Litigation over leaky buildings is on the rise over the last 12 months, particularly in Melbourne and Canberra. Be it leaky balconies, leaky planter boxes or leaks emanating from common property, a trend is emerging and it does not bode well.

Leaky building claims are very costly as water damage and water penetration can be very destructive. Water invasiveness has little respect for the integrity of the as-built product.

Water damage corrupts most construction elements, regardless of whether it is wood, joinery, electrical interface or fabric. If it impacts upon the integrity of joinery or balconies, key elements of the building can fail. Rust on external balconies or concrete flaking can culminate in balcony collapse, which, needless to say, poses a public danger.

Moreover, it is so often incredibly difficult to identify the specific source and the remedy, hence the exorbitant costs of both rectification and litigation.

The leaky building syndrome in New Zealand

Australia has not experienced the maelstrom that was and is the leaky building syndrome that has devastated the New Zealand construction landscape for nearly two decades. Leaky buildings in New Zealand, euphemistically called “Leakies” since 1994, have culminated in many billions of dollars worth of damage to New Zealand buildings. The magnitude of the leaky building crisis culminated in the establishment of a bespoke tribunal, the “Weathertight Homes Tribunal” that was established to deal exclusively with leaky homes claims.

A Price Waterhouse Coopers report released in December 2009 revealed that 42,000 dwellings in New Zealand built between 1992 and 2008 were potentially implicated in the leaky building web. Furthermore, the same report stated that the remediation costs in 2008 NZ Dollars was some $11.3 billion.

Australia has not to date experienced a calamity of that magnitude with respect to leaky homes, but there are more and more complaints and reports of leaky buildings particularly in a multi-unit and high rise setting.

Labyrinthine body corporate litigation

There is unfortunately a proliferation of cases where extensive water penetration is adversely affecting multi-unit apartment blocks. Ordinarily this involves the intervention of bodies corporate as water malaise cases tend to be of both a common property and individual unit title derivation. This leads to very complex and labyrinthine litigation as the body corporate invariably has to ‘hunt in packs’, as it were, with a cluster of unit holders.

The law of nuisance and how apartment owners can be on the hook

Equally problematic in the multi-unit setting is the application of the law of nuisance. Regardless of whether the cause of water ingress migration is of the defective workmanship or burst pipe derivation, if water migrates from one apartment to another, then the owner of the source apartment can be found liable for causing and alternatively not arresting the nuisance. Hence, if you own an apartment and you have a burst pipe, and water seeps into the apartment below or next door causing damage, then you will be liable for the damages that flow from that nuisance. Unfair? Yes, but that is the law.

The dangers of toxic mould

The most sinister aspect of water damage cases, however, is not the immense cost regarding diagnosis and protracted litigation; it is the potential for there to be an environment that is conducive to the growth and proliferation of toxic mould. Illness that emanates from toxic mould can, to reiterate, be life-threatening and can take a case into the public liability realm.

In 2004 the Institute of Medicine (IOM) found there was sufficient evidence to link indoor exposure to mould with upper respiratory tract symptoms, cough and wheeze in otherwise healthy people; with asthma symptoms in people with asthma; and with hypersensitivity pneumonitis in individuals susceptible to that immune-mediated condition. The IOM also found limited or suggestive evidence linking indoor mould exposure and respiratory illness in otherwise healthy children.

Types and cause of toxic mould

Mould, according to the Centres for Disease Control and Prevention, has a tendency to proliferate in warm, damp, humid conditions. Needless to say, water damaged environments, regardless of whether they are residential abodes or commercial or civil buildings, can create an environment conducive to the growth and spread of mould. More ominous is the circulation of airborne spores, particularly in air conditioned environments, where the air conditioning systems abet the airborne circulation and transportation of spores in an internal environment.

The most common types of mould are:

  • Cladosporium
  • Penicillium
  • Alternaria
  • Aspergillus

Types of illnesses that can emanate from toxic mould include:

  • Eye irritation
  • Skin irritation
  • Fever
  • Shortness of breath
  • Chronic lung disease
  • Obstructive lung disease
  • Hay fever
  • Chronic obstructive pulmonary disorder

Toxic mould litigation

There has been some litigation, particularly in the US, in circumstances where plaintiffs have contracted serious lung conditions due to toxic mould. With regard to Australia, there do not seem to be any cases that have run to conclusion that one can readily cite, but this is probably due to the fact that many cases that are initiated for illnesses that emanate from toxic mould are conceivably settled before trial, hence, the dearth of local precedents.

An American case that ran to conclusion was Mazza vs Schurtz No. 00A S04795 (Sacramento County, Cal. Super. Ct.).

This case was decided by a jury, and the plaintiffs, Darren and Marcie Mazza, were successful in receiving an award for damages of $2.7 million.  A decision was handed down in November, 2001.

The respondents were owners and managers of apartments. It was alleged by the plaintiffs that the respondents failed to act upon complaints with respect to water penetration and mould growth in the plaintiffs’ abode. Readings taken of the atmospheric toxicity established that there were problematic levels of stachybotrys, aspergillus and penicillium. The plaintiffs gave evidence that both themselves and their child had been compelled to attend hospital on a number of occasions on account of the mould induced toxicity.

There were a number of elements to the plaintiffs’ case which comprised negligence, contractual and warranty breach, nuisance, emotional distress, and eviction. The plaintiffs were successful on all accounts.

Another pertinent case, albeit one that did not run to conclusion, is that relating to an American celebrity, one Ed McMahon.

In May, 2003, the Los Angeles Times reported that respondent insurers settled a case in circumstances where Ed McMahon initiated legal proceedings for toxic mould-induced sickness for the amount of $7.2 million.

McMahon and his spouse alleged that they contracted deleterious respiratory complaints on account of a toxic mould manifestation, as did their dog. The manifestation originated from a burst pipe and the LA Times reported that the contagion spread through the air conditioning system into closets contaminating, amongst other things, their clothes.

We are starting to see the emergence of toxic mould litigation in the antipodes. Indeed, we are aware of circumstances where property owners have had to vacate abodes on account of the presence of toxic mould.

In one instance, the landlord – a young professional woman – was in the invidious position of not being able to rent her property out on account of what were considered to be unhealthy spore level readings. The property owner granted approval for the tenant to vacate the premises in light of her regard for the tenant’s future well-being were the tenant to stay long term.

There is an emerging new paradigm in Australia, one where more and more leaky buildings are coming to the fore. There are many issues to consider when grappling with a leaky building regardless of whether the context is the home setting, a workplace setting or a multi-unit development setting. The questions of which actors are responsible, which insurance policies respond and the issue of how a leaky building environment will ‘gestate’ are all challenging issues. In concluding this piece, the writer has formulated some pointers on how to progress the resolution of a ‘leaky.’

So what to do if one is beset with ‘a leaky’ as they are called in NZ

  1. Act with alacrity; if you are insured, contact your broker to check to see whether the insurance policy responds. If in doubt, see a lawyer pronto and have the policy explained to you.
  2. Regardless, act fast to ensure that remedial measures are brought to bear to arrest the problem as much as possible. If you are in a multi-unit development, remember the law of nuisance – you need to endeavour to ensure that the water flow does not migrate to neighbouring properties.
  3. Get an appropriately qualified water damage expert into do a report post-haste. Then give the report to your insurer or your solicitor.
  4. Ensure that there is an assessment of mould spore count; ensure that the abode is safe to live in. Further, before you settle any claim where there has been a mould manifestation, get a sign-off from an expert on mould pathology to verify that the mould and any toxic elements have been comprehensively and conclusively eradicated. This is critical.
  5. In circumstances where those responsible for the defective dynamic that culminated in a water damage paradigm refuse to come to the party and rectify the defect, bite the bullet and engage a reputable construction law firm. It will cost and it will take time, and anyone who suggests otherwise is someone disposed to economy with candour.
  6. Finally, do not accept a solution that fails to totally fix the problem. There are no Band-Aid quick fixes for leaky buildings. Close enough is not good enough, so do not be hoodwinked into a less-than-complete solution. Alas, such resolve will take time and will require fortitude and extraordinary patience but in the long run it’s the only way to go.
  • Excellent article Kim,

    Most informative and a great start for those people affected or soon to be affected by toxic mould.

    I bet there will be enormous pressure brought to bear by big business regarding apartment buildings if anyone attempts to have the Nuisance Act changed even though as you say it is unfair. I wonder why big business developments are not required to be covered by building warranty insurance as are new homes… although the present last resort VMIA insurance is only 2% insurance and 98% rip-off… and needs to revert to the first resort insurance it was up until 2002.

  • The damages handed down were for 2.7 million not 2.7 billion

  • I concur with Kim, leaky building litigation is on the rise as we have a number of files on point. The sub-strain of "toxic mould" litigation is becoming more prevalent along the eastern seaboard of Australia. I read yesterday that a class action is being issued where this is one of the elements of the cause of action. I also note the correction that Kim refers to as damages were indeed $2.7 million in the above mentioned case, not $2.7 billion.

    I sincerely hope that Australia is not encountering the dawn of New Zealand's 'leaky building syndrome'. The last thing we want is the 'leaky' euphemism applying to Australia.

  • Kim,

    An excellent and timely article. Unfortunately the NZ leaky building syndrome is well and truly here now in south-east Australia. For example, I am currently working on 4 projects with significant mould and all are less than 8 years old. I have other projects that are not quite this old, but show some evidence of mould after only one or two winters.
    Essentially the issue is two-fold; a failure to prepare or require an appropriate performance solution for weatherproofing of external cladding systems (required for all buildings under the national building code that use foam or other non-traditional cladding systems), and then a failure to apply appropriate construction standards to the cladding system when installed. I am seeing on some projects potential rectification costs that exceed the original construction cost, so New Zealand estimates that it was a total cost to their economy of $23 billion should be a strong warning to us all.

  • Kim, this is a great article to begin this discussion again.
    There will be a great problem in Australia where efforts to increase energy efficiency through more insulation and air tightness will lead to ever-greater problems if they are not paired with concerted effort to improve construction quality. We have been suggesting that a blower door air tightness test (in the building code in much of the developed world) would be a very small step in the right direction because it is a quantifiable evaluation of building sealing. It is completely true that the first priority should be attention to waterproofing, but currently there is no evaluation of building sealing at all, let alone a quantifiable number like an air leakage limit. But in the U.S. where a majority of states now have blower door testing in their codes, the test is seen as a simple step towards awareness and accountability for construction integrity. Do you think it would be valuable for Australia?