Misrepresentation – Leaky Home – Disclosure – Building Reports

Anderson v De Marco [2020] NZHC 2979

In this month’s article, I review the recent High Court decision of Justice Cooke which involved an agreement for sale and purchase of a residential property, where a building report was provided to prospective purchasers making misrepresentations about the weathertightness of the property.

Background

The property was constructed around 1990, with additions made in 1996 and 2002, and therefore prior to the enactment of the Building Act 2004. There were three levels, multiple decks, Hardies texture spray monoclad, minimal eaves, flat roofs, and internal gutters. The Defendant purchased the property in 2005, and insurance claims, building quotes and reports indicate the Defendant encountered weathertightness issues from around 2008. The Defendant attempted to sell the property in 2011, which ultimately did not proceed due to a failed building report by Capital House Inspections obtained by the prospective buyer which indicated the dwelling was a “very high-risk” weathertightness risk.

Between 2012 and 2014, significant works were done on the property, without obtaining building consent. These works involved replacing sections of roof, retiling, and redesign and repair of the balcony. For the purposes of sale, the Defendant procured a further building inspection report from Building Science Ltd, there were two versions of this report, dated November and December 2017 respectively. The first version of the report was sent to the Defendant with the following comment: “What I have sent you so far is not what we would be going to Market with when you are ready. I will give you a snappy more impactful report that will help make the sale”.

In December 2017, the Plaintiffs entered into an unconditional sale and purchase agreement to purchase the Defendant’s property in Wellington for $1.2 million, paying a 10% deposit. The disclosures made to the Plaintiffs prior to the purchase included the positive building inspection report of Building Science Limited, that the Defendant had obtained for the property in December 2017.

Prior to settlement, the Plaintiffs became aware of adverse information about the property, which included the adverse Capital House Inspections building inspection report obtained in 2011. After seeking an explanation from the Defendant about this information, the settlement did not proceed, and the agreement was subsequently cancelled. The dispute in question was concerning whether the deposit was forfeited by the Plaintiffs.

Misrepresentation

The primary cause of auction for the Plaintiffs was misrepresentation, the requirements of which are set out by the Contract and Commercial Law Act 2017. 

This case for the Plaintiffs was: that there was a misrepresentation by the Defendant; the Plaintiffs were induced to enter into the sale and purchase agreement by the misrepresentation; that it was reasonable for the Plaintiffs to rely on the misrepresentation; and that the effect of the misrepresentation was to substantially reduce the benefit of the contract to the Plaintiffs or make it substantially different.

It was accepted there was a misrepresentation by the Defendant in that the Building Science report did not accurately describe the condition of the building to the best of his knowledge, as stated in the “Disclosures” document as part of the pre-purchase material.  It was further accepted that the representations induced entry of the contract. There was evidence provided by the Plaintiffs that they were seeking a modern, low maintenance building for their retirement. They had turned their mind to the issue of weathertightness, but having been provided with the Building Science report they were satisfied that this was not a major concern.

Although the Plaintiffs made an unconditional offer, it was accepted in this case that it was reasonable for the Plaintiffs to rely on the misrepresentation. The first paragraph of the building report referred to the building as “constructed of monolithic materials in the 1990s”, which could be taken to be an oblique reference to a potential for weathertightness, however Justice Cooke stated whether this reference would ring alarm bells would depend on that purchaser’s state of knowledge, and partly due to the plaintiffs living abroad for the 15 years prior, they did not have that knowledge. It was further stated that it does not lie well in a vendor’s mouth to say it is unreasonable for a purchaser to rely on a report that the vendor has provided to describe the condition of the property.

Conclusion

Justice Cooke had little hesitation in finding the representations were false, which meant the requirements for misrepresentation set out above were met. Further to this, it was accepted that the misrepresentations led to a material reduction in or change to the benefits of the contract to the Plaintiffs, they were therefore able to cancel the contract, and were entitled to remedies including refund of the deposit, interest on the deposit, legal fees for the purchase. The Court also found for the Plaintiffs on breach of warranty pursuant to the sale and purchase agreement, in that the Defendant had warranted he had obtained a building consent for any works carried out which needed a building consent. The Court concluded the significant weathertightness repairs carried out to the dwelling needed a building consent, but the Defendant did not obtain one. 

NOTE: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by TM Bates & Co. Barristers / Solicitors to anyone who relies on the information contained in this article. All copyright in this article is retained by TM Bates & Co.