Damages more than doubled after couples landmark leaky building win
A couple who bought a leaky home after being told repeatedly that there were no weathertightness issues and no unconsented building work have won a landmark judgment which more than doubles their damages to reflect the cost of repair, rather than loss in value. In a decision on 13 May 2026 (Rahal v Bhargav [2026] NZCA 176), the New Zealand Court of Appeal dismissed the appeal and upheld Mr Bhargav and Ms Khajuria’s cross-appeal regarding how to calculate damages for a successful breach the Fair Trading Act 1986 (FTA) claim.
FTA damages
The High Court held that the issue was the making of false representations. The Judge gave a simple explanation why the correct measure of damages should be the loss in value rather than the cost of repair. While the property suffered from defects which required additional expenditure of $688,000, the property with defects which the seller failed to disclose was worth $480,000. So, the cost of repair was $688k but the loss in value was $185k (being the difference between the purchase price paid of $665k and the value of the property, which was only land value of $480k). Having bought it, the buyers had an asset worth $480k (less demolition costs), which they could spend $688k repairing it if they wish or they could sell it for $480k (less demolition). The Court also awarded an additional $85,000 for a loss of opportunity to buy another property, bringing the damages to $270k.
The Court of Appeal rejected this analysis. It was a fiction, given the property was essentially unsaleable. The buyers were effectively trapped in negatived equity and could not afford to sell the property. They had no choice but to live in the property and repair it. In the Court’s view, Mr Rahal was liable in damages for the loss or damage in fact caused by the breach of the s 9 duty not to mislead. That is, for the losses they – the buyers – suffered from being locked into ownership of the property, including the estimated cost of remedial work, plus $103,107 of consequential losses incurred as a result of the misrepresentation.
This, not the loss on any notional resale, was the correct measure of the loss or damage caused by the breach of the s 9 duty not to mislead. It set aside the awards of $270,000 (including GST) for breach of the FTA and $51,840 for consequential losses and substituted $688,868.40 (including GST) and $103,107 respectively.
An interesting footnote – general damages
The High Court Judge also awarded $80,000 for general (aka ‘stress’) damages under the FTA (seemingly, to offset the reduced damages based on loss in value). In the Court of Appeal’s view, this too was an error. There was no principled basis for departing from the approach taken in recent, comparable authorities.
Without detracting from the discretion of a trial judge to “do justice in the individual case”, the Court of Appeal suggested awards of general damages for non‑economic loss in leaky building cases should be updated to May 2024 on the basis that (a) $21,000 is appropriate per unit, or dwelling, for non-occupiers; and (b) $35,000 is appropriate per unit, or dwelling, for occupiers – up from $15,000 and $25,000, respectively. It set aside the $80,000 award and substituted $35,000 for generals. This is welcome confirmation of the approach in MacFarlane v Informed House Inspections Ltd – a case in which DW acted for the plaintiff.
This is not legal advice.
Thanks to Eilis Daily, Law Clerk for a draft of this Insight.