Earthquake-prone buildings law: a shake-up is coming

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Update of recent and pending legislation

Michael Wood Phillip Merfield

www.simpsongrierson.com

Topics Covered

• Earthquake – prone buildings: proposed reform • Land Transfer Bill • Delegation under Reserves Act • Unsubstantiated representations www.simpsongrierson.com

Earthquake-prone buildings

Engineering assessments?

Structural Strengthening?

Demolition?

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What we will cover today

This will cover two areas: • The earthquake-prone building regime now • The proposed earthquake-prone building regime reform – Canterbury Earthquakes Royal Commission – Ministry of Business, Innovation & Employment www.simpsongrierson.com

The earthquake-prone building regime now

The earthquake-prone building regime: where is it now?

– The current earthquake-prone building standard – Territorial authorities’ current powers and obligations in relation to earthquake-prone buildings – Earthquake-prone building policies – What if a building is earthquake-prone?

– What if a building is

not

earthquake-prone?

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What is the current earthquake-prone building standard?

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The current National Building Standard (NBS) comes from section 122 of the Building Act 2004 (BA).

This defines an earthquake-prone building as a building that, having regard to its condition and to the ground on which it is built, and because of its construction: will have its ULTIMATE CAPACITY MODERATE EARTHQUAKE , and exceeded in a would be likely to collapse causing injury or death or damage to property

Current earthquake-prone building definitions

What is ‘ultimate capacity’?

Determination 2012/043 (DBH, June 2012)

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What is a ‘moderate earthquake’?

Regulation 7 of the Building (Specified Systems, Change the Use and Earthquake-prone Buildings) Regulations 2005 defines the term “moderate earthquake

What is an earthquake-prone building?

• The definition of ‘earthquake-prone’ is generally taken to mean that a building is less than 34% of the requirement of the National Building Standard (NBS), or one third of the Building C ode” “less than • This means that you need to look at the and its site specific building • The standard only applies to residential buildings that are two or more storeys and include three or more dwellings • The Ministry of Business, Innovation and Employment (MBIE) estimates that there are earthquake-prone buildings 15,000 – 20,000 www.simpsongrierson.com

What are territorial authorities’ current powers and obligations in relation to earthquake-prone buildings?

Territorial authorities (TAs): • MUST have an earthquake-prone building policy (section 131 BA); • MUST require certain levels of compliance with the Building Code if a building: • – is altered (section 112 BA); or – undergoes a change of use (section 115 BA) MAY issue notices requiring works to be carried out on earthquake-prone buildings to remove danger (section 124 BA) www.simpsongrierson.com

Territorial authority earthquake prone building policies

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• TA policies balance risk and “social and economic implications” of implementing a policy.

(Earthquake-Prone Building Provisions of the Building Act 2004: Policy Guidance for Territorial Authorities)

• Active policies = indicates the timeframe before section 124 powers are used • Passive policies = TAs respond to change of use/alteration before assessing or using section 124 powers.

• Of 67 TAs, 43 have active policies, 12 passive and 12 mixed policies.

(Royal Commission Final Report, Volume 4, Section 7, 7.2.1)

Earthquake-prone building policies

• TA earthquake-prone building policies are not directly enforceable • Rather, policies are statements of how a TA will behave in relation to earthquake-prone buildings • A TA can’t use a policy to require strengthening beyond 34% of NBS (

Insurance Council of New Zealand v Christchurch City Council

[2013] NZHC 51) www.simpsongrierson.com

What if a building is earthquake-prone?

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• If a TA considers a building to be earthquake-prone, it may use its powers under section 124 BA to: – put up a hoarding or fence to prevent people from approaching the building nearer than is safe (subsection (1)(a)); – attach a prominent notice warning people not to approach the building (subsection (1)(b)); and – importantly, require work to be carried out on the building to “ reduce or remove the danger ” .

Strengthening above 34% of NBS could be required if that is the only practicable method of strengthening the building (subsection (1)(c)) • TAs may also use alternative powers under sections 112 and 115 BA (more on these shortly)

What if a building is

not

prone?

earthquake-

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• • • • If you are: not undertaking building works, a TA has no general power to require earthquake strengthening beyond 34% NBS; but altering your building, fundamental alterations (e.g. new foundations) could require full (100%) code compliance (section 112 BA); changing your building’s use to incorporate residential units, then a TA must be satisfied of full code compliance (as nearly as is reasonably practicable) before you change the use (section 115 BA); and subdividing your building, you may be required to perform some structural strengthening as a part of other upgrades (in relation to fire-safety and accessibility) that may be required (section 116A BA)

The earthquake-prone building regime reform

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What is happening to the earthquake-prone building regime?

– Will the definition of “earthquake-prone building” change?

– Will earthquake-prone building policies change? How?

– What will be the default assessment timeframes in the new regime?

– What will be the default strengthening timeframes in the new regime?

– Likely exemptions

Will the definition of “earthquake prone building” change?

Canterbury Earthquakes Royal Commission • "34% NBS" standard to remain • Out-of-plane resistance of chimneys, parapets, ornaments and external walls to unreinforced masonry (URM) buildings must be strengthened to 50% of NBS (including in residential buildings if in local policy)

(CERC Vol 4: S7: 7.4.1 Recs 84, 99)

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Ministry of Business, Innovation and Employment • "34% NBS" standard to remain

(MBIE Consultation Doc Proposal 4)

• No corresponding recommendation is made by MBIE

Will earthquake-prone building policies change? How?

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Canterbury Earthquakes Royal Commission • In their policies, TAs should be able to: – set the earthquake-prone standard in their district (ie above 34% NBS); – set timeframes for assessment and strengthening that are more onerous than BA requirements – set the application of/exemptions to the policy, within statutory bounds

(CERC Recs 86-88)

Ministry of Business, Innovation and Employment • Ministry to limit TAs’ policy-setting roles by setting “mandatory national requirements” as to: – the earthquake-prone standard (ie 34% NBS would be universal) – timeframes as assessment and strengthening

(MBIE Proposal 9)

What will be the default assessment timeframes in the new regime?

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Canterbury Earthquakes Royal Commission • All URM buildings must be assessed within THREE years of reform; • All other buildings must be assessed within FIVE years of reform • MBIE to guide TAs on approved assessment methods • TA to set priorities for assessment

(CERC Recommendation 82)

Ministry of Business, Innovation and Employment • • • All potentially earthquake-prone (ie all non-residential and some large residential buildings) buildings must be assessed within FIVE years MBIE to set assessment method MBIE to assessment set priorities for

(MBIE Proposal 1)

What will be the default strengthening timeframes in the new regime?

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Canterbury Earthquakes Royal Commission • • All URM buildings must be strengthened within SEVEN years of reform (ie FOUR years after all URM assessments) All other earthquake-prone buildings must be strengthened within FIFTEEN years of reform (ie TEN years after all assessments)

(CERC Recommendation 83)

Ministry of Business, Innovation and Employment • All potentially earthquake-prone (ie all non-residential and some large residential) buildings must be strengthened within FIFTEEN years of reform (ie TEN years after all assessments)

(MBIE Proposal 5)

Likely exemptions

• Both the Royal Commission and MBIE envisage exemptions as to: – timeframes for assessment and strengthening – requirements for strengthening • MBIE proposes to limit TA discretion on exemptions • Exemptions will also apply to specific types of building, such as rarely used rural buildings and heritage buildings

(CERC Rec 90; MBIE Proposal 8)

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What next?

• Submissions on the MBIE Consultation document have closed • Government is expected to introduce new legislation in the near future • Already the market has moved: – Anchor tenants are demanding a minimum 67% NBS, due to pressure to guarantee employee safety – Lenders are requiring a minimum of 67% NBS • Landlords and investors will have to respond www.simpsongrierson.com

Land Transfer Bill

• Exposure draft of Land Transfer Bill published earlier in 2013 • Submissions closed in May • Changes announced in October • The Bill scheduled to be introduced in 2014 www.simpsongrierson.com

Land Transfer Bill – Main changes

• Will modernise and consolidate land transfer legislation, and reflect the fact that land transfer is now largely electronic • Main changes – Fraud and indefeasibility – Mortgage fraud – Covenants in gross and encumbrances www.simpsongrierson.com

Land Transfer Bill – fraud and indefeasibility

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• Under current law, in the case of fraud the innocent purchaser takes title, and the deprived owner is entitled to compensation • Bill proposes a limited discretion for Courts to restore the owner’s interest if it would otherwise be “manifestly unjust” • “Manifestly unjust” not defined but includes factors: – Time owner was in occupation – Special characteristics of land and significance to owner • However there are wide-ranging concerns that this will dilute the certainty of the land transfer system

Land Transfer Bill – Mortgage fraud

• Changes proposed to reduce risk of mortgage fraud • Present proposal will require mortgagees to take reasonable steps to properly verify the identity of the mortgagor and the authority of the person who executes a mortgage • Concern raised that this will place an unreasonable and unnecessary burden on lenders • There have been no successful cases of mortgage fraud since the introduction of Landonline, which requires robust identity standards www.simpsongrierson.com

Land Transfer Bill – Covenants in gross and encumbrances

• These two topics are of interest to local authorities • Law Commission paper on the Land Transfer Act 1952: – analysed the uses of encumbrances – proposed to abolish them and replace them with ‘covenants in gross’ • Land Transfer Bill – Includes proposals for covenants in gross – Retains encumbrances, but there remain calls for their use to be limited www.simpsongrierson.com

Covenants in gross

• At present it is possible to ‘note’ a

restrictive

covenant or a

positive

covenant on the LINZ register (section 307 Property Law Act 2007) • However such covenants must benefit other land, in other words there must be “dominant” land: this is the way that mutual covenants on subdivision are recorded (eg covenant to build to a minimum size and quality) • At common law the burden of a covenant in gross is not binding on successors in title: it would require statutory authority to allow this to occur www.simpsongrierson.com

Covenants in gross

• The Bill proposes to insert a new provision in the Property Law Act 2007 to permit covenants in gross • Requirements: – Requires the covenantor to act or refrain from acting in a particular way

in relation to the occupation or use of the land or part of the land

; and – Benefits another person; and – Is not attached to other land • This would bind successors in title of the burdened land unless a contrary intention is contained in the instrument, or it may be assigned www.simpsongrierson.com

Covenants in gross

• Examples: – Covenant to pay levies to an entity established to maintain common facilities (not unit title development) – Covenant not to use the land for some undesirable purpose – Covenant not to object to another person’s use of their land (‘reverse sensitivity’ covenant, eg industrial use, or proposed development)? Not clear that not objecting would be a ‘use’ of the land – Restriction of trade competition would be unlawful www.simpsongrierson.com

Encumbrances background

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• Encumbrances are type of mortgage under the Land Transfer Act, that secure an annual rentcharge • Encumbrances are very commonly used by local authorities (and others) as a means to register covenants over land where there is no other means to do so • Typical characteristics: – Secures a nominal rent charge, eg $0.10 pa if demanded – has a long term eg 999 years – contains covenants unrelated to the rent charge eg as to use of land, payments of annual levies

Encumbrances background

• Encumbrances have been used by local authorities in a regulatory context since at least the 1960s to ensure restrictions and positive obligations are binding on successors in title • Note RMA section 109 (land use consents) and section 221 (subdivision consents) allow covenants in gross to be registered www.simpsongrierson.com

Encumbrances

• However encumbrances are still used where there is no other useful method, eg: – A building consent requirement eg to restrict usage, or to maintain machinery such as a pump or stormwater treatment device – A covenant to remove a road encroachment in the future, or to maintain a retaining wall – For private developments, to require all owners to pay levies to an entity established to maintain common facilities www.simpsongrierson.com

Encumbrances

• Some of these examples would be able to be achieved by means of the proposed new covenant in gross • However that will depend on the scope of the covenant in gross • At present it appears that the covenant in gross will serve the private developer/subdivider better than it will the local authority needs • Therefore it seems unlikely that the need to use encumbrances will disappear for local authorities www.simpsongrierson.com

Encumbrances

• There have been several Court challenges to the use of encumbrances, eg –

AFFCO v ANZCO

Jackson Mews Ltd v Menere

Parihoa Farms Ltd v Auckland Council

• These have all sought to require the discharge of the encumbrance, where typically the nominal rentcharge could be paid off in full without any difficulty • They have also challenged the legitimacy of the use of encumbrances to secure covenants in gross • The challenges have been unsuccessful to date www.simpsongrierson.com

Encumbrances proposed reform

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• Land Transfer Bill proposes to retain encumbrances as a type of mortgage • The proposed definition of ‘mortgage’ includes where the charge also secures the performance of another obligation • It is proposed (clause 89(2)) that the encumbrance will be discharged when the rentcharge has ceased to be payable and all arrears owing have been paid • It seems that this will allow encumbrances to continue to be used if they are correctly drafted, ie the rentcharge continues to be payable as long as the covenants are required to be performed or observed

Encumbrance reform

• Not clear when the Bill will be introduced • There have been submissions on this aspect • The final provisions dealing with encumbrances may well be different and depending on the actual wording may affect local authorities in different ways • Look out for the Bill when introduced and if necessary consider making further submissions through the Select Committee process www.simpsongrierson.com

Reserves Act delegation

• Delegation issued by the Minister of Conservation Nick Smith on 12 June 2013 • Delegates a wide range of Reserves Act powers to local authorities, eg – Gazette notice declaring land to be reserve s14(4) – Authorise exchange of land s15(1) – Change classification s24(1) – Disposal of land s25(1) – Approve reserve management plans s41(1) – Approval of leases of recreation reserves s54(1) www.simpsongrierson.com

Reserves Act delegation

• General restriction is that the delegated power may only be exercised if the title to the reserve was not derived from the Crown: see s25(4) and (5) • Issue has been raised as to whether the local authority can itself delegate these powers under Schedule 7 LGA 2002 clause 32 • Section 10(3) states that such delegated powers are to be treated as if they had been directly conferred on the local authority, and not by delegation • Not expressly restricted • Ministerial powers are not “administering body” powers www.simpsongrierson.com

Unsubstantiated Representations

• Introduction • Timing • Purpose • Unsubstantiated representations - rationale www.simpsongrierson.com

24169738

Unsubstantiated Representations: Consumer Law Reform Bill

• Proposed Provision of Consumer Law Reform Bill " • Unsubstantiated Representations – Clause 12A

12A Unsubstantiated representations

(1) (2) A person must not, in trade, make an unsubstantiated representation.

A representation is

unsubstantiated

if the person making the representation does not, when the representation is made, have reasonable grounds for the representation, irrespective of whether the representation is false or misleading.

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Unsubstantiated Representations

(3) (4) This section does not apply to a representation that a reasonable person would not expect to be substantiated.

In this section and

sections 12AA to 12B, representation

means a representation that is made – (a) (b) in respect of goods, services, or an interest in land; and in connection with – (i) the supply or possible supply of the goods or services; or

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Unsubstantiated Representations

(ii) the sale or grant or possible sale or grant of the interest in land; or (iii) the promotion by any means of the supply or use of the goods or services or the sale or grant of the interest in land.

12AA Court must have regard to certain matter

s

(1) In proceedings concerning a contravention of section 12A, and in assessing whether a person had reasonable grounds for a representation, a court must have regard to all of the circumstances, including –

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Unsubstantiated Representations

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(a) (b) (c) (d) the nature of the goods, services, or interest in land in respect of which the representation was made; the nature of the representation (for example, whether it was a representation about quality or quantity); any research or other steps taken by or on behalf of the person before the person made the representation; the nature and source of any information that the person relied on to make the representation;

Unsubstantiated Representations

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(2) (e) the extent to which the person making the representation complied with the requirements of any standards, codes, or practices relating to the grounds on which such a representation may be made, and the nature of those requirements; (f) the actual or potential effects of the representation on any person.

Subsection (1)

does not limit section 44.

Unsubstantiated Representations 12AB Limitation on commencement of proceedings in relation to unsubstantiated representations

Despite anything to the contrary in Part 5, only the Commission may commence proceedings, apply for an order, or apply for an injunction in relation to a contravention of section 12A.

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Unsubstantiated Representations

• Proposed Provisions • Unsubstantiated Representations – Clause 12A • Commerce Commission Submissions • Exemption for Puffery – Clause 12A(3) • What constitutes reasonable grounds? – Clause 12AA • Remedies and Penalties/Fines – Clause 40(i)(a) and (b) • Proceedings – Clause 12AB www.simpsongrierson.com

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