Property Knowledge Series: Leaky Buildings

This is the first in a ten part series to help update your knowledge in property investing.

This series will look at leaky buildings, something that is a taboo topic because although we hear a lot of war stories, NZ hasn’t got a solution to combat leaky buildings.

What is a leaky building? A leaky building is one where moisture gets between the outside of the house (the cladding) and the inside walls. Generally, they are associated with plaster cladding. If water seeps in through a crack and there is no place for the water to drain out, the water becomes trapped. The walls can potentially rot and dangerous fungus can grow, causing structural problems for the building and health problems for those who live there. Buildings that have a high risk of leaking were mostly built between the late 1980s and the mid-2000s, using plaster-style monolithic cladding systems.

Before you buy a house with monolithic cladding, it is always advised to get a house inspection done. Usually, the house inspector can only do a visual external inspection and so won’t be able to give you a concrete answer. But pay attention in their report to issues such as

  1. Cracking in cladding:  typically found close to windows and doors,
  2. Joinery: Check for cracks along the joinery seals between the joinery and the cladding
  3. Flashing or the Lack of flashing near pipes, vents
  4. Windows: Check window flashings
  5. Enclosed balconies: can trap water and lack of drainage holes allowing water to pool after rain.

From a buyer’s perspective, there are really two types of leaky buildings: the first group includes all the leaky buildings and that are publicly known to have some sort of weathertightness issues and are on the bank’s blacklist. The second group are buildings, houses, and apartments that you found out have a weathertightness issue after you have bought (and perhaps moved in already).

The first group are best avoided unless you have formed a calculated risk that you can win compensation from the developer or in many cases, the council organisation which certified the building. If you choose to buy a property you know is leaky or has a high risk of becoming leaky, make sure you have a contingency plan to fix the issue and have an idea of how long it will take and where you will be living during the time it takes to fix it up.

The second group is a bit more tricky. You want to avoid purchasing properties that could be a leaky building. But what happens if you bought something that you thought was up to standard but later you discover to be a leaky building?

If you find yourself in this situation, you have to calculate whether it’s worth going after the developer. Sometimes the legal fees can run into hundreds of thousands of dollars (if it goes to court and then gets appealed) and it may be better to fund the remedy yourself.

The world of real estate can be exciting but always be on the lookout for common pitfalls and traps such as leaky buildings.

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