James Hardie cladding systems on trial

Since the early 2000s, some building experts have claimed that James Hardie cladding systems marketed and sold from the 1990s are defective. These experts say the systems allow water ingress and require installation methods that cannot practically be achieved in real world conditions.

James Hardie has always argued there is nothing inherently wrong with its cladding systems and that installation failures and poor workmanship are to blame for the weathertightness failures in houses clad with James Hardie products.

Wherever the truth lies, thousands of homeowners throughout New Zealand with homes clad in James Hardie products such as ‘Harditex’ fibre cement cladding sheets have discovered their homes are subject to weathertightness failures and decay damage. They are required to reclad their homes at significant cost, often several hundred thousands of dollars.

Many owners, whose homes were signed off by a council and were still within the 10 year limitation period, took Court action against the council and others involved in the construction to recover compensation. Other owners were left with the option of a claim against James Hardie as manufacturer of the cladding systems.

Two groups of claimants formed to bring claims against James Hardie, a group of 144 homeowners in Wellington and a larger group in Auckland comprising the owners of 1,236 residential homes, 5 commercial buildings and 5 retirement villages.

In August 2020 the stage 1 trial of the Wellington claim commenced in the High Court. The stage 1 trial will determine whether James Hardie owed a duty of care to the owners, if so whether that duty was breached and whether James Hardie made misleading statements in its technical literature.

Grimshaw & Co Partner Gareth Lewis advises: “In view of recent developments in tort law there are good arguments to say James Hardie owed a duty of care to the homeowners.” If James Hardie is found liable there will need to be a stage 2 trial in which the Court determines whether any shortcomings in the cladding systems contributed to the water ingress and damage on the facts of each case and, if so, to what extent. According to Mr Lewis “this second stage could be a drawn-out process as experts often find multiple causes of moisture entry and damage in leaky homes and these would need to be taken into account in determining whether James Hardie caused loss.”

The High Court decision on the Wellington claim is likely to be issued in early to mid-2021.

The larger Auckland based claim is brought against more companies in the James Hardie group and is due to proceed to a stage 1 trial in May 2021, on similar terms to the Wellington claim.

Grimshaw & Co are experts on building defect claims, construction disputes and Construction Contracts Act adjudications. Call us on 09 377 3300 for specialist assistance.

Hot tips for body corporate remediation projects

A major repair or renovation to an apartment building is a significant undertaking which requires careful planning, clear lines of communication and specialist expert advice.

There is a lot at stake for the owners. A well-managed remediation project will take less time, enhance the reputation of the building and add value to the apartments. A poorly managed project can lead to incomplete repairs and years of delay and frustration.

Here are 10 hot tips for bodies corporate undergoing remediation or renovation projects:

• Take independent building advice. The body corporate should take advice on building defects and remediation options from independent building professionals. Avoid taking informal advice from others such as the developer or members of the body corporate.

• Beware of targeted repairs. There can be a temptation to undertake ‘targeted’ or ‘patch’ repairs which are cheaper but essentially cover over problems and do not address the underlying issues. These repairs often fail and result in the need for further repairs in the future. Seek confirmation the proposed repairs will be durable in the long term.

• Obtain advice on claim options. Consult legal advisors who specialise in building defect claims to identify whether you have a claim against those involved in the construction or certification of the complex for the cost of repair works. All claims are subject to strict limitation periods, so legal advice should be sought as soon as possible.

• Get the owners on board. Any remediation project needs the support of the owners. This means satisfying the owners the work is necessary and there is a commercial benefit in undertaking the work. Provide a valuation report which sets out the potential capital gain and a business plan with details of the estimated cost and timing of the repair project.

• Apply for a section 74 scheme. Engage lawyers to apply to the High Court for a repair scheme under section 74 of the Unit Titles Act. This will clarify the basis upon which owners are to be levied for the work and authorise the body corporate to undertake work to both unit and common property, amongst other things. The scheme provides an assurance the project will proceed in an organised and professional manner.

• Engage a body corporate manager with experience in remediation projects. Body corporate managers who have managed other remedial projects are familiar with the issues that are likely to arise, know the best experts, will have systems that can be used to manage the project and can provide useful advice to owners throughout the project.

• Put in place clear lines of responsibility. The contractual arrangements between the body corporate, the building professionals and the head contractor are important. Seek legal advice in relation to the contracts. Ensure there is a clear understanding as to the responsibilities of each building professional and who ultimately oversees the work.

• Appoint an owners representative. An owners representative fulfils an important role in liaising between the building professionals and the owners. He or she provides important information to the owners, such as when they need to vacate their apartments, and can assist with other matters such as finance and alternative accommodation options.

• Provide regular updates. The body corporate should provide regular updates to the owners so they have a clear understanding of how the project is progressing and have up to date estimates of the costs and timing of the work. Reports from the building experts should be provided to explain any significant changes in the scope of the work.

• Resolve disputes quickly. If disputes between the body corporate, building professionals and/or the head contractor develop it can result in significant delays to the project or at the conclusion of the project the body corporate may have difficulties obtaining the producer statements it needs from contractors. Address any disputes which arise as soon as possible, and where necessary invoke the dispute resolution process in the contract.

Grimshaw & Co regularly acts for bodies corporate undergoing remedial work projects. We are experts in building defect claims, construction contract disputes, section 74 schemes and the Unit Titles Act 2010. Call us on 09 377 3300 for practical expert advice.

Claim for a multi-unit complex

What is a multi-unit complex claim?
A multi-unit complex claim can be brought for:

• a group of units and common areas

• a group of units with no common areas

• common areas only if no units are affected

• a single unit only if no common areas or other units are affected.

If you claim for common areas only or for a single unit only and we become aware that other units or common areas are affected, your claim will be terminated as a claim for the whole complex would have to be brought.

There is a separate claim form that can be completed if you wish to bring a stand-alone complex claim. This type of claim is only for units or buildings in a multi-unit complex where no common areas are affected by leaking. It allows owners to group together by building rather than by complex. Each claim type has a separate statutory declaration that must be completed and attached to the claim form.

What constitutes a house or unit?
The application uses 'house' or 'unit' to mean 'dwellinghouse' as defined in the Weathertight Homes Resolution Services Act 2006 (the Act). Under the Act, a dwellinghouse:

(a) means a building, or an apartment, flat, or unit within a building, that is intended to have as its principal use occupation as a private residence; and

(b) in the case of a dwellinghouse that is a building, includes a gate, garage, shed, or other structure that is an integral part of the building; and

(c) in the case of a dwellinghouse that is an apartment, flat, or unit within a building,
includes a door, gate, garage, shed, or other structure that—

(i) is an integral part of the building; and

(ii) is intended for the exclusive use of the occupier of the dwellinghouse; but

(d) does not include a hospital, hostel, hotel, motel, rest home, or other institution.

What criteria must be met to bring a claim?

1. You must be appropriately authorised to bring the claim
For multi-unit complexes a representative must bring the claim on behalf of the owners. Authorisation of the representative is confirmed by a statutory declaration as required under the Act. A statutory declaration is a written statement signed in the presence of a lawyer, justice of the peace, notary public or other person authorised to take a statutory declaration.

2. The claim property must be used as private residences
A private residence includes a unit rented to another person as a private residence. A 'time-share' unit is not a private residence. A unit principally used for commercial purposes is not a private residence. A unit used for both residential and commercial purposes, but principally for residential purposes, will generally be considered a private residence. Common areas are considered residential if they are part of the building the residential units are in and are intended principally for the use of the owners or occupiers of the residential units.

3. The claim property must have been built or altered within the last 10 years
Building or alteration work giving rise to the claim must have been completed within the 10 years immediately preceding the date your application is received by the Department.

The date built or altered will generally be taken to mean the date the claim property was capable of meeting the consent requirements under the Building Code, or failing evidence of that, when the house was habitable or the alterations were fit to be used. The date a code compliance certificate was issued will not necessarily be accepted as the built date. You may be required to provide further proof of the date the property was habitable, for example, when the power was connected. Generally, alterations must have changed or modified the original design or construction of the building. Home maintenance and repairs are not necessarily considered as alterations.

4. The claim property must be or have been a leaky building
A leaky building in a multi-unit complex includes a unit and/or common areas into which water has penetrated as a result of any aspect of the:

• design

• construction

• alteration

• materials used

in its construction or alteration.

This may include property that was leaking but has now been repaired. The water must have come in from the outside, not from internal sources such as plumbing leaks.

5. The claim property must have been damaged by the leaking
Evidence of this damage includes peeling paint, wallpaper or lino, visible presence of water, high moisture readings, musty smells, rotting wood, or staining. Provide as much detail of the damage as possible on the claim form. If one or more individual units and common areas are affected, a claim must be brought for the whole complex with appropriate authorisations.

A claim can be made for an individual unit or common areas only when no other unit or common area is leaking or damaged.

Who can bring a claim for property in a multi-unit complex?
An authorised representative must bring the claim. For a claim that is for units and/or common areas:

• if the property is a unit title complex, the body corporate must be the representative that brings the claim

• if the property is a cross-lease complex, a nominated representative (eg, a lawyer, an owner, an expert) must bring the claim

• if the property is a company-share complex, the company must be the representative that brings the claim.

For a claim for a single unit only, the owner may bring the claim.

See Resolving Weathertight Problems for more information.

Leaky condos still a disaster

B.C.'s leaky condo disaster is entering its third decade. The worst of it is behind us but it is far from over and we are not nearly finished paying for it, or arguing about who is to blame.

The human cost of the disaster is not measurable. Hundreds of thousands of British Columbians have been touched by it.

For some, it was no more than a financial inconvenience. Their homes leaked, and they paid to repair to them.

Others, especially in the 1990s, lost their homes, their savings and their health.

Tens of thousands of condo units built during the B.C. building boom of the mid-1980s to the late 1990s suffered water damage as wind-driven rain entered the walls of badly designed, badly built buildings.

The home building industry's warranty program collapsed under the weight of the claims, and many homeowners got little or nothing back. They included older couples who intended to spend their golden years in a low-maintenance condo and young families buying their first homes.

In the worst cases, the walls leaked so badly homes were all but flooded. Wet carpets sprouted mushrooms. Moulds, some of them toxic, stained the walls, making some people sick. And the walls rotted.

Some condo owners walked away from their mortgages and their homes. Some slipped into bankruptcy. Some developed respiratory and stress-related illnesses.

There was no government help until the end of the 1990s following two public inquiries, when the province set up its Homeowner Protection Office and offered condo owners interest-free repair loans.

The financial cost of leaky condos is measurable, but only parts of it are being measured.

We do know that the average cost of repairing water-damaged condos has nearly doubled since the Homeowner Protection Office was created. Some figures indicate it has more than tripled.

Government and industry sources agree the cost is going up because:

-More and more concrete highrise condo owners are discovering leaks, and they're more expensive to fix than low-rises;

-Low-rise buildings whose owners have put off repairs -- sometimes for years -- or tried to cover up the problem with cosmetic fixes are coming up for repairs with more advanced rot than buildings that were dealt with early;

-Construction costs are rising fast as B.C. rides another major building boom.

One indicator of per-unit repair costs is the interest-free repair loans provided by the HPO.

"The average value of the loans has been going up quite significantly," said HPO chief executive Ken Cameron, "so it's now in the $60,000-to-$75,000 per unit range, whereas it used to be in the $35,000-to-$40,000 range."

The number of low-rise buildings turning up with building envelope problems is past its peak, but a second wave of leaky condos -- concrete highrise buildings -- is well under way.

"It's not over," said Carmen Maretic, a real estate agent who has been advocating for leaky condo owners for years. "It's very much still a problem.

"People are still dealing with the whole process of evaluating their buildings and going through whether a majority of owners can agree to do repairs."

Maretic, who heads the CASH (Consumer Advocacy and Support for Homeowners) Society, said HPO statistics show that in the last eight months, the HPO approved nearly $139,000 per day in repair loans.

"As shocking as these costs are, this only represents a portion of the true repair costs as many homeowners do not qualify for HPO no-interest or deferred loans," Maretic said.

Her figures indicate the average loan has more than tripled, from $19,733 as of March 2000 to nearly $60,500 in the last eight months.

Maretic called on the provincial government to provide more help for leaky condo owners and press the federal government to kick in more money.

Ottawa kicked in about $28 million early on for the HPO interest-free loans fund, but serious negotiations for a larger federal contribution petered out years ago.

Green shrouds

One highrise after another, along the New Westminster waterfront, on the North Shore, in downtown Vancouver and elsewhere in Greater Vancouver, is getting its walls stripped down to concrete, scaffolding erected to roof level and green shrouds draped over the building to keep the rain out during repairs.

Advocates like Maretic and James Balderson of the Coalition of Leaky Condo Owners are keenly aware of them, engineers like Pierre Gallant of Morrison Hershfield who oversee the repairs say they're seeing more leaky highrises relative to low-rises, and the HPO's Cameron acknowledges there are proportionally more highrises joining the lists of leaky buildings.

On virtually all of them, the outer cladding -- usually "face seal" systems attached to the concrete walls with steel studs -- has failed to keep the rain out. The fix is to strip off the cladding and replace it with rain-screen wall systems that include a cavity between inner and outer wall components to let any water that gets in drain out again.

Leaky highrises were predicted in the late 1990s by Dave Ricketts of RDH Building Engineering, among others.

"It would be surprising if these buildings did not leak," Ricketts wrote in the engineering journal Innovation in 1999. "The key difference is the time it takes for the problems to manifest themselves and create a health and safety hazard."

Gallant agreed. It takes longer for highrises to show problems because, simply, "wood rots faster than steel rusts," he said.

A face-seal wall "relies on perfection" to keep the rain out, "and therefore fails."

Low-rises with face-seal walls often leaked in spots where doors, windows, balconies and other features are attached to the walls, and the joints are imperfectly sealed, especially on the upper floors, which are more exposed to rain and wind.

"The exposure on highrises is much higher because the wind exposure is far greater. But the materials are more robust and take longer to decay, typically," Gallant said.

A few highrises have failed catastrophically: Sections of cladding have let go and plunged to the ground. But most of them just show the same symptoms as leaky highrises -- water inside the windows, wet spots and mould on the walls.

Highrise or lowrise, the expert advice is that the longer you put off repairing a leaky building, the more expensive it will be.

Yet there are still dozens if not hundreds of low-rise wood-frame buildings where the owners haven't realized their walls are rotting, or are refusing to acknowledge the problem, or have tried cosmetic fixes when major repairs are needed, or are deadlocked with their neighbours over whether and how much to spend on repairs.

Many strata councils are pursuing slow-moving lawsuits, trying to recover at least some of their repair costs from developers, contractors, architects, engineers, window manufacturers, municipal governments -- anyone connected with their leaky buildings with deep enough pockets to sue.

Most of the suits are settled through mediation and with non-disclosure agreements attached, so there is no public record of the average settlement. But lawyers say strata councils typically get 40 to 60 cents back for every dollar they spend on repairs.

For those who can't reach a consensus, or can't muster the resources to get through the daunting process of hiring technical and legal expertise to assess the damage, finance the repairs and recover at least some of the cost, it's an unending nightmare.

"The longer you wait, the more the damage," said Gallant. "And the cost is going to be higher not only because there's more damage, but because construction costs are going up. So putting your head in the sand is not going to solve the problem."

"Many people are still suffering," Maretic added, "particularly those that went into bankruptcy and those that have health consequences."

No registry

After all these years, no one can yet say with any certainty just how big the problem is.

There are no solid statistics for the number of leaky condos or how much it is costing to fix them, although the HPO is sticking with a five-year-old estimate that about 65,000 condo and co-op units have suffered water damage and the total repair bill will be about $1.5 billion.

But there is no registry of leaky condos, no comprehensive list, no certainty about how many buildings have been touched by the rot.

"No one knows the extent of B.C.'s leaky condo crisis," said Louise Murray, who operates the bccondos.ca advocacy website, "because, unbelievably at this late stage in the game, no one is tracking it."

It is guesswork whether the HPO's loan statistics reflect actual repair costs.

Only those who can show they don't have the assets and income to shoulder the cost of repairs, and are prepared to follow the HPO's repair guidelines, are eligible for the loans. Those with more resources, whose homes may be more expensive and cost more to fix, are not eligible and not counted. Those who try to make do with patch-work repairs are not counted. Not surprisingly, many suspect the HPO's numbers are low.

"We've never trusted their estimation," said Balderson. "We continue to think they underestimate the magnitude of the problem and the total cost."

Balderson says only 20 per cent of condo owners qualify for HPO assistance -- leaky condo welfare, he scathingly calls it.

That means 80 per cent of the problem is not accounted for by HPO statistics, and Balderson notes the 80 per cent includes upscale buildings where no one qualifies for loans, and repairs run as high as $125,000 per unit or more.

"I think their number's low on total costs incurred," concurred John Singleton, a lawyer whose firm, Singleton Urquhart, has defended many building professionals in leaky condo suits. "My sense is it's over $2 billion."

That's for residential buildings. The HPO counts only leaky condos and co-ops. But they were not the only buildings affected by design and construction problems in the '80s and '90s.

"We have seen failures in all kinds of buildings," said Gallant, whose company is one of the region's leading engineering firms for building remediation work.

Rental housing, social housing, office buildings, schools, churches, even shopping malls are infested with the same problems as leaky condos. Water gets in the walls, it can't get out again, and the wall components slowly rot. We don't hear much about them because they don't have angry owners clamouring for media attention. Gallant says their owners file insurance claims, do the repairs and file lawsuits with no public fanfare.

So what's the grand total? Nobody knows.

Might it be higher than the official estimate?

"It might," Cameron conceded. "It's hard to say."

Gallant and others with an overview of the construction industry guess that residential housing probably accounts for the majority of the damage. So if the real cost of repairing leaky condos is more than $2 billion and repairs to all other types of buildings amount to only one-third of the total, the bills add up to at least $3 billion -- double the province's estimate.

Next: Want to buy a leaky condo?

-- bboei@png.canwest.com

LEAKY CONDO LOANS
More than 14,000 leaky condo owners in 45 municipalities have received interest-free loans from the provincial government's Homeowner Protection Office.

CITY Number
Abbotsford 720
Barkley Sound 1
Belcarra 1
Brentwood Bay 8
Burnaby 570
Campbell River 10
Chemainus 34
Chilliwack 133
Comox 59
Coquitlam 1,181
Courtenay 27
Delta 188
Duncan 2
Forest Grove 1
Harrison Hot Springs 13
Kamloops 9
Ladner 7
Ladysmith 29
Langley 528
Maple Ridge 213
Mission 65
Nanaimo 364
Nelson 29
New Westminster 726
North Vancouver 418
Pitt Meadows 185
Port Alberni 1
Port Coquitlam 685
Port Moody 124
Powell River 7
Qualicum Beach 28
Richmond 862
Saanichton 7
Salmo 1
Sechelt 17
Sidney 31
Squamish 2
Surrey 1,960
Tofino 20
Vancouver 3,099
Vernon 1
Victoria 1,708
West Vancouver 43
Whistler 1
White Rock 105
Total applications received: 14,223