Combustible cladding has been at the forefront of the media and the building and legal industries since the Lacrosse tower fire in November 2014, Grenfell Tower inferno in June 2017 and most recently, the Neo 200 fire in February 2019.

Recent developments

On 22 June 2020, the Victorian Government announced that the rectification of buildings with dangerous cladding will be fast-tracked. In this respect, the plan is to accelerate the process of rectification to encompass 400 buildings within two years.[1] This is in stark contrast to the initial proposal of 100 buildings per year.[2]

Cladding Safety Victoria shall initially work with a ‘select group of reputable builders to rectify their projects at no profit’[3] and the ‘time it takes to have rectification plans in place [is] to be cut from 33 weeks to 16 weeks where the original builder is involved’.[4] This is positive news.

The benefits deliverable are subject to limitations. No building can be taken out or added to the program.[5]

Impact of COVID-19

The Victorian Government has classified cladding rectification works as permitted works under critical state works throughout the Stage 4 lockdown and a COVID Safety Plan is in place.[6] Nonetheless, it is highly probable that the program will be somehow impeded by the current pandemic.

Moderate’ and ‘low’ risk buildings and Cladding Rectification Agreements

Amendments to the Local Government Act 1989 (Vic) (Act) have created CRAs, which enable owners to rectify the non-compliant cladding on their property voluntarily, and pay it off via their council rates.

The amendments provide for:

  • Councils to enter into CRAs with an owner or owners corporation to facilitate a loan from a third-party lender to land owners or owners corporations to pay for the cost of rectifying combustible cladding on buildings;
  • Councils to declare and levy a cladding charge for the loan to fund the rectification;
  • Owners will be given at least 10 years to pay off the cladding charge through their council rates;
  • Loan repayments will be distributed across all owners in the CRA based on their individual lot entitlement; and
  • As the CRA will be declared a rate on the land, if the property is sold the responsibility for repayment will pass to the new owner.

The Victorian Government has published an Information Guide for Owners and managing Owners Corporations of ‘moderate’ to ‘low’ risk buildings. Owners’ corporations requiring finance to undertake cladding rectification works will be able to enter into a CRA, subject to having written approval from at least 75% of lot owners in the affected building.

At this stage, there are plenty of unknowns. How difficult it may be for an OC to gain 75% approval is uncertain.  One thing is for certain, owners of buildings with non-compliant cladding must not sell without full disclosure in the Vendors Statement and adjustment must be made at settlement to allow for future CRA payment/s.

Other options for funding cladding rectification works include self-funding, ordinary strata loans, personal loans or refinancing and existing mortgage.

History of the Victorian Cladding Taskforce

In July 2017, the Victorian Government established the Victorian Cladding Taskforce to investigate the extent of non-compliant external wall cladding on buildings throughout the State. As at July 2019, the Taskforce has conducted 2,227 inspections and identified 72 buildings as extreme risk, 409 as high risk, 388 as moderate risk and 200 as low risk.

In July 2019, the Victorian Government committed $600M to fund works to remove non-compliant cladding from buildings classified as extreme and high risk. Owners of buildings with ‘moderate’ or ‘low’ risk cladding will not qualify for government funding and will be left to foot the rectification bills themselves.  This is a small consolation for not being in high risk category.

In February 2019, CertMark International (CMI), the principal agency used by the Australian Building Codes Board (ABCB) to determine whether building products are compliant, withdrew nine certificates for cladding systems, including aluminium composite panels (ACP) and expanded polystyrene (EPS).[7]

On 11 July 2019, CMI was suspended for 60 days by the Joint Accreditation System of Australia and New Zealand for failing to meet the CodeMark product certification scheme’s accreditation requirements. Whether CMI conducted adequate testing on each batch of ACPs manufactured and its core flammability remains to be seen. In our view, the disqualification suggests that CMI failed to conduct adequate testing and we are closely monitoring whether any building consultants take action against CMI or seek to apportion liability.

Building permit levy to fund cladding rectification

To raise funds to remove non-compliant cladding, the Victorian Government introduced an additional building permit levy. The new levy commenced on 1 January 2020 and applies to building work in metropolitan areas with a cost of works of at least $800,000 and a classification of 2 to 8 under the National Construction Code.  It is estimated to raise $300M over 5 years.

The VBA will distribute funds collected from the levy to Cladding Safety Victoria – the agency managing the rectification works.

Annexure A: List of cladding no longer approved

Certificates for the following cladding products have been withdrawn:

  • CM40029 Ozone Panel Building Systems;
  • CM40066 Alpolic A2;
  • CM40067 Alpolic FR;
  • CM40076 Ultrabond FR;
  • CM40079 Vitrabond FR;
  • CM40082 Dulux Exsulite TM Kooltherm Façade System;
  • CM40093 Larson FR;
  • CM40138 Dulux Exsulite TM Thermal Façade non-cavity system; and
  • CM40162 Cladex FR.

[1] ‘Fixing Flammable Cladding Faster and Creating Local Jobs’, Premier of Victoria – The Honourable Daniel Andrews (Web Page, 22 June 2020) <https://www.premier.vic.gov.au/fixing-flammable-cladding-faster-and-creating-local-jobs/> (‘Fixing Flammable Cladding’).
[2] Ibid
[3] Ibid
[4] ‘Our Plan to Help Keep Victoria’s Economic Moving’, State Government of Victoria (Web Page, 24 June 2020) <https://www.vic.gov.au/our-plan-help-keep-victorias-economy-moving>
[5] Fixing Flammable Cladding (n 1)
[6] ‘Coronavirus (COVID-19) and Cladding Safety: Important Information’, State Government of Victoria (Web Page, 19 August 2020) <https://www.vic.gov.au/coronavirus-cladding-safety-important-information>
[7] See Annexure A