New Cladding Regulation

By August 8, 2018Building Products

Lacrosse Tower Fire: Melbourne 2014

If you don’t know whether the cladding on your building is combustible, you are soon going to be forced to find out.

The issue over what cladding has been used on buildings crystallised after the Grenfell Tower fire in the UK in 2017.  Australia’s equivalent (without the horrific loss of life in Grenfell) was the Lacrosse Tower fire in Melbourne in 2014 (Image Below). The ABC’s Four Corners covered the issue in this excellent episode.

 

Since then the wheels of respective state governments have turned very slowly. Victoria has their cladding task force and has now come up with a rectification solution that will allow lot owners in bodies corporate to pay back the cost of addressing the defective cladding through their rates.

Other states have equivalent bodies but no solutions yet.

The Queensland approach has been to create the Non-Conforming Building Products audit taskforce which led to the government addressing concerns with all of their buildings.

It’s a seemingly innocuous title, but it has some real kick. The new regulation is:

Building and Other Legislation (Cladding) Amendment Regulation 2018

And what it means for bodies corporate is this:

The compliance zone

If your building:

  1. is any of classes 2 to 9 (which covers basically everything residential and commercial other than houses); and
  2. had a building development approval issued after 1 January 1994 but before 1 October 2008 to build the building or alter the cladding; and
  3. is of Type A or Type B construction

Then the building is caught by the new regulation. The obligations will commence on 1 October 2018.

Stage 1 – registration

If your building is one of those in the compliance zone, you need to complete an online form via the QBCC that will run you through whether the building is likely to be one of those with non-conforming cladding. Every building will have until 29 March 2019 to complete this.

If there is no issue, then all is well and you just need to keep that certification. If not, you are onto stage two.

And no – we don’t know what the checklist will include yet.

Stage 2 – building industry expert

If your building is one that may have non-conforming cladding you have until 29 May 2019 to go back to the QBCC with a statement from a building industry expert about whether the cladding on your building is non-conforming. If you know your cladding is non-conforming, you can skip this step and go to stage three.

There are only two months between the last date to register and the date on which this first assessment is required. We suspect it will not pay to be tardy in getting started, as there are fines for missing the deadlines.

Stage three – fire risk assessment

If you have non-conforming cladding, then you must have a qualified fire engineer complete a fire risk assessment about the safety of the building. That assessment will determine whether the scheme as it is will essentially remain safe or whether rectification works are necessary.

Every building must give the name of their fire engineer to the QBCC by 27 August 2019 and have the final report to the QBCC by 3 May 2021. That is less than three years away.

After assessment

If the building has non-conforming cladding then:-

  • a notice to that effect must be displayed in a conspicuous part of the building for so long as the cladding remains in place; and
  • every lot owner and tenant must be given a copy of the notice – including new tenants and new owners.

The crystal ball

This is where the fun begins. Not.

We see the following compliance headaches with all of this, but these are just the immediate issues.

Ignorance of the need to comply

Everyone will be out there trying to make bodies corporate aware of their obligations. But some will simply ignore them. Some strata managers may also simply ignore them. It is ultimately the role of the committee to get this done, but no doubt fingers will be pointed at strata managers if it isn’t.

Strata managers need to be vigilant to make sure they have covered their backsides by addressing this with every body corporate they manage. It may not be pretty when the government starts rounding up those buildings that have not participated in stage one by the required date.

Stage two timing

There are only two months from the last date for registration to the time to return the building industry expert report.

If bodies corporate leave it to the last minute we suspect there won’t be enough experts to go around. Get started and get started early, because when you allow for the Australian holiday season (Melbourne Cup Day through to Australia Day), there is also another three months that disappears very quickly during that registration period.

Fire risk assessment notifications

If a building has non-conforming cladding, notifying new owners is easy. They appear on the roll, and (hopefully) the strata manager’s software programs then deal with the notification.

Tenants will be a lot harder. For those with onsite management or professional property managers, it may be okay as they should have systems that will deal with it. Communicating what needs to be actioned with property managers will be important. For people who self-manage or use a property manager who does not know what they are doing, the reality is tenants may not be told. Our immediate interpretation is that holiday / corporate tenants probably do not need to be told, but time will tell.

The bigger issues

The uncertainty.

We suspect the fact that non-conforming cladding may be present is going to be a potential disincentive to prospective property buyers while it is not known, and a genuine turn off to them once it is certain.

It wouldn’t surprise us if there was some change to the disclosure regime to specifically address this issue. After all, the disclosure form at the moment includes who the body corporate secretary is. Whether the building has non-conforming cladding is probably a tad more important.

Rectification costs

The Lacrosse Tower owners are still fighting about who wears what cost five years after their fire.  The statutory position is that if rectification is required, then the body corporate must do it.  It may well have a right to recover those costs from parties involved in the construction process, but that right is independent of the immediate obligation to sort the issue out.

This means owners are going to have to pay special levies, or bodies corporate borrow money, to bring their building back to having conforming cladding. Bodies corporate will not be allowed to wait to do that until they try to recover the costs from a third party.

The statutory obligation to disclose defects

And for you faithful readers who have come this far, this is the biggest issue we see for property sellers.

Just because cladding is non-conforming may not mean it needs to be removed. The other fire safety mechanisms may cover any risk appropriately. Having said that, the non-conforming cladding could still very well be considered a defect in common property (although we are still debating that internally). There are arguments for an against this, but if it is not a defect, why is there the need for the conspicuous sign in the building about it?

Section 223 of the Body Corporate and Community Management Act 1997 imposes an obligation on sellers to disclose to buyers latent or patent defects in common property that the seller is aware of or ‘ought’ to be aware of.

Sellers ‘ought’ to be aware of issues identified in the body corporate minutes. Committee members who are actively involved in the decision-making process around this have nowhere to hide under any definition.

If buildings have non-conforming cladding, which is not disclosed in the sale contract by a seller, and there are subsequent rectification works required along with the special levies or borrowings, we can see a raft of litigation about the lack of that disclosure against sellers, sales agents and those who prepared contracts for sale (such as lawyers).

We like providing solutions, but with this one there is a long way to go before the air clears.

 

Author: Hynes Legal

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