Extreme Weather Events and Property Damage
Earlier this year, Cyclone Gabrielle caused devastating damage around the country. The cost of asset damage from both the Auckland floods and Cyclone Gabrielle has been estimated by the Treasury at between $9 billion and $14.5 billion. Although Whanganui was not in the direct path of Cyclone Gabrielle, Whanganui has itself experienced flash flooding this year – notably, on 3 February 2023 when an astonishing 31.4mm of rain fell in one hour, leading to widespread flooding. Unfortunately, it seems that these extreme weather events are anticipated to become more frequent in the future.
This article explores what happens when property is damaged in the context of:
1. Sale and Purchase Property Transactions; and
2. The obligations of Landlords and Tenants with residential tenancies.
1. Sale and Purchase Property Transactions
The standard position (assuming that the parties are using the standard ADLS Sale and Purchase Agreement) is that a property remains at the risk of the seller until possession is given and taken, which is usually the settlement day.
Accordingly, if you have entered into an agreement to buy a property but settlement has not yet been completed, the cost of repairing the damage usually lies with the seller.
What if the Property is damaged, but not ‘untenantable’?
If the property is damaged, but is still habitable, settlement is required to proceed on the settlement date at the purchase price less an amount equal to the reduction in value of the property. The reduction in value is deemed to be equivalent to the reasonable cost of reinstatement or repair. If the parties cannot agree on the reasonable cost of repair, there is a detailed dispute resolution procedure which must be followed by the parties.
What if the Property is completely destroyed?
If the property is no longer habitable, then the buyer must elect one of the following options:
• Complete the purchase at the purchase price, less an amount equal to the insurance payment receivable by the seller (unless the insurance company agrees to reinstate the property up to the insurance cover, for the benefit of the buyer); or
• Cancel the agreement, in which case the vendor must return any deposit to the buyer, and neither party shall have any further right of claim against the other.
2. Residential Tenancies
It is the Landlord’s responsibility to repair any damage to a property that is caused by a weather event. If the landlord and tenant cannot come to an agreement on the next steps, either party may apply to the Tenancy Tribunal for a decision.
What if the Property is damaged but remains habitable?
The damage should be repaired at the Landlord’s cost as soon as practicable.
What if the Property is partially destroyed, or so seriously damaged as to be uninhabitable?
If the property is damaged so that it is no longer habitable, rent must reduce accordingly and either party may apply to the Tenancy Tribunal for an order to end the tenancy. The tribunal may make an order terminating the tenancy if it is satisfied it would be unreasonable to require the landlord to repair the property, or the tenant to continue with the tenancy at a reduced rent.
What if the Property is destroyed?
If the property is no longer habitable, rent must reduce accordingly and either party may give notice to the other terminating the tenancy. A landlord is required to give seven days’ notice and a tenant is required to give two days’ notice.
If you have any questions or need any help to work through these issues, please contact us on T: 06 349 0090 or email timo@horsleychristie.co.nz
Tim Oliver LLB(Hons) BProp
ASSOCIATE
Disclaimer: This publication should not be construed or acted on as legal advice. It is brief and general in nature. Specific advice should be sought.
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