The council has agreed to pay tens of millions of dollars to settle a court case brought by owners of a Queenstown leaky apartment complex.

The 73 unit owners of the apartments the Oaks Queenstown Shores Resort, on Frankton Road, sued the Queenstown Lakes District Council (QLDC) for $162.9M for the damage caused by defective building materials and practices used in the apartments’ construction - which was consented by QLDC staff.

Last week an out-of-court, confidential settlement was reached between the two parties, QLDC media spokesperson Sam White said.

Sam said the terms of the settlement meant the council was unable to publicly reveal how much the court case had cost ratepayers in terms of legal fees nor could council make any comment about the outcome.

The cost of settling the case will be borne by ratepayers both directly via increased debt and indirectly with council activities and projects deferred for years.

The council acknowledges the community’s interest in this settlement and how it might affect next year’s rates, Sam said.

Ratepayers will not know the impact this settlement will have on their rates until the 2023-24 Annual Plan is revealed next year. The draft plan will be available for community consultation in March, Sam said.

Why was the QLDC sued?

Under the Building Act 2004, local authorities such as the QLDC are delegated by the Crown as Building Consent Authorities (BCA) to carry out administrative functions, such as building inspections.

When building defects arise unnoticed, the existing liability rule allows homeowners to sue all liable parties, from the construction company to BCAs, to pay for the cost of remediation; but the rule also places the risk of insolvency or lack of insurance of one party onto other parties.

This means developers, designers and builders who are responsible for the design and construction of defective buildings can simply liquidate their limited liability companies and face no financial consequences, leaving the compensation of homeowners to BCAs/ratepayers, as the ‘last party standing’, a council report said.

The impact of the claim

In August this year, the QLDC made a submission to the Ministry of Business, Innovation and Employment (MBIE) which was conducting a review of NZ’s building consent system.

In its submission, the QLDC said the Oaks Shore claim was projected to be one of the largest single claims in New Zealand and there was a presumption under the current system that ratepayers are able to bear these costs. 

The submission said the impact on ratepayers funding a claim of $162.9M would be an additional $9.56M of debt servicing per annum for 30 years. This would increase rates by an average of 9.6 percent and would cost $305 per property every year for 30 years. 

The effects would also include a loss in borrowing capacity, which would inevitably mean the reduction of investment in community assets such as parks, libraries, performing arts and recreation facilities, the QLDC said.

“The direct impact on ratepayers is not tenable,” the QLDC said.

Proposed solution

Although its submission was not within the scope of the review, the council still asked the government to reconsider the existing liability rules which currently allow ratepayers to bear a disproportionate liability burden.

QLDC recommended MBIE amend the unfair liability framework to one of proportionate liability, reflecting the roles and responsibilities of the parties involved and encouraging active risk management by building practitioners.

A system of compulsory home warranty guarantee (that is effective) and/or insurance products was also needed to protect the homeowner’s interests, it said.

Alternatively, if MBIE wasn’t willing to amend the liability framework then the QLDC recommended BCAs liability should be capped at 20 percent, proportionate to its supervisory role.

It also recommended that MBIE consider a QLDC request for central government funding so the ratepayers didn’t have to carry the whole cost alone. 

PHOTO: Wānaka App