Shake Up of Earthquake-Prone Building System: What It Means for Commercial Property

In September 2025, the Government announced a series of proposed changes to New Zealand’s earthquake-prone building (EPB) system under the Building (Earthquake-Prone Building System Reform) Amendment Bill.

The reforms aim to make the current EPB regime more risk-based and proportionate, reducing compliance costs while maintaining safety standards.

Key proposed changes

The Government has indicated several important shifts in approach:

• Narrower scope: The current “percentage of New Building Standard” (NBS) approach will be removed. Only buildings that present a genuine risk to human life in medium and high-seismic-hazard zones will be captured.
• Regional adjustments: Areas such as Auckland, Northland, and the Chatham Islands will be removed from the EPB system entirely, reflecting their lower seismic risk.
• Longer remediation timeframes: Councils will be able to grant property owners extensions of up to 15 years to complete strengthening work.
• Simplified upgrade obligations: Owners carrying out seismic strengthening will no longer be required to simultaneously undertake fire-safety or disability-access upgrades.
• Rural and small-town exclusions: Unreinforced masonry buildings under three storeys in towns with fewer than 10,000 residents will be excluded from the regime, provided that any hazardous façades are remediated.
• Cost impact: The Government estimates the reforms could save building owners and councils more than $8 billion nationally.

Implications for commercial tenants

For commercial tenants, the proposed reforms could have a more nuanced impact than first appears. On the surface, the removal of low-risk areas from the EPB system and the relaxation of compliance requirements should reduce disruption and cost. However, beneath that, the reforms shift the allocation of risk and bargaining dynamics within the commercial leasing market in several important ways.

1.     Market stability and rental dynamics
Many tenants in urban centres such as Wellington and Christchurch have faced years of uncertainty, with buildings sitting vacant or subject to restricted use because of seismic classifications. The refocused system may reduce that uncertainty, allowing landlords to re-enter the market and re-let previously constrained premises.

Conversely, tenants currently negotiating leases in buildings likely to be removed from the EPB regime may find less leverage to demand rent abatements or exit rights linked to seismic status. Market-driven incentives that previously flowed to tenants may narrow as confidence returns.

2.     Lease allocation of seismic risk
Under the existing system, many leases, especially in character buildings, contain detailed provisions allocating responsibility for earthquake strengthening, access for works, and rent suspension during closure. With the risk threshold being raised, fewer buildings may trigger those clauses. Tenants will need to review whether lease documents remain appropriately balanced.

Tenants may wish to ensure that, even if the building is no longer legally “earthquake-prone,” they retain rights of termination or rent relief if structural defects or safety concerns arise. The fact that a building sits outside the statutory regime does not necessarily mean it is free from material risk.

3.     Operational and business continuity risk
The proposed allowance for councils to grant up to 15-year extensions for strengthening could mean that some landlords defer works for a decade or more. While that may ease pressure on owners, it could also result in tenants trading from buildings that remain seismically sub-optimal for long periods.

Tenants should assess the potential impact on business interruption insurance, staff safety obligations, and customer confidence. Where landlords choose to defer strengthening, tenants may consider negotiating for disclosure of engineering assessments, ongoing maintenance obligations, and options to relocate or exit if the building’s condition deteriorates.

4.     Insurance and finance flow-through effects
Even where a building is no longer legally classified as earthquake-prone, insurers and financiers may continue to impose seismic-strength thresholds as a condition of coverage or lending. Landlords who defer strengthening may face higher premiums or reduced insurability, which can indirectly affect tenants through higher operating-expense recoveries.

Tenants should seek transparency on these costs and, where possible, negotiate caps or carve-outs so that deferred compliance does not translate into increased occupancy costs.

5.     Strategic positioning in negotiations

For sophisticated retail tenants, the reforms may present an opportunity to secure longer-term leases in high-foot-traffic areas where seismic compliance uncertainty previously suppressed supply. Conversely, landlords regaining market confidence may seek to tighten terms or remove seismic-related rent concessions.

Understanding where each building sits in the revised risk hierarchy will be key to negotiating effectively.

What commercial tenants should do now

If passed, these reforms could materially change compliance obligations, asset values, and leasing risk across New Zealand’s commercial property market. Commercial tenants should review:

• current seismic assessments and strengthening programmes;
• lease clauses dealing with building compliance and structural works; and
• insurance and financing terms linked to EPB status.

Tenants negotiating new leases, renewals or rent reviews in 2025 and beyond would be well advised to obtain legal and technical advice early—ensuring seismic risk, disclosure obligations, and business-continuity provisions remain fit for purpose in light of this legislative shift.

If you would like assistance with any commercial leasing matters, please contact Jordan Todd – jordan@fsl.nz.