to a potential claim arises.
  3. Committees should make it plain to owners that they are acting as the Body Corporate Committee and not assuming personal responsibility for any individual owners.
  4. The simple practical solution for committees appears to be for all major decisions which have the potential to be the subject of dissension be made at a General Meeting or ratified by a later General Meeting.
  5. A committee decision validly ratified by a General Meeting has the same legal effect as if the original decision was simply that of the General Meeting.

Moving Forward

BBCL has previously advocated for a provision in the Act for the Body Corporate to be able to indemnify Committee Members. To date this has fallen on deaf ears with both MBIE and government, whilst the legal profession has tended to suggest Office Bearer’s Liability is the panacea. Unfortunately, experience has illustrated the major insurers exhibit considerable reluctance to step in and pick up liability in the early stages of many claims. This can place huge undue pressures on lay volunteer owners who generally act in good faith. Frequently, claims brought by owners against Committees have little or no merit, and on multiple occasions have simply been vexatious tools to attempt to intimidate the Committee into a course of action advocated by the aggrieved minority owner.

Terrorism Exclusion

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The recent atrocities in Christchurch with the Mosque attack brought home to BBCL the need to consider the potential impact of terrorism on Body Corporates.

Virtually every current Body Corporate policy has a terrorism exclusion from the material damage portion of the policy.  If the Body Corporate has a concern regarding terrorism, whether for any specific reason or simply to ensure full coverage, additional cover can be obtained upon request.  Should you feel that this is an omission from your current cover please contact your account manager.

EQC Charges on the Rise

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Residential owners should be aware the residential building cap covered by EQC has been increased from 1 July 2019 to $150,000 (plus GST).  This is up from the previous base of $100,000.  The increase will be helpful in natural disasters where comparatively minor damage occurs.  In circumstances where a total loss arises then the EQC cap will invariably need to be topped up by natural disaster cover under the Body Corporate’s material damage policy.  The top-up for natural disaster is already included in all Boutique policies.

As with any change in cover, the premium increases and EQC’s take will go up from $200 plus GST per unit to $300 plus GST.  This will be reflected in insurance renewals from 1 July 2019.  In theory the insurer’s premium should reduce to reflect the increase in EQC cap  – time will tell.

Design Adding Value

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