TwentyTwo were recently involved in helping a client to search for and lease new premises in Auckland. The client had a range of criteria including a seismic rating that we used to filter and shortlist potential options. We found a site that met all of their criteria, which reportedly had a seismic rating of 70% New Building Standard (NBS). This rating was based on a Detailed Seismic Assessment (DSA) completed in 2013.

A standard part of our due diligence process is to investigate, test and validate information and accordingly, with the clients support, we engaged a third-party engineer to “peer review” the DSA. In turn, the Landlord’s original engineering firm reassessed the building and provided a new DSA report.

The revised assessment returned an NBS rating of less than 50%. “What?!” I hear you ask… That's right, the same building that had previously been assessed at 70% NBS was now below 50% NBS. Before jumping to any conclusions, let’s take a step back and see what’s going on here…

Seismic performance of a building can be a confusing and controversial topic that we are confronted with daily in our role helping clients (individuals, businesses, Iwi, local government) make better property decisions. Clients want their workplaces to be safe and have minimal disruption after a seismic event.

While we’re not structural engineers, part of our role is taking complex information and making it digestible and insightful. So, to provide some clarity around seismic assessments and reporting I ventured out and spoke with three independent structural engineering firms and asked them…

“If you were advising an occupant considering leasing an existing building, what are the key points you would encourage them to ask before signing up for a new lease?”

Here’s what they had to say.

Brian Jones, Managing Director, Hampton Jones

What report was used to assess the buildings seismic rating?

“If it’s an IEP report (Initial Evaluation Procedure), take the rating with a pinch of salt and have it checked. If it’s a DSA (Detailed Seismic Assessment), check if it is was prepared pre or post November 2018.

The Kaikoura and Wellington earthquakes have led to a number of guideline changes in response to learnings made after each event.”

Matt Davies, Associate, Dunning Thornton Consultants Ltd

When was the latest assessment completed? Guideline changes to consider.

“The guidelines for assessing existing buildings were revised in July 2017 and a normative revision was released in October 2018  to address the issues associated with precast concrete floor systems (e.g. “Dycore”) that were popular in the ‘70s and ‘80s.  Seismic assessments completed prior to this should be refreshed to ensure they align with the latest legislation.”

%NBS relates to the building’s ultimate strength. What level of damage is expected in smaller earthquakes?

“Building contents such as windows, ceilings, and air conditioning can be badly affected in smaller earthquakes, and some buildings will begin to accumulate structural damage during small earthquakes.  This does not get taken into account when calculating the %NBS but it is an important consideration if business continuity is required by the tenant.  Some newer buildings incorporate base isolation technology which protects the structure during smaller earthquakes.”

Was the assessment completed by a reputable engineering consultancy with experience in the seismic assessment of similar buildings?

“The seismic assessment of existing buildings is a complex task that requires in-depth engineering knowledge, judgment and experience.  If in doubt about the assessing engineer’s experience, consider getting a peer review from another engineer.  In the event that there are multiple assessment reports with differing conclusions, Engineering NZ (formerly IPENZ) now offer a resolution service where they work with the engineers to bring them into agreement.”

John Wong, Structural Team Leader, Calibre 

 Is the building brick or unreinforced masonry (URM) and un-strengthened?

“URM structures perform poorly in earthquakes as parts of masonry can break away from the building, and entire parapets or parts of the façade can collapse onto the ground. These are the most hazardous buildings and caused the most fatalities,  outside of the CTV and PGG buildings, during the Christchurch earthquake, although most were just outside the buildings as parapets, chimneys and facades fell.”

Are the non-structural elements (such as ceilings, partitions, services, etc.) adequately seismically restrained?

Non-structural elements can be hazardous to occupants and block egress routes, as well as cause disproportionate delays in reoccupying buildings following an earthquake. Failures of non-structural elements are a major component of the post-earthquake repair cost that can significantly disrupt businesses and their staff while repairs take place. Often these features are added after the building has had its Code Compliance Certificate (CCC) issued, without sufficient thought to the risks they pose in a seismic event.”

How will the stairs perform in an earthquake? 

“The damaging earthquakes in Christchurch and Wellington have highlighted many cases of the poor performance of secondary structural elements (such as stairs), particularly in multi-storey buildings. Stairs need to be designed for lateral as well as longitudinal earthquake actions. Poor stair detailing caused entire flights of stairs to collapse in Christchurch.”

How does the seismic strength of a building affect your insurability and the availability of finance?

“If a building has been identified as earthquake-prone, it will potentially have a lower value than it held previously due to the known financial liability on the owner to undertake seismic strengthening work. This may affect the availability of full replacement insurance which in turn may affect building operating expenses."

To what extent are you liable for costs contributing towards seismic works/upgrades?

“You should use lease negotiations to discuss terms on how to deal with seismic strengthening issues, and clarify responsibilities and processes for earthquake-prone buildings. Additionally, if works are taking/will take place, it is worth clarifying if there will there be access restrictions and if you can claim compensation or cancel/put your lease on hold due to disruption.”

Brian Jones, Managing Director, Hampton Jones

Does the property have any Council notices issued for seismic upgrading works?

“If yes, then find out what the notice covers and what the plan is by the landlord to comply with the notice. These[works]can be costly and disruptive, so the tenant may not want to suffer a loss of quiet enjoyment (and costs!) through these works.

If none, also check the building’s Council classification if the tenant is looking at a long-term lease. Some building classifications may require remedial works within a long-term lease term, and notices may not yet have been issued (at present some Councils may not need to issue notices until 2020, yet the remedial works may be required within 7.5 years of the notice)."

Let’s recap the key messages from our experts:

 8 Key Points: 

1. The timing of the assessment matters. If it was assessed before July 2017, it's very likely to be out of date. Guidelines are being updated frequently with the latest being in November 2018. Potential further changes to subsoil classifications and the hazard factor (z factor) for some parts of NZ are also in discussion.
2. Business Continuity. Consider how your business would cope without access to the building. Even a minor earthquake could cause considerable delays to access. What plans do you have in place for staff to work remotely? 
3. Check if the non-structural elements are also restrained (ceilings, partitions, building services, etc.). These can cause harm in a seismic event if not secured.
4. How are the stairs designed to perform in an earthquake?
5. Is the building brick or unreinforced masonry (URM) and un-strengthened? These older buildings are progressively getting demolished or strengthened but pose a high risk if not updated. Councils generally have these types of building on high-risk lists with upgrades notices often in place. 
6. Is there a Council notice to upgrade the building. If there is, dig deeper to find out what works are planned.
7. Insurability and finance – check with your external providers to see what impact the assessment levels may have on your ability to obtain insurance and the likely impact on premiums. Under a net lease, any increase in insurance will be passed onto the tenant through the Operating Expenses
8. Consider a peer review. Depending on where the report was authored, you might want to have their assessment peer-reviewed. Disputes between engineers do arise. Engineering NZ provides a forum to resolve disputes.

Can we help? Due Diligence and Objective Evaluation

 Increasingly we are managing more in-depth due diligence processes as part of our scope of services as buildings become more complex and compliance risks increase.

Finding, securing and fitting out new premises is a challenging process that requires a considered approach. Every organisation has different needs and preferences and different weightings on each. For many occupiers, a clear understanding of seismic risk is one of the primary elements they will seek to understand when evaluating the suitability of potential new premises.

TwentyTwo are specialists in helping occupiers identify and then navigate through these issues to get the best commercial outcome for their organisation, while balancing risk.