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August 19, 2020

Thousands of buildings in Australia, including apartment blocks, office towers, hotels and shopping centres have been identified as properties that don’t comply with new cladding regulations spurred by the Grenfell Tower fire in London and other incidents in Australia.

As the list of non-complying buildings grows, governments are stepping up.

In Victoria, affected building owners have access to a A$600 million fund to replace flammable cladding, as part of a fast-tracked plan to revive the state’s COVID-hit economy.

In New South Wales, the Design & Building Practitioners Bill 2020 has paved the way for thousands of claims by allowing apartment owners to seek damages for building defects – including combustible cladding – outside of the statutory warranty period. Owners can now seek legal redress for panel replacement costs within 10 years of a building’s completion and six years of a defect becoming known.

“Any measure that can ease the financial and emotional burden on building owners of replacing flammable cladding, and help them get the job done quickly, is a positive move towards protecting peoples’ lives and property,” says Duane Loader, project director, JLL.

Councils and insurance companies are providing building-specific deadlines to either replace defective panels or face hefty penalties or loss of insurance coverage in the event of an incident. The pressure to fund the work as these deadlines loom adds pressure to owners, Loader notes.

But there is a commercial imperative to act.

“In commercial buildings, non-compliant cladding may mean you cannot attract a tenant, or you provide tenants with grounds to break a lease. In residential buildings, besides the fear of living in a potentially unsafe building, there are implications for the resale value of an apartment, as well as collective and personal liability if there is an incident,” Loader says.

Seeking redress

Until Grenfell, aluminium composite panelling was a popular choice among builders and architects for use as the external ‘skin’ of a building because of its lightweight, weatherproof, and decorative qualities. It consists of two sheets of aluminium held together by a polyethylene core which is considered the most flammable part.

As authorities continue to enforce rectifications, even owners acting with the greatest sense of urgency face challenges in getting the job done.
In jurisdictions such as NSW, which offers legislative support only, owners are forced to raise money for the rectification work – sometimes through a bank loan – or seek damages from builders and consultants before commencing rectification. Where a cluster of apartment owners are affected, approaches must be holistically agreed by the owners’ corporation, which can lead to further delays and overall costs, exacerbating the situation.

“Dispute resolution is always more costly than just getting it done right in the first place and takes longer to do,” says David Bannerman, a strata specialist at Bannerman Lawyers. “Government authorities, along with insurers, might be understanding if you can prove you’re taking reasonable steps to progress with litigation in order to undertake any rectification work, but you’re working to the clock and so it’s a stressful undertaking.”

Insurance is a major bone of contention for builders and building owners alike. Owners unable to get adequate cover when their buildings are identified, are often forced to pay expensive premiums with offshore insurance providers.

The Property Council of Australia’s NSW executive director Jane Fitzgerald says retrospective regulation has meant an “entire industry couldn’t get insurance”.

“Since Grenfell, insurance companies have been driving this whole industry,” says Leif Golder, operations manager in residential property and asset management, JLL. “The more rights owners have, the more exposed builders become and the more difficult it becomes for them to get insurance cover and provide certified information about ways to replace or modify cladding.”

Restoring building safety
Replacing flammable cladding can sometimes uncover extra costs and complications, Golder says.

“We’ve seen in some schemes where the sarking, which is the second protective skin helping with water protection and insulation, is not incorporated in the manufacturers’ warranty, nor is it compatible with the replacement cladding, so owners are facing a second problem which they didn’t envisage.”

Owners often overlook the thermal, acoustic and waterproofing qualities of cladding, which must be maintained to get any rectification works certified, Golder adds. This additional complexity, together with recent legislative changes, also means that certifications can be complex between various consultants, builders and certifiers involved.

The cost of rectification works can reach A$80,000 per apartment for a residential tower. Bannerman suspects the NSW government, like Victoria, will eventually pay the bill.

“Offering money to people to take cladding off the building has to be a superior solution to one that requires somebody to recover the money from someone else, and given the rescue packages we’ve seen elsewhere, I think NSW will eventually have to consider coming up to speed with the rest of the world.”

Click to read how COVID-19 is changing the landlord-tenant relationship.

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Duane Loader

project director, JLL.

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