Nearly six years since the Kaikōura earthquake, the Ministry of Business, Innovation & Employment (MBIE) has issued refreshing guidance to assist owners, purchasers and tenants when making occupancy decisions – Seismic Risk Guidance for Buildings, MBIE, July 2022.

MBIE’s guidance comes at a pertinent time. The Ministry of Education (MOE) vacated Mātauranga House in May this year after obtaining a seismic rating of 25% NBS. Before that, in July 2021, Inland Revenue (IR) vacated its premises also due to seismic risks.

Keep calm and carry on

Despite these recent moves from large Crown tenants, the overwhelming message from MBIE is keep calm and carry on. MBIE says that ‘a low %NBS rating is no need for alarm or immediate action. The life safety risk is still very low.’ Large earthquakes are rare (1 in 500 years). Smaller shakes like Kaikōura will only cause a few buildings to fail. Wellington had over 700 earthquake-prone buildings at the time and damage was relatively limited.

MBIE’s advice is that buildings should not be vacated unless the circumstances are compelling. Vacating a building can be justified based on:

• For earthquake-prone buildings (<34%NBS): The Building Act timeframes, accelerated only to the extent that the exposure of people to building vulnerabilities present an increasing life safety risk.
• For all other buildings: A sliding scale of life safety risk and consequences of closure, where vacating a building is only justified if the life safety risk is high and the consequences of closure are low.

Whether MBIE has quite got the balance right, particularly having regard to the Health and Safety at Work Act 2015, is a matter for debate. But their general approach that vacating buildings needs to be considered very carefully is certainly sensible.

MBIE strongly encourages mitigation measures to reduce life safety risk in buildings. Mitigation may involve limiting access to certain areas, addressing non-structural elements or staged strengthening works.

An example given is a large multi-storey office building with precast floors at 30%NBS. While the guidance does not conclude whether or not the building should be vacated, MBIE does conclude that there is a high exposure of people to building vulnerabilities – e.g. 200 person occupancy for 8 hours a day. In this example, MBIE suggests mitigating the risk by moving desks away from high risk areas in building corners, where possible. We note the similarity between this example and MOE’s building, which is 25%NBS due to concrete floors, although the examples are illustrative only.

De-emphasising NBS percentages

MBIE’s guidance dampens the emphasis placed on NBS percentages by many New Zealanders and it does so convincingly. MBIE advises that NBS percentages simply measure the worst performing element of a building (the ‘Critical Structural Weakness’). It is a metric that specifically developed to support the earthquake-prone building provisions of the Building Act 2004 introduced after the 2011 Christchurch earthquake.

MBIE clearly intends to force attention away from NBS percentages, and says ‘Understanding the relative vulnerability of different building elements, and potential consequences of failure, is always more important than the overall %NBS for a building.’

MBIE reminds us that earthquakes are rare and the risk of fatality due to building failure in an earthquake is low. A 100%NBS new build is designed with a 1 in 1,000,000 annual fatality rate. An earthquake-prone building (<34% NBS) is estimated to have a 1 in 40,000-100,000 annual fatality risk. These figures are compared with the risks of aeroplane travel (1 in 700,000) and car travel (1 in 20,000).

What does this mean for owners, purchasers and tenants?

From a legal perspective, we have identified the following key takeaways from MBIE’s guidance:

• MBIE makes a good case to shift emphasis away from NBS percentages towards due diligence and, when needed, specialist engineering advice. This has always been a key factor in considering the safety of ongoing occupancy. In particular, we agree with the recommendation to obtain a peer review of engineering designs when purchasing or leasing a restrengthened existing building from a developer (depending on the value).
• Our view is that warranties for a developer to achieve a particular NBS% are still relevant, but are not the be-all and end-all.
• As we have noted previously, without specific earthquake clauses in a commercial lease, tenants generally cannot claim a rent abatement or terminate the lease just because the building drops below a particular NBS% or presents particular building vulnerabilities (unless there is a ‘defect’). Likewise, a landlord generally cannot carry out discretionary strengthening works if that would interfere with their tenant’s use of the premises or require the tenant to move out.
• We anticipate that the earthquake provisions in the Government Standard Deed of Lease will come under close scrutiny and landlords will presumably insist that Crown tenants abide by MBIE’s advice.
• It goes without saying that the Crown is the biggest player in the Wellington commercial office leasing market and MBIE’s guidance, whether deliberate or not, is aimed at Crown tenants. Knee-jerk reactions to seismic assessments – vacating premises or, worse, terminating leases – can make for an uneasy property market.

Overall, we welcome MBIE’s guidance as a rational response to pacify some residual anxiety in the property market since Kaikōura. However, assessing major questions such as whether to vacate earthquake prone buildings is a complex process.

If you are an investor, developer, landlord or tenant or anyone else with an interest in seismic issues and need help navigating these issues from a legal perspective, please get in touch with our Property and Construction experts Paul Holth and Oliver Hobbs or our Health and Safety expert Greg Cain.