Assessing the seismic risk of commercial buildings

• Published date: 19 September 2023
• Subject Matter: Real Estate and Construction, Construction & Planning
• Law Firm: Cavell Leitch
• Author: Ms Ann-Maria Buckley and Jeroen Vink

Following the Christchurch and Kaikoura earthquakes, we all became very familiar with %NBS or New Building Standard as a measure of the seismic risk of a building or how vulnerable the building is likely to be in the event of an earthquake. This regime was introduced in July 2017 with the Building (Earthquake-prone Buildings (EPB) Amendment Act 2016. New Zealand was divided into Seismic Risk Areas categorised as high, medium and low zones with different reporting requirements and timeframes to carry out upgrading work. This applies to both older buildings and more modern buildings.

Buildings below 34% NBS are considered to be Earthquake Prone. These buildings will need to be upgraded within the timeframe applying in the Seisimic Risk area in which it is located. For example, in a high risk area this means within 7 ' years of receiving an earthquake prone building notice from the Council. However, this does not mean that the building cannot be occupied. A building with a rating of between 34% and 67% is an Earthquake Risk property and is considered to be high to medium risk Above 67% is considered by many, including Lenders, as an acceptable seismic risk or low-risk. The % NBS can also impact on the use of a building. For instance, a hospital requires a higher NBS rating as it needs to remain operational in an earthquake so patients can be effectively evacuated.

Landlords and Tenants

As part of the lease negotiations, Landlord's sometimes provide a Tenant with a report which indicates what the building's NBS rating is. That way both parties are aware of how the building is likely to perform in an earthquake. This is also important to both landlords and tenants to meet their health and safety obligations. An issue that has arisen of late is that over the time of the Lease the building NBS rating may change. For example, a further event occurs or the way in which the NBS is calculated by engineers is modified. When this happens then the Landlord and Tenant are faced with a difficult situation. This is when seismic clauses, if any, in a Lease will become relevant.

Lease Provisions

Some Leases will contain a warranty from the Landlord that the building meets a certain NBS rating. This can be of use to a Tenant in satisfying its health and safety obligations. A breach of a seismic warranty does give rise to a damages claim. The Tenant may be able to cancel if the warranty is expressed as an essential term of the Lease. These clauses need to be carefully worded...