A Seismic Shift for Commercial Investors?

The Court Decision

The recent Court of Appeal decision in Weine Family Trust v Tadd Management has significant implications for the commercial and industrial real estate market. This decision overturned an earlier High Court ruling that allowed purchasers to rely on an initial seismic assessment of a building provided by the vendor.

The Court of Appeal ruled that an initial seismic assessment (also known as an IEP) cannot be relied upon by a purchaser, even if it’s included in the real estate agent’s information memorandum with associated representations about the building’s seismic grade.

The Importance of Seismic Ratings

Seismic ratings are a very important part of due diligence in commercial and industrial property transactions. The Court’s decision means purchasers cannot rely on initial seismic assessments, which could make those documents effectively useless. However, this is beneficial for consulting engineers, as detailed seismic assessments can cost thousands of dollars, depending on the building’s complexity.

Impact on the Commercial Real Estate Market

Although the Court’s decision favoured the vendor in this case, it may slow down the market. Many purchasers might be hesitant to pay for a detailed seismic assessment, especially if it reveals the building is less than 67% NBS (a standard many tenants require) or worse, less than 34% NBS, making it earthquake-prone.

We find consulting engineers can have differing opinions and methods for determining seismic grades, which can lead to disputes. Careful and practical legal advice can help avoid these issues before contracts are signed.

Feel free to contact Hamish Murray one of our commercial property experts to discuss your concerns and get the support you need.