Seismic policy shift welcomed

The Government’s proposed new risk-based assessment system for earthquake-prone buildings (EPBs) has been welcomed by those working at the forefront of New Zealand’s commercial real estate sector, and owners of designated properties who have grappled with the current remediation regime.

Commenting in the latest edition of Bayleys’ Total Property, Bayleys national director commercial and industrial, Ryan Johnson, says the planned overhaul of the EPB system to focus on buildings that pose a substantive risk to human life, within identified seismic zones, is a pragmatic approach.

“The current system requiring all identified EPBs to be strengthened to at least 34 percent new building standard (NBS), regardless of geographical location, and with prescribed timelines for remediation or demolition, has proved to be unrealistic and cost-prohibitive in practice.

“Owners and investors have been frustrated with the existing cumbersome, exaggerated-risk regulations, and the inconsistency of assessments and regulatory responsibilities over the past 15 years.

“The proposed new risk-proportionate model shifts the dial considerably, with the Government expecting savings of $8.2 billion in remediation and demolition costs as a result, and the Auckland and Northland regions recategorised as having low seismic risk.”

Minister for Building and Construction, Chris Penk, told Total Property that refocusing the earthquake-prone building system to support thriving communities and the wider economy is a priority for the Government. He intends to introduce the Building (Earthquake-prone Building System Reform) Amendment Bill by the end of 2025 and expects legislation to be passed in 2026.

“The new EPB system takes a more targeted and risk-proportionate approach by focusing obligations on highly vulnerable buildings. Mitigation requirements for a building will depend on the building’s type and location, rather than achieving a percentage of NBS.

“For example, an unreinforced masonry building over three storeys high in a rural or small town may require façade securing, whereas the same type and size of building in a busier urban centre could require a full retrofit. Territorial authorities will determine which mitigation requirement applies to each EPB.

“New Zealand is a seismically active country. While we can never eliminate the risk of earthquakes, we can require action to strengthen earthquake-prone buildings in medium to high seismic hazard areas to reduce risk. The new tiered mitigation requirements will also support compliance, as they are more cost-effective and simpler for most building owners to meet.”

Cabinet has also agreed to sharpen the coverage of the Health and Safety at Work Act 2015 (HSWA) so that if duty holders comply with relevant requirements under other legislation, like the Building Act 2004, to manage health and safety risk, the HSWA does not require a higher standard for the same risk.

Justin March, partner and head of real estate at legal firm DLA Piper New Zealand, says the proposed new EPB system is positive and should be embraced with that mindset by building owners and occupiers ahead of the Bill’s introduction to Parliament.

“Generally, our advice is to pause without putting yourself in material breach of any contractual or compliance obligations. Based on publicly available information about the replacement EPB system, I would say anticipate as much as possible whether your building is likely to be an EPB, and if so, start considering contingency plans.”

“Building owners who have already committed to upgrade works because their building is currently an EPB under the NBS system, should review contractual commitments, and consider exploring the possibility of negotiating a pause until the details of the new system and legislation become clearer.”

Those owners who have undertaken or are in the process of remediating commercial buildings under the existing legislation should not expect retrospective financial redress, according to March, and he’s not optimistic about an extensive incentive regime for those owners still required to undertake works.

Regarding commercial leases that have specific mention of NBS ratings, March says the starting position is that these clauses are contractually binding, regardless of the EPB system replacement, so variations to leases may be necessary to provide for the new regime.

As to how new EPB legislation will intersect with the HSWA, March explains that the proposed reforms aim to address “over-compliance” by clarifying the boundaries between the HSWA and other regulatory systems, and the Government has stated that clear guidance will be made available to both building owners and occupiers.

March does flag concern over the potential for owners and occupiers to exceed statutory minimums required by the replacement regime, if the new methodology permits, for competitive advantage.

“For the new EPB system to work as intended, a change in attitude to seismic risk is required from a wide range of other key stakeholders such as financiers, insurers, and investors.”

Property Council New Zealand has worked tirelessly with the central government on behalf of the property sector. They have strongly advocated that the current NBS-benchmarked system for EPBs is arbitrary, confusing, and disproportionate, leaving thousands of buildings empty and communities burdened with unfair costs.

Property Council chief executive Leonie Freeman says Minister Penk’s proposal is a much-needed reset, and early feedback from the sector has been very positive.

“It is a commonsense approach to earthquake-prone buildings, still centred on preserving life, but targeting the buildings at most risk rather than a global one-size-fits-all policy.

“Having certainty and clarity around the requirements is really important so people actually know what the rules are and what they have to do.”