Jones beats bank over sour tower deal

Deborah Hill-Cone

Saturday 17th April 2004

Property investor Sir Robert Jones has won a court case against the National Bank after a $22 million property deal went sour.

In 2001 Sir Robert signed a contract to buy the National Bank building at 280 Queen St, Auckland from the bank's subsidiary, Black Horse Properties, for $22 million subject to the usual clauses, including that the bank should provide all engineering reports.

At the time he signed the agreement and paid a $1 million deposit, November 29, 2001, the bank had a report from a consulting engineer, known as the Still report, which revealed major problems with the building's air conditioning.

Sir Robert told the Wellington District Court that although the bank had this report in November it did not provide it until the middle of December this at a time he had only 15 working days to carry out due diligence in the lead up to Christmas.

The report showed empty floors in the building would not be able to be let unless the airconditioning upgrade was carried out and the work, costing up to $2 million, was also needed within the next couple of years for the existing office tenancies.

By the time he received the report Sir Robert had spent more than $30,000 on commissioning work on the deal from engineers Beca Carter and law firm Simpson Grierson.

Attempts to renegotiate the contract to take into account the $2 million airconditioning expenditure were unsuccessful and Sir Robert cancelled the agreement.

Black Horse Properties argued in court that it had provided the Still report "forthwith" but Judge Chris Tuohy did not accept that.

"The fact is that it was reasonably practicable for [the Still report] to be disclosed not later than December 5 and it was not," the judge said.

He found Sir Robert was entitled to cancel the agreement, and ordered Black Horse Properties to pay him $33,750 to reimburse him for the professional fees he incurred in carrying out due diligence.

"I am quite satisfied that Sir Robert did act in good faith in declaring the property not suitable at the agreed price. His view of the contract and effect of the Still report was perfectly tenable. The report made it clear in laymen's terms the air conditioning plant in the original part of the building was outmoded, that the lack of a modern system had deterred prospective tenants and that it might cost a considerable amount to modernise the system to the extent that would satisfy prospective tenants," Judge Tuohy said.

After the court case, Sir Robert said airconditioning was one of the most important items to look at when considering buying an office tower, most of which had been built in the past 20 years.

"When I look through a building I will always ask the receptionist what the airconditioning is like they will often say 'it's much better now' or 'it's just the same it's bad.' "

In the case of 280 Queen St, however, this was no help as the air conditioning was not working on untenanted floors.

The building was sold to Hanover Group subsidiary Axis Property Group, for an undisclosed price, and last year sold again for $27 million.

Property sources said it was bought by Christchurch-based investor David Henderson who was believed to be planning to syndicate the building, bundled up with a Queenstown property.

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