This year we have seen several tenants make high-profile decisions to vacate premises that have been identified as having seismic weaknesses.
With its Seismic Risk Guidance for Buildings, the Ministry of Business, Innovation & Employment (MBIE) is sending a clear message that a decision to vacate a seismically-vulnerable building should be a decision of last resort, and one based on a full assessment of the seismic risk, not just an NBS rating.
We support that approach. We encourage users, tenants and owners to investigate and analyse the seismic risk of a building when they are deciding to not only continue occupying a building, but when they are also looking at buying a building or leasing new premises.
Below we summarise the key messages from the Guidance, we explore how building owners and occupiers might put into practice the Guidance, and we identify the potential challenges.
The Guidance is a comprehensive guide to decisions about whether to continue to occupy a seismically-vulnerable building
The Guidance (which is not legally binding) is intended to bring greater clarity and consistency of approach to decisions on whether to continue occupying seismically vulnerable buildings (which includes earthquake-prone buildings, of which there are currently around 4,200 nationwide). In its 24 pages, the Guidance:
- explains in detail seismic assessments of buildings and NBS ratings (Part A);
- sets out a step-by-step process to follow for making occupancy decisions for seismically vulnerable buildings (Part B); and
- recommends how to manage ongoing earthquake risk and communicating with staff (Part C).
The Guidance encourages parties not to focus on the number – the %NBS number, that is – and undertake a comprehensive risk assessment
The key messages from the Guidance are:
- a low NBS rating does not mean that the building is imminently dangerous;
- compared to most business-as-usual risks, earthquakes are a low probability;
- in most cases, a seismically-vulnerable building can be occupied while you plan, fund and then undertake seismic remediation work;
- landlords and tenants need to look at the relative risk and vulnerability of different building elements, and potential consequences of failure of these elements, rather than the overall % NBS rating for a building;
- owners and occupiers need to think about the adverse consequences of building closure (disruption to staff, customers, community) balanced against continuing to occupy a seismically vulnerable building;
- rather than vacate, owners and occupiers should look to mitigate risk to building users/staff through emergency planning and training as well as restraining plant, services and contents within the building;
- occupancy decisions should be made only after all relevant information about the building has been obtained and an engineering assessment – preferably a Detailed Seismic Assessment (DSA) – has been independently reviewed and finalised.
The Guidance will also be relevant to those who are looking to take a new lease in a building, or to buy into a building
Although the Guidance is aimed at owners and occupiers making decisions about their existing interests, the Guidance should also be considered in relation to new interests – when a party is looking at taking up a new lease, or may be looking to buy a new building.
It will also be relevant to owners looking to sell a building, in terms of their approach to disclosure and vendor due diligence.
Beyond the MBIE Guidance: Practical issues for occupants to consider
The MBIE Guidance is focussed on providing a risk assessment framework and associated insights for those making occupancy decisions. There are other practical considerations to bear in mind, including:
- Potential reputational risk (or perceived reputational risk) for occupiers continuing to stay in earthquake-prone buildings. In our experience, this has been an influential factor for many tenants who have taken a stance on seismic risk and where they feel comfortable (usually based on a %NBS rating) – especially given the recent employer focus on staff wellbeing. Public sentiment in respect of earthquake-prone buildings may, however, change following the Guidance.
- The complexities of the landlord-tenant relationship, and what a tenant should do if it is dealing with a landlord that does not wish to engage. For example, unless the lease provides a clear pathway requiring the landlord to engage and, if necessary, obtain or pay for a DSA, or allow access so that a DSA can be completed, tenants may find themselves in a difficult position if they don’t have the co-operation of their landlord.
- A DSA will take months to obtain, let alone be peer-reviewed. This timeframe does not align with many “normal” deal timeframes or decisions on whether to continue occupying the building. Cost may also be prohibitive for some businesses.
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