Councils' Duty of Care to Purchasers of Subdivided Land

The High Court at Greymouth has recently found that a council does have a case to answer where it incorrectly certifies conditions of subdivision have been met and a subsequent purchaser of the land relies on those certifications.¹

Swordfish Co Limited, a property developer, purchased land in Buller.  It was part of a three stage subdivision.  Swordfish subsequently learned that the subdivision consent had been subject to site fill and flood protection conditions (under the RMA).  These conditions had not been complied with but the Buller District Council had only registered notice of non-compliance against first stage land, not all of the land in the subdivision – including Swordfish's land.  Swordfish claimed the Council acted negligently.

The Judge at first instance had held that it was doubtful that the claim would succeed, but nevertheless was not prepared to strike it out, and the Council appealed.

The Judge, on appeal, was also not prepared to strike out the claim.  He found that the Council could owe a duty of care to a subsequent purchaser for the failure to accurately register the non-compliance notices.  Swordfish, as a subsequent purchaser, could reasonably have expected the Council to have secured compliance with conditions before title to subdivided land could issue.  It was also foreseeable that Swordfish would rely on the lack of notice of non-compliance which could have led it to believe that the land was ready for residential development.  

While the Judge identified policy hurdles for Swordfish to overcome to establish the duty (at a full hearing), he felt it would be unjust to say a duty did not exist solely because Swordfish was (or may have been) a commercial developer who had suffered economic loss only. 

This decision was given shortly before the Supreme Court's decision in the Spencer on Byron case, confirming councils owe duties of care when exercising functions under the Building Act 1991 for construction of a building containing both commercial and residential apartments.²  No doubt Swordfish, at a full hearing, will rely heavily on the Court's comments in that case.

The decision, and certainly the outcome of a full hearing of the claim, is certainly an interesting one for councils and land owners alike.  It is of particular significance to Christchurch property developers because of the increase in subdivision applications and consents.  Councils are also likely to impose more complex conditions as a result of the earthquakes (such as floor levels, site fill and compaction requirements, engineered foundations, etc).

However, the decision by no means allows a property developer to forego comprehensive due diligence when buying bare land and instead rely on the council to make sure things are right.  The Judge specifically noted that Swordfish had undertaken extensive due diligence, but was unable to discover the non-compliance.  In fact, the decision highlights that thorough due diligence is more important than ever given the potential for council errors.
 
If you are looking to purchase land to develop we recommend you talk to us to prepare a thorough due diligence investigation.  If you have already purchased land to develop and discovered defects with the title, we recommend you talk to us to review your legal options, in light of this decision (and the Spencer on Byron decision).