Cladding risk starts to hit home for Queensland apartment owners

Editorial Staff
Editorial Staff
March 7, 2018
Cladding risk starts to hit home for Queensland apartment owners

The impact of the composite aluminium cladding issue is beginning to bite as Queensland apartment owners scramble to prove their buildings are safe or face potentially crippling hikes in insurance premiums.

In the lead-up to a public forum in Brisbane on February 27, at which strata industry leaders will discuss practical ways forward for apartment owners, consumers are being advised to shop around if they’re hit with a massive premium increase.

The Strata Fire Safety Forum, presented by Lannock Strata Finance, Solutions in Engineering and CHU, will present a panel of experts representing insurance, legal, fire engineering, strata management and government to discuss the implications of cladding for Queensland strata owners and stakeholders.

The Queensland Government had led the way by introducing chain of supply legislation to increase accountability for all future construction but it fell short of assisting owners of existing apartments.

Since the Lacrosse fire in Melbourne and the fatal Grenfell tower fire in the UK, apartment owners can no longer take a ‘she’ll be right’ attitude. They need to ask some tough questions about what their buildings are made of or pay the consequences. In theory, this should be a simple process but it is far from easy to find the relevant documentation and even harder to determine if it can be trusted, given the high levels of substitution that we know have occurred right around the country.

The systemic failures in the supply chain and certification processes in all States had created a multi-billion dollar headache for strata owners left to pick up the tab for investigations and rectification.

CHU Queensland Manager Kimberley Jonsson said the greatest challenge facing both insurers and Bodies Corporate was getting reliable information. “There is no single source of truth for finding out what product has been used on a building,” said Ms Jonsson. “Even when we advise a Body Corporate that they have cladding it is difficult for them to determine exactly what the product is.”

Ms Jonsson said concern about cladding was increasing as more insurance policies fell due for renewal and Bodies Corporate were now required to prove it had no cladding issues or face premium increases. People cannot put their head in the sand on this issue. If they have flammable cladding on their building and don’t take measures to find out what it is, there could be recourse against the Body Corporate in the event of a fire or loss of life.”

She also recommended Bodies Corporate shop around if they were confronted with a massive increase in their insurance premium. “There have been some very big increases this year as strata insurers are taking different approaches,” said Ms Jonsson. “The main thing is to do your homework early and get as much information as you can to work out what is on the building. If you can show you don’t have cladding with a polyethylene core you are in a better position to negotiate with an insurer.”

Ross Daley, CEO of Solutions in Engineering, said strata owners who failed to deal with flammable cladding on their building ran the risk of huge financial loss. “It’s not fair because these people bought their apartments in good faith, did their due diligence and now are caught in a lose-lose situation,” said Mr Daley. “Nonetheless some may face huge rectification bills which many investors and owners will be unable to afford. And if they can’t insure their property they can’t sell it and that means it has zero value.”

Mr Daley, whose firm provides compliance and advisory services to the strata industry, said strata owners’ best first step was to be informed. “Don’t pretend you are not affected by this,” said Mr Daley. “Bodies Corporate need to find out what is on the building and fulfil their duty of disclosure to the insurer. It is important to remember that there may be ways to mitigate risk that don’t require reskinning of a building but instead focus on making sure there are adequate fire safety systems and strategies in place.”

Grace Lawyers Partner Jason Carlson said the difficulty for many strata owners was accepting that they bore responsibility for a problem that was not of their making. “Our legal system doesn’t automatically assign responsibility to the party supposed to be at fault,” said Mr Carlson. “So the question I am often asked by strata owners is, ‘can we sue someone?’.That is not an easy question to answer as it will depend on many factors, including the history of the building, when it was constructed and whether the product and work practices were accepted as standard at the time.”

“Owners need to be aware that litigation can take years to resolve and in the meantime they may have a ticking time bomb. They may not want to foot the bill for rectification, but how long are they prepared to take the risk? This is part of the concern that insurers also have.”

Owners tempted or forced to offload their properties rather than face increased premiums or repair bills need to be mindful of the duty of disclosure within consumer law. “The general principle in Australia is caveat emptor, let the buyer beware,” said Mr Carlson. “All buyers have an opportunity to inspect the records of a Body Corporate which may disclose if there are any issues relating to non-conforming or non-compliant building materials such as cladding discovered in the building. However, if there has been an attempt to leave information of that kind out of Body Corporate records, then the circumstances would change.”

Simon Barnard, President of the Board of Strata Community Australia (QLD), who was involved in the summit which saw the Queensland Government adopt chain of supply legislation, said the cladding issue was having an impact on strata owners in Queensland.

“Because insurers are asking the question about cladding Bodies Corporate are having to get reports to satisfy them,” said Mr Barnard. “So once again the onus is being put back on the lot owner to wear the cost and all the risk. Cladding is not the only issue here; there are many other non-compliant building materials that are being used to cut costs. Much of this problem stems from private certification of buildings which is a massive issue.”

Mr Barnard said it was important that Bodies Corporate understood that they were responsible for identifying if their building was at risk. “If your building has cladding you need it tested by a reputable company qualified to carry out fire safety tests.”