The Christchurch earthquakes and structural failure of the PGC, Forsyth Barr, CTV and Hotel Grand Chancellor buildings has recently drawn attention to the obligations imposed by the Health and Safety in Employment Act 1992 (HSE Act) in relation to earthquake-prone buildings.
The risk of a building collapsing in a serious earthquake presents significant challenges for employers, building owners and tenants.
Merely ensuring buildings are not classified as "earthquake-prone" under the Building Act 2004 is unlikely to be enough to comply with the higher standards required by the HSE Act to take "all practicable steps" to minimise hazards in the workplace.
Building owners, tenants and employers should assess the buildings they occupy or own to identify earthquake risk and, if necessary, consider improving the structural performance of buildings to ensure compliance with the HSE Act. Failing to take adequate steps to protect employees, customers and other third parties from this risk may result in criminal liability under the HSE Act.
Obligations under the HSE Act
The HSE Act provides a broad framework for managing the health and safety of those involved in work activities. While the primary focus of the HSE Act is on employers, there are a number of other duty-holders who may be liable under the HSE Act. Landlords and tenants may owe duties in various capacities, including as an employer, principal or "person in control of a place of work". In particular, a "person in control of a place of work" includes building owners, tenants, occupiers and persons in possession of a workplace.
Duty holders under the HSE Act must ensure they have an "effective method" for identifying the risk of serious harm, and take "all practicable steps" to protect employees, customers, and other third parties from that harm.
While the obligation to take "all practicable steps" is a high standard, the phrase does not mean "complete protection". What the "all practicable steps" test requires in any particular case is a question of fact and degree, which requires the duty holder to engage in a balancing exercise - weighing the risk of serious harm, the options for minimising the risk, the applicable standards and the likely costs. Industry standards and best practice guidelines will likely be relevant. The resources of the duty holder are also relevant when weighing up what steps are practicable.
"Earthquake-prone buildings" under the Building Act 2004 regime
The Building Act classifies earthquake risk by a percentage of the seismic design load for a new building. Buildings achieving less than 33% of New Building Standard or Code are deemed "earthquake-prone buildings". An earthquake-prone building would "have its ultimate capacity exceeded in a moderate earthquake" and "would be likely to collapse" causing injury, death or damage to any other property. Councils may require improvements to "earthquake-prone buildings" by issuing a section 124 notice.
Buildings that achieve between 33-67% percent of Code are deemed "earthquake risk buildings". Currently under the Building Act, no further improvements are required. Unfortunately, complying with the minimum standards of the Building Act does not necessarily mean compliance with the HSE Act. In our view, a court is likely to conclude that the "all practicable steps" threshold in the HSE Act imposes a higher standard on duty holders than that imposed under the Building Act.
The landlord and tenant relationship
The landlord's obligation to undertake earthquake strengthening work, under the Building Act or the HSA Act, will generally not be addressed under most commercial leases. In most cases the lease will not require a landlord to undertake the work, because the landlord's contractual obligation in relation to the building is likely to be limited to keeping the building in good repair. The tenant is unlikely, therefore, to be able to compel the landlord to strengthen the building even if it is earthquake prone for the purposes of the Building Act.
Each council in New Zealand has adopted a policy on buildings which are (amongst other things) earthquake prone. Each of these policies set out timelines for the strengthening of earthquake prone buildings in their area. The time frames within which work must be undertaken vary from council to council (and vary for different types of buildings) but generally speaking building owners have a number of years in which to complete work. In Auckland, for instance, owners have a maximum of thirty years (depending on the type of building) in which to strengthen a building.
Where the landlord does undertake strengthening works it is unlikely to be able to recover any part of the costs of the work from the tenant, unless the work is undertaken after the council has served a section 124 notice on the tenant pursuant to the Building Act. If a notice has been served the landlord may be able to charge the tenant an additional rent (calculated as a percentage of the cost of the strengthening works) although that additional rent may only be chargeable until the next rent review. The council, however, may not serve a notice unless the building is dangerous or it appears that the owner is not intending to comply with the time frame in the council's policy.
We are starting to see some tenants requiring a landlord to agree to carry out earthquake strengthening works before a right of renewal is exercised or a new lease is negotiated. Some tenants are also vacating earthquake prone buildings while negotiating with the landlord for the necessary works to be completed. If a tenant elects to vacate a building then it will usually be obliged to continue to pay the rent.
Offences under the HSE Act
There are two types of offences under the HSE Act. The first offence is where there is a failure to comply with the HSE Act and serious harm results. The HSE Act deems this to be a strict liability offence, and a person convicted of this offence faces a fine of up to $250,000.
The second offence occurs when a person takes an action, or does not take an action, knowing that it is reasonably likely to cause death or serious harm. The offender may be fined up to $500,000 and imprisoned for a term not exceeding 2 years.
Directors may be exposed to potential secondary liability where they have authorised or participated in the failure of a body corporate to comply with a provision of the HSE Act.
What duty holders can do to ensure compliance with the HSE Act
To increase the likelihood of compliance with the HSE, you should address:
the structural integrity of the buildings that you own or occupy, so as to protect employees customers and third parties from the risk of death or serious harm from collapsing buildings;
internal hazards arising out of the fit-out (e.g. securing shelving, providing adequate emergency lighting); and
your response capability in the event of an earthquake under business continuity plans, including appropriate training.
Employers and other duty holders should view these assessments as a dynamic exercise, which will need to adapt to any new lessons arising out of the Canterbury Earthquakes Royal Commission and any changes to the standards in the Building Code.
Given the widespread damage and deaths arising from the Christchurch earthquakes, a court is likely to conclude that all employers and owners are now on notice that buildings may be a source of serious harm, and therefore may amount to a significant hazard to employees, customers and other third parties.
For further information, please contact your usual Bell Gully adviser or:
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.