The hidden cost of ignoring building seismic requirements

Sales and leasing below market value

Examples are emerging, including in Auckland, where potential high-value corporate clients are refusing to lease or buy properties that have a poor NBS rating result or an insufficient remedial action plan that may arise from that assessment.

In short, buildings without an adequate NBS rating and necessary earthquake-proofing will be harder to rent, and landlords will have to settle for less than market rates. Not only that but properties with a poor NBS score can also expected to fetch below-market sales prices.

Director liability and insurance

There are two primary reasons for the depreciation of the asset (notwithstanding the potential costs for a new owner to bring a property up to compliance):

• Health and safety requirements that become a director liability.
• Insurance requirements could mean properties with a low NBS rating may be refused insurance or face higher premiums.

Health and Safety

Landlords are PCBU’s of workplace buildings and are required by the Act to identify and manage risks in the workplace. Responsibility rests squarely on the shoulders of building owners. Seismic activity is a part of that hazard identification. Would you take the risk?
High-value tenants are motivated by acceptable New Building Standard (NBS) ratings of more than 67%—anything less could lose a new tenant or, as discussed, be used as strong leverage in a negotiation.

The same responsibility applies to a leaseholder, who is also a PCBU, and is tasked with the health and safety of staff, clients, and other users.

Insurance

The insurance industry has learned its lessons from the Christchurch earthquakes and is already talking about making the New Building Standard (NBS) compulsory, with the Insurance Council of New Zealand noting that insurers have reassessed projected claims costs based on previous experience.

After Canterbury and Kaikōura, insurers paid out for property damage but also had to pay for loss of business for organisations affected by damaged buildings. The costs were far greater than expected—2nd highest payout in the world—so they will need to mitigate risk moving forward.

Confused by cryptic engineering reports?

If you’re confused by complicated engineering and conflicting engineering reports, talk to gridlineNZ for seismic consulting because our business is not only providing clarity and advice on engineering reports, but also mapping out the road to compliance.