What if Council information is wrong?

by | Mar 21, 2012 | General property Law

I once heard a story about a property developer who purchased a property for residential redevelopment. Integral to the due diligence investigations was a LIM which clearly identified the location of services.  Services were in a convenient position to enable redevelopment and the developer in our story proceeded in reliance on the Council records he had been provided with. It was not until one home had been demolished and diggers were on-site that the truth of the situation was discovered. There were no services running in the locations depicted on the LIM plans.  In fact, there were no such services at all.

This is an extreme example of how sometimes Councils do get information wrong.  Often Councils will include a waiver of liability on a LIM but the question arises – is that really good enough?

The Supreme Court recently had cause to examine similar issues.  This time they concerned the transfer of water rights for a vineyard in Marlborough.

Water rights are valuable and no more so when acquiring land to plant a vineyard.  In 2004 Altimarloch Joint Venture Limited bought land in Marlborough.  Both the agent for the vendor and the Council represented that the vendor could transfer class A water rights for the extraction of 1500 cubic metres of water per day.  The water was imperative if the grapes the buyer intended to plant were to survive.

The representations were made by the Council through information set out in a LIM.  They were wrong.  The information was not up to date.  The seller only had consent to take 750 cubic metres of water per day.  That was not discovered until just after settlement.

The dispute about liability for consequent loss has been working its way through the courts and earlier this month the Supreme Court decision was delivered.  The decision is 95 pages long and deals in detail with the assessment of damages, but what is of particular interest is how the court dealt with the Council’s obligation to the purchaser.

The court closely examined the statutory obligation to provide a LIM.  They did this to determine whether the Council owed a duty of care to Altimarloch.  They decided it did.  The information about the water rights fell within the list of information Council was required to provide on a LIM request.  The court recognised that anyone purchasing a LIM was entitled to rely on the provision of correct information – at least to the extent the Council is required to provide that information.  It was reasonable and foreseeable that the buyer would rely on the water rights information and that, as a matter of policy, should impose a duty of care on the person providing the information.

No doubt the Altimarloch decision would have been very useful to the property developer who mislaid his service lines.

By Debra Dorrington