The management of combustible cladding on buildings in Australia continues to challenge the property and construction industries, owners and residents and all levels of government. Nationally, the Victorian Government is leading the way on this issue but significant uncertainty remains. In recent months we have seen:

Completion of audits

The Victorian Building Authority (VBA) has completed its audits of 1316 Class 2 and Class 3 buildings three storeys or above (namely apartment buildings, hotels, motels and student accommodation). Those audits have resulted in those buildings, where combustible cladding exists, being ranked according to the risk they pose. Building notices and emergency orders issued under the Building Act 1993 have been used by municipal building surveyors at councils to require building orders to implement ‘make safe’ measures for some of those buildings. Those measures have included, in some cases, the removal of some cladding around the perimeter of doorways and balconies where fire often starts and the use of surveillance to identify fire risks. In many cases, those ‘make safe’ measures are only temporary.

Rectification orders to commence

The VBA and councils are now moving to the next significant phase – namely the permanent rectification of non-compliant buildings. It’s expected that in the next few months, building notices and building orders are likely to be made requiring cladding to be removed from buildings entirely or very substantially. Compliance with those orders for some buildings will be extremely costly and likely to be unfunded by the relevant owners corporation.

Much more litigation likely

The issue of building notices and orders requiring expensive rectification work is likely to prompt claims between owners corporations and the industry participants involved in the design and construction of the relevant buildings, from architects, engineers, building surveyors, builders and developers. The extent of liability of each of those parties will be different in each case but certainly in each case, one or more of those parties will be liable for the cost of rectification work and associated losses. The decision of VCAT in the Lacrosse litigation, which is currently pending, will give some guidance as to how those claims are made in the future.

Insurance market beginning to tighten

Many professional indemnity insurers are now excluding cladding related claims from the coverage of the insurance they provide to design professionals and builders. As a result, developers should be aware that if they choose to use combustible cladding in a development, even if that cladding strictly complies with the requirements of the Building Code of Australia, they may not have the benefit of insurance if a cladding-related claim later arises. For that reason, many of Australia’s largest design firms are no longer including combustible cladding in their designs, regardless of whether they comply or not.

Expensive, compliant cladding products on the rise…

…as is the cost of those products given their high demand and the sudden turn away from cheap, attractive and easily accessible combustible cladding products. Those costs will inevitably impact construction costs.

Apartment values impacted

The established apartment market has no doubt taken a hit because buyers don’t want to inherit expensive, unresolved cladding issues. Whether that creates buoyancy in the new apartment market, where the risk of combustible cladding remains lower, remains to be seen.

Combustible cladding is fast becoming one of the most important issues in the property industry, and it’s not going away any time soon. We will likely see further impacts as the issue evolves – watch this space, we’ll keep you updated.