The combustible cladding issue has been one at the forefront of the minds of developers, builders, architects and building surveyors since the Lacrosse fire in the Docklands in 2014. That fire joins the unfortunate list of other fires worldwide involving combustible cladding, including the fatal Grenfell Tower fire in London, the Torch Building in Dubai in 2017 and the Robuzix in France in 2015.

Much has happened since those fires but this is only the beginning of the resolution of the issue in Australia.

The Victorian Cladding Taskforce Interim Report findings

On 1 December 2017, the Victorian Cladding Taskforce issued an Interim Report on the use of non-compliant cladding materials in Victoria.

The Taskforce found that the use of non-compliant cladding in Victoria is widespread and has led to major safety risks. The Interim Report contained a number of observations about the role of developers in the use of non-compliant cladding, including:

  • the recent changes to the Building Act 1993 (Vic) which require the relevant building surveyor (RBS) to be appointed by the developer and not the builder may still be problematic. The Taskforce noted that developers, like builders, have a financial incentive to minimise costs and ensure that projects are completed as soon as possible and accordingly, ‘overzealous’ building surveyors (even if they were best qualified to assess compliance) were likely to be avoided
  • there was a perceived (and perhaps actual) conflict of interest caused by the commercial relationship between the RBS and a developer and builder.

What’s happening now?

In January this year, the Victorian Building Authority (VBA) announced it would be conducting a state-wide audit of buildings constructed after March 1997 that fall into one of the following three categories:

  • apartment complexes, motels and hotels (three storeys and above)
  • buildings where Victorians gather as a group (such as sporting arenas)
  • schools, private hospitals and aged care facilities (two storeys and above).

The scale of the audit is unlike any seen in Victoria in several decades and focusses on those buildings which, in the opinion of the Taskforce, pose the most serious threat to life and safety in the event of a fire.

However, it is worth noting, cladding issues may exist in buildings which are not the subject of the audit.

In February this year, the VBA confirmed it had started to distribute postcards to residents and occupiers of buildings in the above categories, notifying them that an audit of their building will soon be conducted.

Where non-compliances exist, the nature of the rectification work to be carried out is unknown. The Taskforce has commissioned a panel of fire safety engineers and façade system experts to develop a standard for rectification. The Interim Report confirms that the standard for rectification is likely to range from full replacement of the cladding (which is obviously the most costly and commercially unviable option) to no action and monitoring for low risk buildings.

As for the cost of rectification, in most cases, primary liability will rest with the owners corporation given that the cladding will be installed onto a façade, which will be common property. As to how an owners corporation will be able to finance those costs is another matter.

Government has not yet committed to fund any part of those rectification costs. However, it is possible that the Final Report, when the extent of the non-compliance is known, may recommend that Government either provide funding or assist in sourcing finance from elsewhere.

What is almost certain, is that significant litigation is likely, following the findings of the audit. In most circumstances, owners corporations will simply be unable to fund the whole cost of replacement of cladding and property values in respect of those properties will inevitably fall. Builders, developers, building surveyors, architects and engineers may all be involved in those proceedings. The liability of each party will depend on the circumstances of each case, as will the coverage of relevant insurances policies.

What should you do?

  • Purchasers or occupiers of buildings developed by you, may receive postcards notifying them of an audit and they may contact you to discuss them. Don’t be immediately concerned. The notices don’t mean that your building necessarily contains non-compliant cladding. It simply means that the building falls within one of the categories identified for audit by the VBA, referred to above.
  • For projects underway, take the time to check whether your cladding is compliant. Your financier may even ask you to do that. Westpac recently announced that it intended to require all developers of residential and commercial developments currently in construction to confirm whether any cladding complies with the National Construction Code.