The Court of Appeal has found the buyers of a commercial building were wrong to rely on an initial seismic assessment to determine the building’s actual earthquake rating.
It overturns a previous decision from the High Court that ruled in the buyers’ favour, calling into question the weight that should be placed on an initial seismic assessment when buying property.
The case relates to the purchase of a commercial building in Lower Hutt owned by the Ruth Weine Family Trust.
In December 2017, Tadd Management bought the building at auction for $1.4 million.
Having bought the building, Tadd sought two detailed seismic assessments (DSA) which determined the building had a rating of 10% and 30% respectively. Anything less than 34% of the NBS is considered earthquake-prone.
Tadd then undertook significant work to bring the building up to 100% of NBS, while also launching proceedings against the trust, claiming it was induced to buy the building because of misrepresentations regarding the NBS rating.
The High Court subsequently found the ISA was an expert report containing a statement of fact and could be relied upon to represent the building’s NBS. It also found the 60% NBS rating was incorrect based on the subsequent reports and both parties incorrectly believed the building was 60% NBS because of that report.
The judge found while it was difficult to determine the NBS rating at the point of sale, she awarded Tadd costs of $600,000, that being the difference between the sale price and the actual value of the building when it was sold.
The trust then took its case to the Court of Appeal. In the just-released decision, the court highlighted the distinction between an ISA and a DSA, finding an ISA rating wasn’t wrong simply because a DSA rating is different. Instead, it is an initial assessment and should be read as such.
It also found the ISA contained a disclaimer on each page making it clear it was an initial assessment and that “detailed inspections and engineering calculations or engineering judgements based on them, have not been undertaken, and these may lead to a different result or seismic grade”.
The judgment concluded by saying the statement in the ISA that the building was 60% NBS was a statement of opinion and the statements of fact it conveyed were true.
In a statement released through its lawyer Matt Freeman, the trust welcomed the court’s decision.
“The trustees are very happy with the outcome. The decision of the judges of the Court of Appeal confirmed the trust had not misrepresented the property and restored the reputation of the trustees.
“The trustees also consider that the decision provides a high degree of certainty to vendors, real estate agents and engineers marketing commercial property,” the statement said.
Engineering New Zealand’s general manager Tania Williams said the case highlighted the importance of engineers clearly communicating the scope and limitations of the different types of seismic assessments so that clients can make informed decisions.
“Engineering New Zealand recommends significant undertakings or decisions about a building should rely more on a detailed seismic assessment than an initial seismic assessment, wherever practicable.
“There are important differences between an ISA and a DSA. An ISA simply estimates the likely seismic rating of a building, while a DSA is a detailed, modelled, assessment of the likely seismic behaviour of a building and should be carried out by a chartered professional engineer,” Willaims said.
The court awarded that Tadd Management must pay the trust’s appeal costs.
