Introduction
The case of Lora Trading Ltd v Stirling Investment Properties Ltd [2024] NZHC 2532 centres on Ponsonby Gardens, a unit title complex completed in the mid-1990s, which has become emblematic of the widespread weathertightness issues plaguing homes from that era. The leaky homes crisis has been well documented and has spawned a huge amount of disputes over the years. But this case offers something a little different. Specifically, the focus is on two adjacent townhouses: Unit 1, owned by Lora Trading Ltd (Lora) and occupied by the Hough family; and Unit 2, owned by Stirling Investment Properties Ltd (Stirling) and associated with Mr John Gray and Ms Lorraine Young. This is a novel case arising from property ownership in developments where one unit’s deficiencies can potentially impact the value of neighbouring properties.
Weather tightness issues seep into next door dispute
Unit 2 has been riddled with weathertightness problems first identified in 2000, when significant defects related to its stucco cladding became apparent. Despite attempts at remediation in 2003, which led to a Code Compliance Certificate being issued in 2004, the problems persisted. Stirling, which owns Unit 2, opted for limited repairs after a 2014 report from a building consultancy revealed extensive and unresolved issues, including inadequate weatherproofing and compliance failures with the New Zealand Building Code.
In contrast, Unit 1, which experienced some initial weathertightness issues, underwent a substantial remediation effort completed in 2010, costing Lora $560,000. This work appears to have successfully resolved their weathertightness concerns, allowing Unit 1 to be marketed without ongoing issues.
Unlike typical cases where homeowners seek damages from builders or developers for leaky homes, here, one party is claiming economic harm due to the existence of a leaky property next door. Under section 80(1)(g) of the Unit Titles Act 2010, Lora asserts that Stirling has failed in its duty to repair and maintain Unit 2, thus causing potential economic harm to Unit 1.
Battle moves to the High Court
Despite being habitable and tenanted since 2016, Unit 2’s unresolved defects remain a source of contention which Lora claims has adversely affected the value of their home and has left potential buyers deterred by the state of the neighbouring property. Lora described Unit 2 as run down, with visible deterioration, and alleged that its poor presentation detracts from the appeal of Unit 1. Throughout the proceedings, the main contention has been whether the state of Unit 2 affects the value of Unit 1.
While Lora presented evidence of perceived economic harm, Stirling argued that there was no concrete proof that the condition of their property has detracted from the marketability of Unit 1. Stirling acknowledged that Unit 2 has unresolved issues but argued that these do not currently affect its habitability or the value of adjacent units.
Stirling’s expert witnesses asserted that the market typically focuses more on the condition of the property being purchased rather than neighbouring properties. They referenced recent sales of nearby units that achieved high market values.
The law surrounding the Unit Titles Act, particularly section 80(1)(g), addresses the obligations of unit owners and the Body Corporate regarding the maintenance and repair of properties within a unit title development. This section mandates that unit owners must ensure their properties do not cause physical or economic harm to their neighbours. Historically, cases under this provision have focused on physical damage; however, the Act also encompasses economic harm, even when no physical damage occurs. Economic harm can be challenging to establish, as it often involves potential future losses that may affect property value.
Under section 80(1)(g), the mere absence of current harm does not absolve a unit owner from responsibility if their property’s state creates a risk of future damage or economic loss to others.
Economic harm must be discernible and significant: trivial or speculative claims will not suffice. The focus is on establishing a clear link between the condition of one unit and the economic impact on another, ensuring that the Act serves to prevent genuine grievances rather than trivial disputes.
Lora unable to prove impact of home valuation
The High Court noted that while Unit 2 exhibited cosmetic issues – such as cracking paint and stucco – the overall presentation was deemed acceptable by professional assessments. Mr Cheyne, a property manager, provided evidence that the condition was not alarming and aligned with reports from other property managers that characterised Unit 2 as “excellent.” Contrastingly, Mrs Hough, a key witness for Lora, expressed higher standards, perceiving the unit as a “stand out house of disrepair.” However, the Court found her assessment overly critical and concluded that, from a general perspective, Unit 2’s external condition was not particularly concerning.
Despite acknowledging the existence of weathertightness issues – which may affect the interior – the Court did not find evidence that these problems currently rendered the living areas unsanitary. Key testimonies indicated a lack of visible moisture or mould, with property management reports consistently showing no signs of serious issues.
The Court also examined testimonies regarding how future repairs on Unit 2 might deter potential buyers of Unit 1. While Lora suggested that prospective purchasers could be discouraged by the prospect of disruptive renovations, the Court emphasised that renovation work is common in property markets and does not necessarily diminish the value of neighbouring units.
The Court also analysed recent sales data from Ponsonby Gardens, noting that Units 8 and 9 sold rapidly at prices reflective of market value, contradicting Lora’s claims about Unit 2’s adverse impact. The absence of negative feedback during Unit 1’s brief market listing further weakened Lora’s argument. The Court dismissed Lora’s assertions that Units 8 and 9 could have fetched higher prices if not for the condition of Unit 2, pointing out the lack of evidence to support such claims.
Conclusion
Ultimately, the Court concluded that Lora did not prove any material economic harm. In doing so it found that buyers would likely prioritise the condition of the unit they are purchasing over concerns about the neighbouring unit. This decision highlights the importance of direct evidence and practical assessments over speculative claims and shows that a high evidentiary bar proving economic harm will be needed in any similar future claims.
