Lora Trading Limited v Stirling Investment Properties Limited
[2024] NZHC 2532
•5 September 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-2027
[2024] NZHC 2532
IN THE MATTER of Unit Titles Act 2010 BETWEEN
LORA TRADING LIMITED
Plaintiff
AND
STIRLING INVESTMENT PROPERTIES LIMITED
Defendant
Hearing: 17-21 June 2024 Appearances:
B M Easton and A K Hough for Plaintiff
D R Bigio KC and J N Batchelor-Smith for Defendant
Judgment:
5 September 2024
JUDGMENT OF BOLDT J
This judgment was delivered by me on 5 September 2024 at 1pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors:
Grimshaw & Co, Auckland for Plaintiff Batchelor*Smith, Auckland for Defendant
LORA TRADING LTD v STIRLING INVESTMENT PROPERTIES LTD [2024] NZHC 2532 [5 September 2024]
Introduction
[1] This is a case about a home, built in the mid-1990s, in a unit title complex called Ponsonby Gardens. Like so many proceedings in the last 20 years, it features an otherwise-appealing townhouse in a good location which has been beset with weathertightness issues. An attempt at remediation in 2003 failed to fix the problems. Today the house is habitable and tenanted; the weathertightness problems that remain are not presently affecting those who live there. But that may change, and there is no dispute that the value of the property will be seriously compromised unless and until the recommended repairs are completed.
[2] What makes this case unusual is not the story of the house, which remains a sadly common one for homes built in that era. This case is unusual because of the identity of the plaintiff. This is not a case where the owner of a leaky property seeks damages from someone involved in its design, approval or construction. In this case, the plaintiff is the owner of the (entirely weathertight) house next door. The plaintiff says the value of its property is adversely affected by the fact it is situated next to a leaky home.
[3] The main protagonists are Mrs Maureen Hough and Mr John Gray. Mrs Hough, together with her husband Mr Tony Hough,1 are the directors of Lora Trading Ltd (Lora). Lora owns Unit 1 in Ponsonby Gardens, and Tony and Maureen Hough live there. Lora is the plaintiff, and Mrs Hough gave evidence at trial.
[4] Mr Gray, along with his wife Ms Lorraine Young, are the directors of the defendant, Stirling Investment Properties Ltd (Stirling). Stirling owns Unit 2 in Ponsonby Gardens. Unit 2 is the home that has been troubled by weathertightness problems since the early 2000s. Units 1 and 2 are fully detached from one another. Although they are close together, they do not share a common wall, nor do they share any building elements in common.
1 Mr Tony Hough did not give evidence at trial. In this judgment, when I refer to Mr Hough, I am referring to Mr Andrew Hough, counsel for Lora, who presented its closing submissions. When referring to Mr Tony Hough, I will use his full name.
[5] Mr Gray and Ms Young do not live in Unit 2; they moved out in 2016, and the house has been tenanted (at below market rent, I was told) since then. Mr Gray continues to be chairperson of the Ponsonby Gardens Body Corporate, a position he has held for 23 years.
[6] Lora relies on s 80(1)(g) of the Unit Titles Act 2010. That provision places a duty on owners of principal units in a unit title development to “repair and maintain [their units] and keep [them] in good order to ensure no damage or harm, whether physical, economic, or otherwise” is caused, or has the potential to be caused, either to the common property or any other unit.
[7] Lora accepts that nothing about the condition of Unit 2 has caused physical damage to Unit 1, nor is there any possibility it will do so. But Lora says Stirling’s failure to remediate defects in Unit 2 has caused Lora either actual or potential economic harm. Lora asks me to declare that Stirling is in breach of its obligation under s 80(1)(g), and to issue an injunction requiring Stirling to repair the defects Lora has identified within 24 months.
[8] Though I heard detailed and thorough submissions, it transpires there is little dispute as to the relevant law. While there may be a measure of disagreement about the threshold for intervention under s 80(1)(g), Stirling accepts it will be liable to Lora if the condition of Unit 2 is materially damaging the value of Unit 1, though it does not accept that a mandatory injunction would be the appropriate remedy here.
[9] The main dispute is factual. While Lora alleges actual or potential economic harm, Stirling says there is no evidence that the presentation or internal state of Unit 2 has affected the value of Unit 1, nor is there any evidence it has the potential to do so.
Background
[10] The Ponsonby Gardens development was completed in early 1996. It consists of 10 units and 14 accessory units, as well as an area of common property. Lora purchased Unit 1 on 11 March 1996. Mr Gray’s family trust bought Unit 2 on the same day.
[11] The first sign of weathertightness problems in Unit 2 came in February 2000. It emerged that the property suffered from numerous defects, particularly with the parts of the exterior walls that were clad in stucco. By 2002 it was apparent that several other Ponsonby Gardens units were also suffering serious weathertightness problems, and that the quality of the stucco cladding across many units was poor. Seven unit title holders, including Mr Gray, engaged the Weathertight Homes Resolution Service. Those units were partially re-clad in 2003, and received a Code Compliance Certificate in March 2004.
[12] Unit 1 was also affected by weathertightness problems, but not as badly as the other units. Mrs Hough gave evidence that her home did not experience issues straight away, as the other units had. It had been a demonstration home, and Mrs Hough believes it may have had a different builder from the others. Mrs Hough said her unit was not leaking in 2004. Lora did not join the claim the other unit holders brought, and instead brought a separate claim later. The Houghs completed their repairs in 2010, spending $560,000 on remediation and renovations (which included improvements such as the addition of an extra bedroom). Mr Gray described those repairs as a “Rolls Royce solution”. Mrs Hough did not disagree with that description, and it appears Unit 1 has not had any weathertightness problems since.
[13] In mid-2012, Mr Gray noticed another leak in Unit 2. It emerged that much of the 2003 re-clad had been ineffective, and the unit was continuing to leak. In 2014 he engaged a property and building consultancy, Maynard Marks, to investigate and report. In May 2014, Maynard Marks reported:
1.3 Main Defects
The key construction defects with the alterations and remedial works completed between 2003 and 2004, that have caused the building work to fail to comply with the provisions of the New Zealand Building Code are listed below.
A.Inadequately weatherproofed balcony to wall junctions
B.Inadequate cladding and floor clearances
C.Inadequately weatherproofed joinery perimeters to the stucco clad elevations
D.Inadequately installed cavity system
E.Cracking of the stucco plaster as a result of non-compliant installation
F.Timber weatherboards embedded within the plaster cladding
G.Ensuite bathroom window head flashing installed with a lack of fall and inadequately sealed at the ends at the junctions with the weatherboard cladding
H.Inadequately weatherproofed balustrade walls
I.Internal gutter to the main roof installed without an overflow and waterproofing membranes to the canopy, balcony and upper roof installed contrary applicable technical literature
J.Inadequately weatherproofed penetrations through the stucco plaster
K.Decayed framing left in-situ and existing framing not retrospectively treated
L.Inadequate fire resistance rating provided to the north elevation
M.Poorly detailed and constructed ridge capping and valley gutter to the 1st floor addition.
There are also construction defects with the original weatherboard cladding which have caused moisture ingress and resultant damage …
[14] Much of the repair work had been conducted in a way which did not conform to the consents the Council had issued, and the property should not have received a Code Compliance Certificate in 2004. It did not comply with the Building Code, and it remains non-compliant. In 2014, Mr Gray’s family trust commenced proceedings against the Auckland Council. Those proceedings settled in April 2015, with the Council paying the trust $240,000.
[15] Maynard Marks recommended a comprehensive repair, including a full re-clad, at an estimated cost of $400,390.08. It also suggested a second, scaled-back option, which would have involved remediating only the 2003 partial re-clad; the estimated cost of the scaled-back option was $291,394.80.
[16] Mr Gray elected not to put the settlement funds towards either of the large-scale repair options identified by Maynard Marks. He decided instead to perform relatively minor repairs to address immediate issues. Stirling says that, as a result, the house remains habitable and the living area remains dry. On the other hand, the serious problems identified by Maynard Marks remain.
[17] Stirling has engaged professional property managers to look after the tenancy since 2016, and they inspect it regularly. Stirling produced several years of inspection reports, which describe the property as tidy inside and out, and do not indicate the tenants have experienced any negative effects from the defects identified by Maynard Marks.
[18] Stirling commissioned a microbiologist, Ms Adrienne Burnie of Biodet Services Ltd, to conduct environmental testing of the dining room and master bedroom areas in Unit 2. In particular, Ms Burnie tested for twelve fungi which tend to be prevalent in buildings that have moisture ingress issues.
[19] Ms Burnie’s testing showed, at least on the date the samples were taken in November 2023, that there was no evidence of moisture ingress in either area, and no musty odour or visible fungal growth. The dining room showed slightly elevated levels of one type of spore — Penicillium/Aspergillus — in the dining room, but Ms Burnie noted those readings would not be considered a health risk in the general population, and the likely source was vegetation outside. Her overall conclusion was that while unremedied weathertightness issues might affect air quality, “it certainly wasn’t being translated into abnormal air quality” at the time she tested.
[20] Mr Tony Hough and Mrs Hough put Unit 1 on the market in February 2022. Their experience when seeking to market the property did not feature in the evidence Lora led; indeed, evidence on the topic only emerged when Mrs Hough made a throwaway comment in cross-examination. During trial Lora produced additional documents and Mrs Hough was recalled to give evidence about the marketing of the property.
[21] It transpired there were several expressions of interest in Unit 1, but potential purchasers thought the price Lora expected was too high. It appears there was consistent market feedback that the price bracket the agent was indicating — $2.5 to 3 million — was excessive relative to similar properties, even in a highly sought-after
part of Auckland.2 The agent’s feedback indicated purchasers were aware of properties in that price range which had full sections.
[22] Tellingly, there is no evidence that any potential purchaser mentioned the condition of Unit 2 in their feedback. In Lora’s closing argument, Mr Hough accepted it would be safe to infer that if the agent had received any feedback about the state of Unit 2, evidence to that effect would have featured prominently as part of Lora’s case.
Lora’s allegations
[23] Lora is not out of pocket, at least at present. It has not sold Unit 1, so any losses remain unrealised. The nub of its claim is that the identified defects in Unit 2 are reducing Unit 1’s value, albeit to an indeterminate (and, it says, unquantifiable) extent. It argues the ongoing weathertightness issues in Unit 2 will deter potential purchasers of Unit 1; it contends they will either be put off buying Unit 1 altogether, thereby reducing the pool of potential buyers, or they will discount any offer because of the state of the house next door.
[24] Mrs Hough is clearly unhappy about the condition of several units in the complex. She said some have walls “blackened and covered in moss” and she alleged that in the common area there are broken and rotten fences and “cracks to the driveway wall and to the obelisks at the entrance of the driveway.” She alleges the retaining wall next to the courtyard is decayed and on a lean, and that it looks like it could collapse. Nonetheless, Lora has not commenced proceedings against either the Body Corporate (concerning its management and maintenance of the common areas), or any other unit owners. Lora has singled out Unit 2, and Stirling.
[25] In her brief of evidence, Mrs Hough said Unit 2 has “moss growing on walls, rust in joints, stains and cracks in the plaster and splits in the timber”. In addition to cracks in the plaster cladding, she alleges there are signs that pieces of cladding have been removed as part of a weathertightness investigation.
2 Mrs Hough firmly denied having nominated any particular price range for the agent. That evidence is not consistent with contemporaneous emails between the agent and Mrs Hough, which appeared to have a $2.5-3 million range firmly in mind. Mrs Hough effectively said that if the agent had marketed the property at that level, she did so as an exercise of her professional judgement, rather than on express instructions.
[26] She elaborated in evidence. When asked why Lora had singled out Unit 2 and Stirling as the targets of its claim, she replied:
Well, first of all, have you seen Unit 2? At least the other units have their houses washed every year or every second year, they paint it, they keep their garden nice. They are actually house proud, and they make an effort to maintain it. Unit 2 does not. … It is a stand out house of disrepair and weathertightness issues to everyone who walks onto that common.
[27] Later, Mrs Hough summarised her complaint. Unit 2, she said, “was rundown. They’ve received $848,000 because of their leaky home and they haven’t even painted it since 2005”.3 Mrs Hough produced several photographs of Unit 2 to support her assertion that it is in particularly poor repair.
[28] Notably, it is the external presentation of Unit 2 which Mrs Hough believes is damaging the value of Unit 1. While there are extensive and ongoing issues with Unit 2’s weathertightness, they are largely invisible from the outside. Many of the presentation issues Mrs Hough identified have no link with the unremediated weathertightness problems. Put another way, Mrs Hough’s principal objection to the state of Unit 2 is the way it looks. She expressed concern about Unit 2’s weathertightness problems only to the extent they affect its appearance.
[29] Lora called evidence from Mr Andrew Gray.4 Mr Andrew Gray is a building surveyor who conducted a thorough examination of Unit 2 in April 2023. He gave extensive and detailed evidence about the condition of the building, and concluded that not only had the work recommended by Maynard Marks in 2014 not been completed, the building appeared to have deteriorated further in the nine years since. He noted elevated moisture levels around the external walls, and said he could smell a musty, damp odour inside. He went as far as to suggest that Unit 2 may meet the definition of an insanitary building for the purposes of s 123 of the Building Act 2004.5
3 Mr Gray did not accept that he received $840,000. He gave evidence he received $240,000 for the settlement with the Auckland City Council and $138,000 from the Weathertight Homes Resolution Service.
4 I refer to Mr Andrew Gray by his full name to avoid confusion with Mr John Gray, the director of Stirling.
5 A building is insanitary if, among other things, it has insufficient or defective provisions against moisture penetration so as to cause dampness in the building or in any adjoining building: Building Act 2004, s 123(b).
[30] In seeking to establish actual or potential loss, Lora called evidence from an expert valuer, Mr Peter Bates. Mr Bates is a valuer with more than 21 years’ experience. In addition to his many years of practical experience he has an impressive academic background. He began by observing that in an exclusive suburb such as Ponsonby, “there is a high level of local market sensitivity to poor presentation and indicators of weathertightness defects within unit title developments and cluster developments generally”.
[31] Mr Bates described Unit 2 as poorly presented, referring to cracks in the plaster cladding surface, cut out parts of the cladding, lines in the cladding and deterioration to the weatherboards and fixings including flaking paint and rust. He observed there was mould or gunge on the underside of the shelter above the front door and there were also scuffs around the garage door entry points, all of which were visible from the common area driveway. Mr Bates said Unit 2 appeared the worst presented of all the units when viewed from the common driveway area. On closer examination, he said he was able to see cracks in other parts of the plaster cladding, and other indicators the building was in a poor state.
[32]Mr Bates’ brief went on to say:
26.In my opinion, these visible risk indicators, the poor presentation and the reported deterioration and defects within the building are detrimental to the value of Unit 1, … Those factors of the property at Unit 2 devalue Unit 1.
…
28. If units within a unit development are left to deteriorate with weathertightness defects and poor presentation, this is highly likely to devalue other units within the development, and this can reduce the saleability of even well maintained adjacent units, such as in this case.
[33] Mr Bates’ evidence faced a strong challenge in cross-examination. The critical part of his evidence — linking the condition of Unit 2 to the value of Unit 1 — was based on little analysis. He was not asked to value either Unit 1 or Unit 2, and he did not attempt to estimate the degree to which the condition of Unit 2 might affect the value of Unit 1. He said there was no specific data to support his proposition that buyers in Ponsonby are unusually sensitive to the presentation of neighbouring houses, and that he was relying on his experience.
[34] Mr Bates struggled when pressed on two recent sales in Ponsonby Gardens. Units 8 and 9 sold in late 2021. Unit 9 sold in October 2021 for $2.44 million, around
$200,000 above its rateable valuation (RV). Unit 8 sold the following month for $1.9 million against an RV of $1.6 million. They spent 24 and seven days on the market respectively.
[35] Mr Bates accepted the condition of Unit 2 would have been clear to the purchasers of any neighbouring units. Moreover, he was aware of the sale of Unit 9 but declined to mention it in his brief. His reason, which I did not find convincing, was that he could not be sure the transaction had been at arm’s length and he did not know how much the purchaser knew about Unit 2. He accordingly dismissed it as irrelevant. I do not agree; the actual purchase price obtained for neighbouring units is highly relevant.
[36] Unit 9 changed hands three times between 2017 and 2021, and in that time its sale price increased by more than 150 per cent. Unit 8 also sold for well above RV and both sold very quickly, Unit 8 especially. In neither case was there evidence of downward price pressure either because of the condition of Unit 2 or because several units in the development had a history of weathertightness problems.
[37] Mr Bates contended that defective neighbouring buildings might raise “reputational issues” and may also signal that disruptive remedial work would be required in the future. He was unable to translate those high-level concerns into specific evidence the condition of Unit 2 is affecting the value of the other buildings in Ponsonby Gardens, nor did he endeavour to say how great that effect might be.
[38] For reasons I discuss in more detail below, I found Mr Bates’ central proposition — that the external and internal condition of Unit 2 is damaging the value of Unit 1 and other units — unconvincing. The evidence of actual sales in the complex indicates otherwise, as did the absence of any hint the condition of Unit 2 affected any prospective purchaser’s assessment of Unit 1 when it was on the market in early 2022.
Stirling’s response
[39] Mr Bigio KC, on behalf of Stirling, readily accepted that Unit 2 remains subject to numerous ongoing weathertightness problems. The best that can be said for the building is that the outstanding defects identified in the Maynard Marks report are not, at present, causing it to leak in a way which affects the occupants. He acknowledges this may change in time, and that the defects plainly affect the value of Unit 2 itself. That said, his principal submission is that there is no evidence that the condition of Unit 2 has caused, or has the potential to cause, economic harm to Lora as the owner of Unit 1.
[40] Stirling called evidence from Mr Philip O’Sullivan about the current state of Unit 2. Mr O’Sullivan is a highly experienced registered building surveyor and engineer, who, among other things, served for ten years as the President of the Claddings Institute of New Zealand, and has particular expertise in the remediation of non-weathertight buildings and the effect of moisture ingress on the health of those who live and work in leaky buildings. He has an extensive publication history.
[41] Just as it was unnecessary to examine Mr Andrew Gray’s evidence in detail, a high-level summary of Mr O’Sullivan’s evidence is sufficient for present purposes. He acknowledged that Unit 2 remains in ongoing non-compliance with the Building Code. Mr O’Sullivan disputed the existence of two of the main defects identified by Maynard Marks.6 With respect to the remainder he acknowledged the defects undoubtedly exist, but said they do not give rise to any immediate concerns. He said the only area of active leaking he observed was on the outside of the property, to the soffit above the entrance canopy. He described that leak as “a relatively small and separate issue.”
[42] Mr O’Sullivan rejected Mr Andrew Gray’s opinion that the building is insanitary, though he did so on the basis of the prevailing Auckland Council policy (which stresses danger to the health of occupants), rather than the legislation. Section 123 of the Building Act merely requires insufficient or defective provision against moisture penetration so as to cause dampness in the building.
6 Mr O’Sullivan considered defects I and J in the Maynard Marks list (at [13] above) did not exist.
[43] The evidence of Mr Bates was met by evidence from Stirling’s expert valuer, Mr Gary Cheyne. He has been a registered valuer since 1981, and has extensive experience providing expert advice about the way defective construction, cladding and weathertightness issues affect a property’s value.
[44] Mr Cheyne described the standard of presentation of Ponsonby Gardens as a whole as “reasonable to very good.” His evidence focused on whether the current condition of Unit 2 is sufficient to cause economic damage or harm to any other unit in the complex. In short, he concluded the answer is no. In his brief Mr Cheyne observed:
32.Given the heterogeneity of residential properties across Auckland, it is not uncommon to find properties with various standards of presentation alongside each other. In my experience, except perhaps for the most egregious examples of property condition, the market is focused much more towards the standard of the property to be purchased than it is to the standard of the properties adjacent.
33.It is quite possible for there to be negative impacts from neighbours. But this is more particularly the case from property use rather than property condition. By this I mean that a property next to one used, for instance, as a gang headquarters can expect to be negatively impacted. That is not the case with the Ponsonby Gardens development, nor is it the case with Unit 2.
[45]In cross-examination he said:
In all of the thousands of valuations that I have undertaken, and the thousands of valuations that I had seen and peer reviewed, I have never in any of those times seen a specific adjustment made for the unsightly paint or dilapidated exterior of a neighbouring property. It just doesn’t occur.
[46] Mr Cheyne said Unit 2 presented as a house with obvious weathertightness defects, but rightly observed that those matters are relevant only to the extent they might affect the value of another unit in the complex. He rejected the proposition that Unit 2’s presentation could be described as poor, and rejected Mrs Hough’s description of it as a “stand out house of disrepair”.
[47] Mr Cheyne emphasised the relatively recent sales of Units 8 and 9. He noted that Unit 9 is directly opposite Unit 2, and gave evidence that both units sold at or around market value. Both sold more quickly than the median marketing period for Auckland, which in October 2021 was 45 days. Mr Cheyne was challenged as to
whether those sales might have proceeded differently if the purchasers had been aware of the Maynard Marks report. I set out his answer in full:
… I don’t think it was relevant. I mean, what they would be interested in is not the need to remediate and the cost to remediate and the extent of remediation required for Unit 2. Those purchasers would be buying Unit 9 and Unit 8, they would be interested in the condition of their own units, and they may also have a look at the general tenor of the whole of the Ponsonby Gardens development, including Unit 2, and my evidence is that they would not be put off by the presentation of Unit 2, notwithstanding that they didn’t undertake a detailed inquisition into the need for remediation.
The law
[48] Until now, cases concerning s 80(1)(g) of the Unit Titles Act have dealt with physical harm.7 Sections 80 and 138 impose complementary repair and maintenance obligations upon unit owners and the Body Corporate. As the Court of Appeal observed in Wheeldon v Body Corporate 342525:8
[29] … if a building element or infrastructure serves more than one unit the body corporate has the obligation to repair it, if it is part of a unit but does not serve more than one unit then it is the owner’s responsibility to repair, and if it is common property it is the body corporate’s responsibility.
[49] It is easy to envisage situations, if units share a wall or are part of a block, where defects in the repair or maintenance of one unit cause actual or potential physical harm to others. Economic harm — at least in the absence of concurrent physical damage — is harder to prove. Nonetheless, s 80(1)(g) requires unit owners to ensure their properties are kept in sufficiently good order that they cause neither physical damage nor economic harm to their neighbours. Economic harm may be harder to identify and prove, but a unit owner who suffers economic loss because of the actions of a neighbour is no less entitled to s 80(1)(g)’s protection than one facing physical damage.
[50] In addition, as Lora emphasises, s 80(1)(g)’s protection extends to ensuring owners do not expose their neighbours to actual or potential harm, whether physical,
7 See Wheeldon v Body Corporate 342525 [2015] NZHC 884 (2015) 16 NZCPR 829; and Wheeldon v Body Corporate 342525 [2016] NZCA 247, (2016) 17 NCPR 353 [Wheeldon CA].
8 Wheeldon CA, above n 7, at [29].
economic or otherwise.9 If a unit falls into disrepair, it is insufficient for the owner to say it is, at present, causing no actual harm. Section 80(1)(g) is breached if the state of a unit creates a real risk of harm or damage to its neighbours, even if that risk remains unrealised at the time of the plaintiff’s claim.
[51] The distinction between actual and potential physical harm is clear — potential harm will arise in a case when a property has sustained no damage, but there is an identifiable danger and a real risk of damage in the future.
[52] That distinction is less acute or obvious in the case of economic harm. In theory, potential downstream losses always have a present-day value, even if it is discounted to reflect uncertainty and the time value of money. A roof that is fine today, but will undoubtedly require replacement in the next five to ten years, causes no immediate economic harm, but the future cost of replacement has a present-day effect on the property’s value. There is no reason to adopt a different analysis where potential economic harm is caused by the condition of a neighbouring property.
[53] That analysis is consistent with the reality of the property market. Home buyers are acutely conscious of unrealised risk to the future value of any property they might be interested in. Identifiable risks invariably have a present-day value, and weigh on purchase price. If the condition of Unit 2 has the potential to cause discernible harm to the value of Unit 1, that harm will, in all likelihood, be apparent now. Moreover, if Lora can prove Unit 1’s value is being affected by a lack of repair or maintenance to Unit 2, it is fair to assume that harm will only grow while Unit 2 remains unrepaired.
[54] As already noted, Lora accepts that Unit 2’s weathertightness issues are not causing any physical damage to Unit 1, nor do they have the potential to do so. Equally, Stirling — subject to argument about the threshold the harm must cross before the Act is engaged — accepts it will be in breach of s 80(1)(g) if the condition of Unit 2 has either caused, or has the potential to cause, economic harm to Lora.
9 It remains unclear what kinds of damage might be captured by the “or otherwise” limb of s 80(1)(g). It is difficult to imagine how a unit owner whose property has suffered no actual or potential physical damage, and who has suffered no actual or potential economic harm, might still have an actionable claim. In any event, that limb is not relevant in this case.
[55] It follows that the issue before me was straightforward: has Lora proved that Stirling’s admitted failures to remediate Unit 2’s weathertightness issues have materially reduced the value of Unit 1? Alternatively, and to the extent the two questions are different, has Lora proved that those failures have the potential to materially reduce Unit 1’s value in the future?
[56] The parties agree that any economic harm, whether immediate or potential, must pass a threshold of materiality before it engages s 80(1)(g). Lora accepted that the state of Unit 2 must have a discernible effect on the value of Unit 1. That effect must be identifiable even above the noise caused by the myriad other factors capable of affecting its value on a day-to-day basis.
[57] And while s 80(1)(g) is not limited in its language — for example, it does not provide that economic harm must be substantial or significant — both parties accepted that a loss in value which is trivial or marginal will not qualify. There are practical reasons for holding that economic harm must be discernible and material. Harm which is speculative, trivial or capable of being lost among the other factors that affect the property’s value will not be capable of proof. And the framers of s 80(1)(g) could not have intended it to become an instrument with which neighbours in a unit development threaten each other when everyday disagreements about aesthetics or renovations arise. The link between Property X and economic harm to the owners of Property Y must be clear and unambiguous before s 80(1)(g) will apply.
Discussion and findings
[58] Cosmetically, Unit 2 is far from perfect. The paint and stucco are cracking, it is clear the exterior has not been painted for some time, and those with an educated eye would quickly recognise the signs of weathertightness problems.
[59] On the other hand, I do not accept Mrs Hough’s assessment of Unit 2’s external presentation. Viewed from outside, its condition is simply not that bad. While there are cracks in the stucco and the paint, Unit 2 is not a “stand out house of disrepair”.
[60] I accept Mr Cheyne’s evidence that Unit 2’s presentation is unremarkable. That assessment is consistent with successive reports from the property managers, which
consistently reported its condition as acceptable (indeed, some went as far as to describe it as excellent).
[61] It is apparent Mrs Hough has very high standards. My own impression, having reviewed numerous photographs taken over several years, is that there is nothing unsightly about Unit 2. Mr Cheyne observed it is “only when close inspection occurs that the need for maintenance and repainting emerges”, and my review of the photographs bears that observation out.
[62] Unit 2 has weathertightness issues which may affect the interior of the property. It is not code-compliant. There is no guarantee the interior of the home will remain free of moisture indefinitely, even if I were to accept Mr O’Sullivan’s evidence that the problems do not appear to be worsening appreciably. Mr O’Sullivan observed it would be wise to have the air quality inside Unit 2 tested every two or three years.
[63] But while Unit 2’s weather defences are inadequate, it appears they are holding for now. I do not accept Lora’s contention that Unit 2’s living areas are insanitary; the only evidence to that effect came from Mr Andrew Gray, who said he believed it smelt musty. In light of Ms Burnie’s testing, the absence of any visible signs of water ingress or mould, and the consistent satisfactory reports from the property managers, I do not consider the evidence establishes that the living areas are presently suffering from dampness. The property management reports include multiple photographs of Unit 2’s interior taken over many years. There is no suggestion the managers observed any signs of water ingress, nor is there any mention of a musty smell or a record of complaints or concerns from the tenants. It follows, to the extent it is relevant, that the evidence does not show Unit 2 is an “insanitary building” under s 123(b) of the Building Act.
[64] More importantly, I find Lora has not proved that either Unit 2’s visible external defects, or the more serious but less visible defects identified in the Maynard Marks report, are materially affecting the value of Unit 1. Nor has Lora proved they have the potential to do so.
[65] I pressed Mr Hough about how, even in theory, Unit 2’s internal defects might affect a purchaser’s assessment of Unit 1. He suggested the prospect of disruptive repair work in years to come may be off-putting. But comprehensive and time-consuming repair work on Unit 2 is the very remedy Lora asks me to direct in the present case. It is very common for homeowners to be affected by renovation work on nearby properties. I accept there will always be examples of highly disruptive construction projects that may temporarily reduce the appeal of neighbouring homes, but there is no evidence the repair work on Unit 2, if and when it happens, will of itself affect the value of the surrounding units.
[66] The best indicator of the economic impact of the condition of Unit 2 on the value of neighbouring properties can be found in the actual sales recorded in Ponsonby Gardens in late 2021, along with the feedback (or more particularly the lack of negative feedback) Mrs Hough received when Unit 1 was briefly on the market in early 2022. As already noted, Units 8 and 9 sold quickly, for prices squarely in line with where the market stood at the time. Unit 9 is directly opposite Unit 2. The central assumption on which Lora’s case depends — that the condition of Unit 2 is likely to deter purchasers of neighbouring units — is not borne out by what actually happened when neighbouring units were sold.
[67] I reject Lora’s attempts to persuade me the sales of Units 8 and 9 are irrelevant to my assessment. There is no evidence that either transaction represented anything other than a good faith arm’s-length transaction. Nor do I accept Lora’s assertions that Units 8 and 9 might have sold for more but for the condition of Unit 2, or that the purchasers may have offered less if they had had more information about its internal defects. There is no evidence that would allow me to accept either submission. Lora did not call evidence from the owners of either unit.
[68] As to the evidence of the valuers, I found Mr Cheyne’s evidence more persuasive and helpful than the evidence of Mr Bates. Mr Bates’s central contention, that Unit 2 is damaging the value of Unit 1, was unsupported by any analysis. He did not attempt to estimate the value of Unit 1, or assess the degree to Unit 2 might be affecting it. His opinion was based on an extrapolation of the theoretical (and uncontentious) proposition that the condition and reputation of a neighbourhood might
affect property values. But none of the literature on which he relied suggested that construction problems with a nearby property will generally affect the value of its neighbour.
[69] In the absence of a practical attempt to apply his central proposition to the two properties in issue, Mr Bates’ evidence was of limited value. His evidence was not assisted by his decision to ignore the sale of Unit 9, which I find provided a highly relevant analogue.
[70] I accept Mr Cheyne’s evidence including, and in particular, the inherent unlikelihood that the internal condition of one property will materially affect the value of its neighbours. As to external condition, I am particularly influenced by the passage set out at [45] above; it is telling that across such a lengthy career as a valuer Mr Cheyne has never encountered a specific adjustment for the dilapidated exterior of a neighbouring property. And, as I have found, the exterior of Unit 2 is not dilapidated.
[71] Moreover, and as a matter of common sense, I find that the presence of leaky (or formerly leaky) buildings in a unit title complex will inevitably put all potential purchasers on high alert. It is inconceivable that anyone would buy a unit in Ponsonby Gardens without a detailed analysis of its weathertightness, including the effectiveness of any repair work carried out over the years. That said, the evidence does not show, in general at least, that purchasers are concerned about the internal condition of their prospective neighbours. A purchaser’s concern will always be the soundness of the unit he or she is interested in. Unit 1 faces no difficulties on that account.
Conclusion
[72] For completeness, I note that a mandatory injunction may, in many cases, be the appropriate remedy for a proven breach of s 80(1)(g), especially as economic harm will often be felt by multiple unit owners simultaneously, and s 80(1)(g) creates a positive obligation to repair and maintain. It will always be necessary to consider whether damages would be an adequate remedy, and there may be cases where the cost of repairs is out of all proportion to the actual or potential economic harm, but Mr Hough is right to stress that s 80(1)(g) creates an affirmative obligation which must not be rendered toothless.
[73] In this case, however, the question of remedy does not arise. The evidence has fallen well short of persuading me the condition of Unit 2 has caused, or has the potential to cause, economic damage or harm to Lora as the owner of Unit 1.
Costs
[74] Lora asks me to reserve costs; it suggests I may currently be unaware of all relevant matters. I am happy to do so, though I would encourage the parties to attempt to settle the issue among themselves. Subject to any relevant new information, it will come as no surprise that my present inclination is that Stirling should receive an award, but the parties may file memoranda if they cannot agree.
[75] If no agreement can be reached, Stirling may file a memorandum of up to 10 pages within 15 working days of the delivery of this judgment. Lora may file a memorandum of up to 10 pages within 10 working days of that. Stirling may file a reply of up to five pages within a further five working days.
Result
[76]Lora’s claim is dismissed. Costs are reserved.
Boldt J
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