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Shake-up for Leaky Homes Service

Hon Clayton Cosgrove
Minister for Building Issues

Friday 12 May 2006 Media Statement

Shake-up for Leaky Homes Service

Building Issues Minister Clayton Cosgrove today announced a major shake-up of the Weathertight Homes Resolution Service (WHRS) that will stop gaming of the system, hold building industry professionals to account and get leaky homes fixed faster.

"The WHRS was set up as a 'call to arms' to deal with a major problem, and although people have gained successful settlements so far, the service is too slow and is being drawn out by the lawyers and the experts.

"To speed up dispute resolution, there will be a new streamlined process involving pre-hearing conferencing, and time limited mediation before claims automatically move to adjudication," Mr Cosgrove said.

Objectives will be clearly set for adjudicators when exercising their powers, including using their investigative powers, to identify, refine and determine the issues in dispute between the parties.

"The assessment reports provided to all WHRS claimants will be beefed-up so people can claim for probable as well as actual weathertightness-related damage, and these reports will effectively become expert evidence, potentially saving claimants thousands of dollars by not having to get their own specialist reports."

"A new 'class-action' approach will be introduced to enable a body corporate to file a claim on behalf of multi-unit claimants, such as apartment owners. Better information, advice and guidance will be provided to all claimants by dedicated case managers so claimants are better prepared and more aware of the process. Consumer information will also be provided to homebuyers so they enter, what for most is their biggest investment well informed and with their eyes wide open."

"A new financial assistance scheme involving market rate loans and loan guarantees will be piloted for two years to help people in the very worst circumstances get their homes fixed first and argue liability second. Details will be announced once eligibility and other criteria are decided," Mr Cosgrove said.

Mr Cosgrove said the WHRS reform package will cost $30.5 million over the next four years, and in addition, $7.1 million will be made available for lending assistance over the two-year pilot.

"In developing these measures we have consulted widely with organisations including the Leaky Homes Action Group, Consumers Institute, building industry and local government representatives. I am very grateful for the advice and constructive input they have provided and their willingness to work with the government to find a better way forward to address this issue."

"These measures are part of the Labour-led government's suite of changes to transform the building and construction industry to ensure that homes are built right first time."

"Everyone knows this is a heart-wrenching issue for ordinary Kiwis, and I am committed to sorting it out so people can get on with their lives. New Zealanders are entitled to have confidence in the quality of their homes and building industry professionals must be accountable for their work," Mr Cosgrove said.

Mr Cosgrove said amending legislation will be introduced this year and the changes are expected to be in place in early 2007.


Media backgrounder

What are the main changes?

Improved WHRS assessment reports – The new assessment report will cover probable as well as actual damage due to non-weathertightness, ensuring the claim covers the full extent of the damage. This will ensure the settlement more closely reflects the actual repair costs, as people will be able to claim for weathertightness damage that is likely to happen, not only for damage that has already occurred. The assessment will also specify parties who might have contributed to the causes of the damage, without determining liability. This will help ensure the right people are involved in the dispute resolution from the outset.

Improved information and case management – The Review found that claimants were not receiving adequate information to help them understand technical reports or advice on what action to take. Case managers will now provide improved assistance with interpreting assessment reports, and comprehensive information and advice in respect of their mediation, direct negotiation and adjudication options.
A two-year consumer education campaign will be implemented to better inform homeowners and homebuyers. Technical advice will be provided to builders and designers to make sure leaky homes are properly repaired.

Faster and more effective claims and dispute resolution processes – Smaller claims will be subject to a faster process so that as many as possible can be settled without the need to enter formal dispute resolution. The review has found that mediation is being prolonged by gaming from other parties. To reduce this a pre-hearing process that will set the ground rules for the dispute process has been introduced. Also contributing to a faster process is the decision to set hearing dates for adjudication at the outset thereby stopping the drawing out of the mediation process and encouraging settlement. To make the process more effective the current adjudication process will become more investigative, meaning the adjudicator will take an active role in directing the case.

A co-ordinated approach to resolving multi-unit claims – A "class action" approach will make it easier for claims to be lodged jointly by owners of units in apartment buildings. Bodies corporate will be able to lodge a single claim in respect of common property and damage to any units, with the agreement of unit owners. Currently, individual owners must each lodge a separate claim. An amendment to the Unit Titles Act will be made to facilitate this.

Introduction of a pilot lending assistance scheme – The financial assistance scheme is being piloted over a two-year period and will provide two products, loans at market interest rates and loan guarantees, effectively as bridging finance. Both products will be targeted at those in the very worst circumstances unable to access finance from private lending institutions under normal lending criteria and will be subject to strict eligibility criteria, which are yet to be determined. The scheme will aim to assist people who qualify to repair their home without waiting for settlement.

The main anticipated benefits to homeowners of these changes:
Homeowners will receive a more accurate and comprehensive assessment of the damage to their house and what work is needed to repair it.
Homeowners will be able to claim costs for a wider scope of damage.
The average time for claims to be resolved is expected to nearly halve.
Legal and evidential costs incurred by claimants and other parties should reduce markedly.
Barriers to registration of claims by bodies corporate and apartment owners will be removed, assisting these homeowners to resolve their disputes.

How will you know if the WHRS reforms are working?
The reforms to the WHRS will be fully evaluated after 2 years to ensure they are delivering as intended.

What happens when the two-year lending assistance pilot programme ends?
That decision will be made when the findings of the pilot programme have been assessed.

How much will these changes cost?
$30.5 million over the next four years. Of this, $18.2m will go towards paying for the improved assessment; $9.6m will go to improving the disputes resolution process; $1m will be spent over the next two years on a consumer education campaign as well as $200,000 on providing technical advice to builders and designers.
An additional $7.1m of capital funding will be made available for a two year lending assistance pilot through the Housing New Zealand Corporation (HNZC).

Why isn't the government just footing the bill to fix leaky homes?
Those who are found liable for causing the problem of non-weathertight homes should be held accountable and contribute to the costs of remediation. The government has a role in facilitating resolution of leaky homes disputes leading to the repair of leaky homes and has established the WHRS for this purpose. The Department of Building and Housing estimates that up to 15,000 homes may be leaky and the estimated repair bill may be in the order of $1 billion.

Who was consulted in the review?
A review of the WHRS was undertaken by the Department of Building and Housing and commenced in August 2005. It involved consultation with affected and interested parties, including the Leaky Homes Action Group, the Consumers' Institute, the building industry, local government, the financial services sector and individual homeowners.

What is meant by "gaming"?
Gaming is a term used to describe the practice of using unnecessary delay to draw out proceedings. A common practice under the current rules, for example, is the joining of new parties to the dispute while dispute resolution is underway, necessitating a lengthy delay while the new party is incorporated into the proceeding. Another is where expert witnesses may be unavailable to appear for lengthy periods of time.

What is an investigative approach to adjudication?
Adjudicators will adopt a more investigative approach in respect of information coming before them, meaning the adjudicator will take an active role in directing the case. The aim is to ensure the matter moves more swiftly to determination. The details will be set out in a practice note issued by the Chief Adjudicator.

What is a pre-hearing conference?
Parties will be required to attend a preliminary conference run by an adjudicator. The adjudicator will set ground rules for the dispute process, evidence will be exchanged between parties, parties can be joined or removed, and a site visit may be arranged. This will mean all dates and parties involved will be decided before the process begins and will not be open for debate, speeding up the entire process.

Why "time-limit" mediation?
Limiting the time allowed for mediation will encourage all parties to find common ground and reach a resolution. If resolution cannot be found in a reasonable time the proceedings will automatically go to adjudication. The time limit will be determined by the adjudicator.

How much faster will the resolution be?
The average time taken for resolution is expected to nearly halve. It currently takes on average 14 months and it is expected to take around 8 months once the new regime is fully implemented.

What information will be provided to homebuyers?
A two-year consumer education campaign will ensure affected homeowners have access to reliable information and will help homebuyers make sound purchase decisions. It will include information about the common pitfalls to watch for, how to identify a building at risk of leaking, what information to request when buying a new home and where to get that advice.

What about those claimants who have already settled?
People who have already settled their leaky home dispute can make a fresh application to the WHRS under the new rules, if it relates to new damage. An adjudicator will decide if the fresh claim can proceed in the WHRS.

What are the other measures being taken to transform the industry?
The government is putting in place a range of measures to transform the building and construction industry. These include the licensing of building practitioners announced in April, continued implementation of the Building Act 2004, a complete review of the Building Code, product certification and strengthening of the building consent process through accreditation and monitoring. Government is also investing $0.5m to investigate the possible benefits of mandatory home warranty insurance and the availability of professional indemnity insurance for those working in the building and construction industry. The Act has already introduced a number of measures to protect consumers, including warranties on all residential building work and a requirement for all residential property developers (or "spec" builders) to obtain a code compliance certificate before sale of the property can be completed, or a purchaser is allowed to take possession. Effectively, this makes it the developer's responsibility to fix any faults before sale.


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