BUILDING LAW
Building on land prone to natural hazard or disaster: risks and liability
By Janine Stewart, senior associate, and Ariana Stuart, solicitor, in the Construction and Property team at Minter Ellison Rudd Watts

The Canterbury earthquakes are the largest single insurance event in the history of New Zealand. The cost to the insurance industry in respect of property damage is estimated by the Insurance Council of New Zealand to be over $10 billion dollars (see “Christchurch Insurance Rebuilds $NZ 10 billion and rising”, http://www.icnz.org.nz/news/150611.php). The earthquakes have focused our attention on the implications of building on land subject to natural hazards and disasters, and who is liable when things go wrong.

This article considers whether the risks associated with building on hazard-prone land can be addressed at the outset of a project, and where parties can turn when a natural hazard or disaster occurs and causes damage to property.

Addressing the risks at the outset of a building project
The ideal base building site is stable with low risk of movement through sinking, erosion, or otherwise. However, the reality is that land in New Zealand is subject to a number of natural hazards which present risk to any building project. The nature of risk associated with any building project will change as the character of land changes.

The Building Act 2004 (BA 2004) and the Resource Management Act 1991 (RMA) are the primary starting points for owners and/or developers embarking on a building project (resource consent and building consent will normally be required for the relevant building works).

However, the procedure becomes more complicated when the building site is identified on the LIM or title as being subject to natural hazard or disaster.

This article focuses on issues under the BA 2004; however, parties should obviously also be aware of their obligations under the RMA.

What is a natural hazard?
Section 71(3) of the BA 2004 defines natural hazards as including:

• Erosion (including coastal, bank, and sheet erosion);
• Falling debris (including soil, rock, snow, and ice);
• Subsidence;
• Inundation (including flooding, overland flow, storm surge, tidal effects, and ponding); and
• Slippage.

While the definition under the BA 2004 does not specifically include earthquakes, cyclones, or tsunamis, the natural hazards captured by the BA 2004 can be a by-product of such events. During the 2007 review of the BA 2004 and Building Code, it was suggested that the BA 2004 should cover less frequent hazards such as tsunami, volcanic eruption, and wildfires. However, the majority of submitters commented that less frequent hazard events were better dealt with under the RMA due to the infrequency of these events and the financial burden of designing buildings to mitigate these issues.

How is land identified as having a natural hazard?
A natural hazard should normally be identified when an owner/builder applies for resource consent or building consent. In particular, the process of applying for a building consent under the BA 2004 should identify natural hazards on the proposed site as an application must be accompanied by plans and specifications. In order to provide those documents, the owner/developer will normally engage professionals to investigate the site and surrounding land in order to obtain geotechnical, engineering, or other specialist reports to identify any issues. This assessment of the site should reveal the risk of most site-specific hazards such as erosion or slippage.

It is important to note that an owner or developer can also apply for a project information memorandum (PIM) from the Council to identify the regional hazards which may affect the site. In issuing the PIM, the Council should undertake an assessment of all their records on the land, including the hazards register and historical records, which are likely to identify the risk of less common as well as regional hazards.

If any type of natural hazard is identified on the site, the owner/developer must apply for building consent pursuant to section 71 of the BA 2004.

Section 71 of the BA 2004
Section 71(1) of the BA 2004 provides that if a building project is to be constructed on a site subject to a natural hazard, the Council must make a decision as to whether the building work is likely to accelerate, worsen, or result in a further natural hazard on that site or any other property.

If the Council decides that the land is subject to a natural hazard, and the building work will accelerate or worsen, or result in a further natural hazard, the application for building consent must be declined. However, section 72 of the BA 2004 provides that the Council must issue a conditional building consent if the following is satisfied:

(a) The building work to which an application for a building consent relates will not accelerate, worsen, or result in a natural hazard on the land on which the building work is to be carried out or any other property; and
(b) The land is subject or is likely to be subject to one or more natural hazards; and
(c) It is reasonable to grant a waiver or modification of the building code in respect of the natural hazard concerned.

If the Council has issued a conditional building consent, it is required to notify the Registrar-General of Land that it has done so pursuant to section 73 of the BA 2004.

Pursuant to section 74 of the BA 2004, a notification will then be attached to the Certificate of Title for the land. Such a notification may well have implications, including on the value of the land and any sale of the relevant property at a later stage.

Addressing a hazard during the construction process
The Council has the power pursuant to sections 124(1)(c) and 125 of the BA 2004 to give written notice requiring work to be carried out on a building, if it is satisfied that the building is dangerous, earthquake prone, or insanitary (Notice to Fix). The power of the Council to issue a Notice to Fix has come into focus given the number of buildings which have been, and or could be, served with a Notice to Fix following the Christchurch earthquakes.

A Notice to Fix can be served during the construction of a property, including where a natural hazard has not been identified at the outset of the project, but where the Council later becomes aware of it at a later stage.

In Scandle v Far North District Council (High Court, Whangarei CIV-2008-488-203, 30 July 2010, Justice Duffy), two Notices to Fix were issued by the Council during and after construction of a property built on land in Kerikeri which was subject to major slip and slope instability. The Council issued the first Notice to Fix during construction of the residential house following an inspection where it noticed a number of faults, particularly in the foundations. The first Notice to Fix directed that the owner must address the foundations and take account of slope stability at the site. New plans were submitted to the Council which included specific design details and recommendations to address the hazard. However, the property which was ultimately built did not conform to the design.

The Council subsequently issued a second Notice to Fix. This was seven years after the building was completed as the foundations were inadequate and dangerous having not been fixed following the first Notice to Fix and as the owner had still failed to take slope stability into account.

Liability where land/property damaged by a known natural hazard
Any property which is built on land subject to a known natural hazard pursuant to sections 71-74 of the BA 2004 will be identified as such on the Certificate of Title. An interesting issue in current times is whether a section 72 or other hazard notice impacts on an owner’s ability to pursue parties involved in the construction of a property when damage is caused by a hazard.

Claims against professionals
The Courts in New Zealand have confirmed that professionals can be held liable for damage due to their failure to convey the risks associated with building on land subject to a natural hazard to the persons that engaged them to provide professional advice. This is illustrated by the case of Battersby v Foundation Engineering Limited & Anor (High Court, Auckland CP 26/97, 5 July 1999, Justice Randerson).

Battersby concerned the purchase of a cliff-front property in Howick which was damaged by a landslide one month after the Battersbys’ purchase of the property. The risk of erosion was identified on the LIM to the property. However, prior to purchase, the plaintiffs engaged an engineer to obtain a full geological report including stability of the site. The investigation was to cover whether the property was sound and could be renovated according to the plaintiffs’ instructions. The engineer confirmed that the site was generally suitable for residential development. The Court held that the engineer was negligent in failing to identify and notify the Battersbys of the real risks of catastrophic failure of the cliff top. The Court confirmed that there was an obligation on the engineer to warn the plaintiffs of these risks.

This case illustrates that professionals engaged to assess site conditions may be liable to an owner for actions even where the owner has some knowledge of the relevant hazard.

Claims against Council
A Council may be held liable where damage or destruction to property is caused by a natural hazard which has not been identified on the title. In Smaill v Buller District Council [1998] 1 NZLR 190, the Council was liable for damages as it had issued building consents for sites which it knew, or ought to have known, were subject to falling debris, and where no entry had been made on the register of this hazard.

However, if the damage is caused by a natural hazard notified on the Council in accordance with section 73 of the BA 2004, the Council is exempt from liability pursuant to sections 392(2) and (3) of the BA 2004.

Claims against developers/builders
In respect of natural hazards, developers/builders will potentially be liable in both contract and negligence even where the hazard is notified on the title.

The extent of liability of developers/builders will depend on the terms of engagement and obligations imposed on the parties by that relevant contract. This will involve close scrutiny of the provisions of the contract on a case-by-case basis.

In negligence, assuming the scope of engagement covers the builder’s engagement, the assessment of site conditions, and the adoption of appropriate means to address those conditions, the builder could be liable if appropriate measures have not been taken to address the natural hazard.

In addition, a subsequent purchaser may be able to claim against the previous owner/builder if steps were not taken to address the natural hazard during the building project. For example, in Scandle, the previous owner (and developer) of the property was held liable as a Notice to Fix had been issued, and the owner had not complied with the specific design details and recommendations which were intended to ensure that the building work complied with the Building Code and all legal requirements.

Insurance claims
Insurance against a natural hazard is provided by the Earthquake Commission (EQC) and also by private insurance companies.

If the natural hazard is notified on the title to the property, an owner may not be able to claim under any relevant insurance policy in the event that their land or property is damaged by the eventuation of that hazard.

If there is natural hazard on the land where a building has been constructed, owners should disclose it to their insurer as it is a material fact. The extent of knowledge which the insured will have will change with the ongoing natural disasters which occur. The owner’s knowledge of those disasters, perhaps now more than ever, is a particular issue which will come under closer scrutiny by insurance companies.

However, owners may still be entitled to claim under the relevant insurance policy if the damage is caused by a hazard which differs from that notified on the title. For example, if the property is thought to be at risk from a landslip and a flooding event occurs which destroys property, owners could make a claim to their insurance company.

Conclusion
The lure of beach-front properties close to the waterfront and cliff-top houses with fantastic views means that there will always be a market for properties which are built on hazard-prone land. Indeed, it is commonly accepted that these properties attract more lucrative buyers than your average home.

Ultimately, the owner/developer must determine whether the benefits associated with building on land known to be the subject of a natural hazard or disaster is worth:

• The expense of taking measures to investigate and then address the risk of a natural hazard or disaster; and
• The risk of loss of property and potentially life, if it transpires that the measures taken were not adequate to protect the property from further natural hazard or disaster.

Land and nature are unknown quantities. It is impossible to fully understand the force of nature and the potential damage it can cause to life and property. The best we can hope for is that those involved in building properties on land prone to natural hazards properly explore the potential dangers and create the appropriate framework to ensure that potential issues are addressed as far as possible at the outset of a building project.

NZLawyer magazine, issue 171, 21 October 2011