The ACT’s Building Cladding Crisis – What Does It Mean For You?

The fire at the Grenfell Tower social housing block in London shone a light on the dangers of the use of cladding with polyethylene (PE) core across the world. More recently, the fire that ripped through a high-rise apartment complex in Milan two days ago – which caused the building’s external panels to melt off in ‘liquified clumps’ – has again sparked debate as to why this building material was ever deemed acceptable for use.[1]

Combustible cladding represents a risk to apartment owners and apartment buyers across Australia, but perhaps nowhere more so than in Canberra. Despite the publicity that has followed this issue over the past few years, there is still a great deal of confusion in the industry and in the general public around what combustible cladding is and what risks it may pose.

What is combustible cladding?

Combustible cladding is a catch-all term for two types of cladding products, known as polyethylene (PE) core cladding and aluminum composite panels (ACPs). ACPs are generally two thin sheets of aluminum separated by a core material. The core material may be PE, another type of mineral fiber or a combination of both.[2] PE is derived from petroleum and, unsurprisingly, has a poor fire rating performance. Aluminum is a heat conductor which can cause fire to spread rapidly in the external areas of a building.

ACPs are most dangerous in high-rise apartment buildings, as they may cause fire to spread so quickly that those living in the building are not able to escape. This is how combustible cladding can pose a serious risk to the lives of those who live within impacted buildings. Australia has personally already witnessed how dangerous ACPs can be, when a cigarette left on the balcony of the Lacrosse Building in Melbourne sparked a major fire.[3] Closer to home, a potential tragedy was averted when a cigarette again nearly caused a blaze at the Glebe Park Apartments which was lucky addressed quickly by the fire department.[4] The Glebe Park Apartments are believed to be 100% PE Core cladding, [5] which is reportedly the same material used on the residential building in Milan. [6]

Despite the alarming name, the presence of combustible cladding does not always mean that a building is automatically unsafe. Buildings with ACPs can mitigate the fire risks by installing safety features, including building sprinklers and other fire reduction mechanisms, but must work with professionals to do so.

Is combustible cladding illegal? Does it need to be removed from existing buildings?

The treatment of combustible cladding is still not uniform across Australia which poses a massive challenge both to industry and to individual owners and buyers. Unfortunately, while the Victorian and New South Wales governments have already moved to ban ACPs and PE core panels, we have not seen the same level of progress in the ACT.

In New South Wales, the government’s ban is retrospective, meaning that buildings constructed with ACPs prior to the ban must still remove the defective cladding. Building owners (including Owners Corporations) must check for external combustible cladding and register all affected buildings with government.

In Victoria, low-cost financing has been introduced to help building owners remove dangerous combustible cladding from their buildings. A statewide audit has been implemented by the government to identify affected buildings and resources issued to help owners and buyers.

In the ACT… well, government has conducted an audit on their own privately-held buildings to determine whether they are affected by combustible cladding. Some of these buildings are now being rectified. In respect of privately-owned buildings, Minster Rebecca Vassarotti announced a new cladding rebate in the sum of $20,000.00 for eligible residential building owners to assist them with carrying out testing and assessment on a building’s cladding.[7] However, the current concern is that most apartment owners will not be able to cover the cost of remediating their building following the assessment.

What impact does this have on apartment owners and buyers?

The impact of combustible cladding on existing apartment owners and prospective buyers can be broken down into a number of categories:

1. Risk to Life: as outlined above, a building that is affected by combustible cladding can post a significant risk to the lives of its occupants. As an existing owner, clarifying what this risk is and how it can be mitigated is essential to your continued occupancy of the building. As a prospective purchaser, you must identify the level of personal risk and determine whether it is acceptable to you.
2. Insurance Risk: an increase in insurance premiums, coupled with exorbitant excesses for buildings impacted by cladding, has had a massive financial impact on apartment owners in the ACT. The average minimum insurance excess for fire claims relating to a building with ACP is $100,000.00.[8] Gaining or renewing insurance can also prove difficult for Owners Corporations, with some apartment buildings reportedly denied insurance all together until they can remove the affected cladding.[9] Maintaining strata insurance is a condition of a mortgage, so should insurance be denied or prove too expensive to maintain, the situation for existing building owners could quickly become financially ruinous.
3. Rectification Costs and Re-Sale Value: the upfront costs of removing combustible cladding can prove financially crippling for many apartment complexes, with costs often required to be addressed through large special purpose levies or specifically designed strata loans. While the NSW Government and VIC Government have offered interest-free and low-cost financing options for Owners Corporations, no such option exists at this stage in the ACT. The difficulty of selling an affected property can also prove frustrating, as owners who are unable to afford to continue occupying their homes as a result of the rectification costs may also be unable to find a buyer with a lender who is willing to take on the same financial risk.
4. Mortgage Risks: There are already some banks that will not lend to buyers planning to buy into an apartment complex with combustible cladding. If you exchange on pre-approval, subject to valuation, the discovery that there is combustible cladding on your apartment complex may result in your lender withdrawing their finance approval. This can be a significant risk and may result in your contract being terminated and your deposit forfeited.

So, what should I do?

For existing owners, our hope is that the ACT Government will follow the path of other jurisdictions to provide improved outcomes for all owners in the ACT. Industry bodies like the Master Builder’s Association and the Owners Corporation Network, continue to lobby the ACT Government for improved options for ACT owners and buyers.

If you are a prospective buyer looking to buy an apartment in the ACT, make sure you do your due diligence – particularly with regards to the Owners Corporation’s records. Thoroughly research and review all the records held by the Owner’s Corporation and ask your solicitor or conveyancer for guidance if you are unsure. This can assist to identify whether there is any combustible cladding present on the building, and what fire safety mechanisms are in place to reduce the risk. It can also allow you to identify whether any special purpose funds or strata loans have been put in place to remediate cladding, and what the cost will be to you.

 

[1] https://www.reuters.com/world/europe/milan-mayor-says-cladding-melted-tower-block-blaze-londons-grenfell-2021-08-30/
[2] https://www.altusgroup.com/services/en-au/insights/combustible-cladding-what-you-need-to-know/
[3] https://www.first5minutes.com.au/blog/combustible-cladding-what-is-to-be-done/
[4] https://www.afr.com/property/residential/combustible-cladding-ignited-in-canberra-apartments-fire-20190820-p52j15
[5] https://www.afr.com/property/residential/combustible-cladding-ignited-in-canberra-apartments-fire-20190820-p52j15
[6] https://www.archpaper.com/2021/08/officials-blame-flammable-cladding-after-intense-milan-high-rise-blaze/
[7] https://the-riotact.com/combustible-cladding-could-become-acts-second-mr-fluffy-without-full-audit/479032
[8] https://the-riotact.com/act-cladding-solution-long-overdue-as-insurance-premiums-skyrocket/467467
[9] https://the-riotact.com/combustible-cladding-could-become-acts-second-mr-fluffy-without-full-audit/479032

 

We’re here to help

We at Chamberlains appreciate the difficulties builders, contractors and homeowners alike have been facing in recent times. Should you or your business need some assistance to navigate any legal issues which have arisen during these unprecedent times, please do not hesitate to contact our building and construction law team.