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Special counsel joins Maddocks in Canberra January 16, 2020

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Combustible cladding and other building defects – what does 2020 hold for the industry?

The fire in the Lacrosse building in 2014 Melbourne heralded the beginning of intense focus on the quality of building work in Australia.

2020 will see that focus continue. Many of the Victorian Government’s taskforce findings and recommendations are now making their way into policies and proposals for long term structural changes in the regulation of building work. Many in the development and construction industry are also taking a pro-active approach in seeking to identify more effective ways of producing quality, compliant buildings and not relying on regulation to achieve that.

In 2020, we expect to see:

  • the impact of the new building permit levy introduced by way of amendments in November to the Building Act 1993, and set to commence on 1st January 2020. That levy will apply to all building permits, including any staged permit, for work not in regional Victoria in relation to Class 2-9 structures. In summary, the additional levy is calculated as set out below:
Cost of whole building Amount of additional levy
$800,000 – $1 million 0.128 cents for every dollar of the cost of the building work
$1 million – $1.5 million 0.256 cents for every dollar
Over $1.5 million 0.82 cents for every dollar

For a building project with a value of $25 million, the additional levy will add approximately $205,000 to the cost of the development. Those funds will be used by Cladding Safety Victoria for the rectification of extreme and high risk buildings with non-compliant external cladding;

  • Cladding Safety Victoria commence the roll out of the $600 million cladding rectification funding promised by the Victorian Government. Those funds will be used, at least at first instance, to rectify those residential apartment buildings that present the highest risk to life and safety. That rectification work will reinstate the value of those buildings in the market and create a significant pipeline of work for those in the construction industry equipped to design, carry out and manage that work;
  • the Victorian Court of Appeal hand down its finding the appeal against the 2019 VCAT Lacrosse decision. The Court of Appeal’s decision is anticipated in late 2020 and will assist to set the landscape for liability between designers, building surveyors, fire engineers and builders for not only cladding related defects but defects generally in work procured under a design and construct model;
  • an increase in litigation between parties for liability for the cost of cladding rectification once the Lacrosse appeal is determined and rectification work increases. To that end, the Victorian Government now has statutory powers to pursue wrongdoers itself where the Victorian Government has funded non-compliant cladding rectification work;
  • a broad, sweeping review of building regulation in Victoria. The Victorian Government’s announcement on 11 December 2019 that an expert panel has been appointed to conduct a wholesale review of Victoria’s building regulation system indicates that the Victorian Government may have an appetite to consider widespread changes to the current system of regulation, including the methods by which building permits are issued and compliance policed; and
  • the insurance challenges for professionals in the industry is likely to continue. The solutions to that challenge are currently unknown and will almost certainly impact the cost of construction and perhaps more worryingly, the willingness of the industry to take risks, be innovative and find new solutions to existing problems.
AUTHOR
Simone Holding | Partner
+61 3 9258 3858
Simone.Holding@maddocks.com.au

The fire in the Lacrosse building in 2014 Melbourne heralded the beginning of intense focus on the quality of building work in Australia.

2020 will see that focus continue. Many of the Victorian Government’s taskforce findings and recommendations are now making their way into policies and proposals for long term structural changes in the regulation of building work. Many in the development and construction industry are also taking a pro-active approach in seeking to identify more effective ways of producing quality, compliant buildings and not relying on regulation to achieve that.

In 2020, we expect to see:

  • the impact of the new building permit levy introduced by way of amendments in November to the Building Act 1993, and set to commence on 1st January 2020. That levy will apply to all building permits, including any staged permit, for work not in regional Victoria in relation to Class 2-9 structures. In summary, the additional levy is calculated as set out below:
Cost of whole building Amount of additional levy
$800,000 – $1 million 0.128 cents for every dollar of the cost of the building work
$1 million – $1.5 million 0.256 cents for every dollar
Over $1.5 million 0.82 cents for every dollar

For a building project with a value of $25 million, the additional levy will add approximately $205,000 to the cost of the development. Those funds will be used by Cladding Safety Victoria for the rectification of extreme and high risk buildings with non-compliant external cladding;

  • Cladding Safety Victoria commence the roll out of the $600 million cladding rectification funding promised by the Victorian Government. Those funds will be used, at least at first instance, to rectify those residential apartment buildings that present the highest risk to life and safety. That rectification work will reinstate the value of those buildings in the market and create a significant pipeline of work for those in the construction industry equipped to design, carry out and manage that work;
  • the Victorian Court of Appeal hand down its finding the appeal against the 2019 VCAT Lacrosse decision. The Court of Appeal’s decision is anticipated in late 2020 and will assist to set the landscape for liability between designers, building surveyors, fire engineers and builders for not only cladding related defects but defects generally in work procured under a design and construct model;
  • an increase in litigation between parties for liability for the cost of cladding rectification once the Lacrosse appeal is determined and rectification work increases. To that end, the Victorian Government now has statutory powers to pursue wrongdoers itself where the Victorian Government has funded non-compliant cladding rectification work;
  • a broad, sweeping review of building regulation in Victoria. The Victorian Government’s announcement on 11 December 2019 that an expert panel has been appointed to conduct a wholesale review of Victoria’s building regulation system indicates that the Victorian Government may have an appetite to consider widespread changes to the current system of regulation, including the methods by which building permits are issued and compliance policed; and
  • the insurance challenges for professionals in the industry is likely to continue. The solutions to that challenge are currently unknown and will almost certainly impact the cost of construction and perhaps more worryingly, the willingness of the industry to take risks, be innovative and find new solutions to existing problems.
AUTHOR
Simone Holding | Partner
+61 3 9258 3858
Simone.Holding@maddocks.com.au