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Loose lips and leaky homes

13 December 2017. by David Abricossow

The case of the leaky home, the dinner party, and the expensive battle that followed.

The recent Court of Appeal decision in Mason v Magee [2017] NZCA 502 has highlighted the perils of doing a deal between friends and reinforced how important it is to complete a full investigation when purchasing real estate.

Background

Steven and Katharine Mason bought a two-storey house in Karekare Road in Raumati from Andrew and Sharon Magee in 2011.  The house had been built in the early 2000s and, as was common for many houses constructed around the same time, had monolithic cladding (a type of cladding infamously involved in the leaky home crisis).

The Masons subsequently discovered that the house was a leaky home and that it would cost them upwards of $900,000.00 to fix.  Whilst this would come as a shock to any home owner, the Masons were particularly aggrieved because the Magees had told them twice before the sale that Karekare Road was not a leaky building.

During the early stages of negotiations, Mrs Magee and Mrs Mason met at the house to discuss the proposed purchase.  During that meeting, Mrs Mason had asked: “All I want to know is that this property is not a leaky house, because we couldn’t cope with that.”  Mrs Mason’s evidence was that “Sharon replied that the house definitely was not leaky, and I recall her responding, ‘Absolutely not. We have never had any issues with this house’ (or words to that effect).”  Mrs Magee also made similar assurances about her home during a dinner party with friends.

The sale agreement was conditional on the Masons obtaining a satisfactory building report.  Unfortunately for the Masons, although the building report identified some areas of concern (including a leaking window which had allegedly been fixed), the majority of the weathertightness issues were not detected.

The Masons filed proceedings against the Magees for misrepresentation, and against the building inspection company for negligence as well as a breach of the Fair Trading Act.  The claim against the building inspector was settled out of court but the claim against the Magees went to hearing.

The High Court decision

In a judgment issued earlier this year, the High Court (Justice Williams) found that Mrs Magee’s statements constituted a misrepresentation about the building’s design or construction which induced the Masons to buy the Karekare Road property.

As a result, the Magees were liable for damages of about $470,000; being the loss in value of the house plus general damages and other related costs incurred by the Masons.

The Court of Appeal decision

However, by a majority decision of 2-1 (Justices Miller and Gendall for and Justice Courtney against), the Court of Appeal overturned the High Court decision.

The majority found that Mrs Magee’s statements could only be interpreted to mean that:

  • she had not experienced any leak problems whilst she had lived in the property; and
  • she had no reason to believe the house was a leaky home.

Both of these meanings were found to be true.

However, the case turned on whether Mrs Magee’s statements could also be interpreted to mean that the house was not, through design or construction, a leaky home or prone to leaking.  The majority found that, because Mrs Magee had made no representations about her knowledge or expertise in such matters, her statements could not bear that meaning and did not amount to a misrepresentation.

Justice Courtney disagreed.  She found that Mrs Magee’s unqualified and unequivocal language meant that her comments were clearly misrepresentations.  If Mrs Magee had wanted to protect herself, she could have refrained from saying “absolutely not”, or stated that she was only speaking from personal experience.

Lessons to be learnt

In summary, the Masons’ plight is a lesson for purchasers to not take comments from vendors, particularly about matters requiring specialist expertise, at face value.  There’s no substitute for appropriate expert advice.

That said, whilst a thorough inspection report from a qualified builder or building inspector will often suffice, they can have their limitations (as the Masons found out).  A building inspector will often only be able to check areas that they can access.  Some building issues may be hidden and require invasive testing before they’re detected.  If your report raises some red flags (in this case, the leaky window), don’t be afraid to dig a little deeper, lest you end up in the same situation as the Masons.

From the vendor’s perspective, although the Magees were ultimately successful, the financial and psychological cost of defending these proceedings will have been significant.  If you’re selling your property, our advice is always to refrain from making statements that you are not qualified to make.  No doubt Mrs Magee wishes that Mrs Mason had simply asked her about the rugby instead.

If you are considering making an offer on a property, we recommend seeking legal advice at an early stage.  If a building report, or other advice, is necessary, your lawyer should be able to discuss the type of expert required.

Contact details

reception@johnlaw.co.nz

Phone: (04) 472 0940
Fax: (04) 473 4673

PO Box 1213,
Wellington 6140

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157 Lambton Quay,
Wellington 6011
New Zealand