Terms of reference for the Government’s review of the earthquake-prone buildings (EPB) regime have just been released, and with the wide range of questions posed, the review stands to significantly change current legal and market approaches to managing seismic risk.
The scope of the review is broad and comprehensive. In this alert, we focus on three of the questions posed by the scope, and their potential impact on property contracts, seismic policies, and redevelopment opportunities.
Is the New Building Standard (NBS) appropriate as a measure of seismic risk?
The terms of reference ask whether, for the purposes of legislated strengthening obligations, a risk measure based on consequences of building and infrastructure damage, or on insurance estimates of damage, would be more appropriate than NBS (which focuses on risk to life safety).
The concept of an NBS was adopted quickly after the current regime came into force in 2017. Those in high seismic risk areas reacted by incorporating percentages of NBS as both:
- a proxy for health and safety assurances in internal seismic and occupancy policies; and
- a contractual measure of building quality in agreements for sale and purchase and lease documents.
Replacing NBS as the legislative risk measure would likely have significant knock-on effects in the market, including in respect of:
- property procurement practices;
- the enforceability of contractual clauses which use NBS as the touchstone or trigger for remedies including abatements, relocation indemnities, upgrade requirements and termination rights; and
- current negotiation of those clauses for new acquisitions, leases, redevelopment projects and more.
Is there a role for disclosure of seismic risk information?
Given the market’s known capacity to respond, and consistent with the Coalition Government’s priorities, the terms of reference question the purpose of EPB upgrade regulations and ask whether disclosure of seismic risk information could equally incentivise an appropriate market-driven response. While it is not yet clear what content, format and method of disclosure would be required, we could see regulation along the lines of the pre-contract and pre-settlement disclosure statements under the Unit Titles Act 2010. Those requirements can often drive contracting timeframes and, especially in the commercial context, don’t necessarily preclude market expectations as to vendor warranties or additional requirements.
Could public or private acquisitions of EPBs better enable strengthening and remediation?
The exact intent of this topic isn’t yet clear. The Minister may see an opportunity, particularly in the case of multi-story existing apartment buildings or residential conversion projects, for the Crown, its development partners, or the private sector to acquire and upgrade or redevelop EPBs to increase housing supply. Pathways to do so will necessarily look different for public and private acquisitions, and may well coincide with the Government’s review of programmes to fund and develop housing in New Zealand (expected to complete in 2024).
The EPB regime review is due to be completed quickly, with the report to Cabinet due in Q2 2025. It will likely be followed by a period of public consultation and legislative reform – both of which will likely contribute to short-term uncertainty.
If you are facing decisions in relation to EPBs or other seismic considerations in the meantime, or need advice on your seismic risk policies, contact one of our experts.
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