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NSW Building Owners to cover costs on Cladding Rectification, values at risk

Posted 29 August 2017

Category: Building Defects

Many owners of the 1000 NSW buildings identified with possible non-compliant cladding won’t be able to claim against their developer or builder because the two-year window to make such claims will have passed, a property lawyer says.

A change in law two years ago cut the window to make such claims from seven years, in part to reduce the risks for the statutory warranty insurance the state government underwrote.

This meant owners of buildings built under a contract agreed after 1 February, 2012 – which includes many built in the current housing boom – would not be able to claw back the costs of rectifying any non-compliant cladding. This is the view of David Bannerman, the principal of North Sydney-based Bannermans Lawyers.

“For the lot owner, it’s a personal safety risk, but also it’s a significant financial risk because the cost of rectifying is going to be significant and the ability to recover that cost from the people who were responsible is very limited,” Mr Bannerman told The Australian Financial Review on Tuesday. “From a financial point of view, it could have a significant adverse effect on the value of the investment.”

NSW Minister for Innovation and Better Regulation Matt Kean late on Tuesday said that Mr Bannerman’s interpretation of the law was wrong.

“I reject the characterisation of the changes put to me about the Home Building Act,” Mr Kean said.

“The changes in 2015 in fact stated – for the first time – that fire safety systems are defined as a major element of a building, which can therefore attract the maximum warranty period for major defects, being six years.”

Higher depreciation costs and bills to remedy non-compliant buildings are already a concern for some owners and investors of high-rise apartments. Insurers are starting to exclude liability for non-compliant cladding in the policies they issue building surveyors, theFinancial Review reported earlier this month. But the move exposes another risk for building owners as policy makers and insurers assess liability in the wake of London’s fatal Grenfell Tower tragedy and the slower regulatory aftermath of the 2014 Lacrosse building fire in Melbourne’s Docklands.

The number of buildings with unsafe cladding across the country is unknown. SA authorities last week said they had identified 77 buildings for further examination. In Victoria, a pilot program is underway to test cladding materials and determine how many buildings are affected.

At the end of July, NSW said it had identified 1000 buildings with potentially dangerous cladding and was telling the owners to review the material used, the overall fire safety of their building and to make any changes need to ensure it complied with the building code.

But unlike in the wake of the last commercial building boom in NSW, when many owners’ corporations sought redress from builders and developers for defective waterproofing and fire measures, the current boom was likely to leave many more owners saddled with costs they could ill afford, Mr Bannerman said.

“The main difference between this construction cycle and the last one was that you had a seven-year warranty and it was backed by government or private insurers,” he said. “This time around, you’ve got a two-year warranty against the building developer.”

Separately, cladding experts from around the country will meet on Wednesday to discuss testing and rectification of non-compliant cladding, Victorian Planning Minister Richard Wynne said.


Author: Michael Bleby
Publication: Australian Financial Review
Date: 29/08/2017
Section: Real Estate

Michael Bleby

Published 29 August 2017