Crunch time for apartment owners as government sets out cladding rules

Editorial Staff
Editorial Staff
September 20, 2018
Crunch time for apartment owners as government sets out cladding rules

Two critical decisions by the NSW Government have given apartment owners the certainty they need to deal with the cladding crisis that has been steadily eroding the value of their properties for the past year.

The first win for owners came in April when the government legislated illegal composite aluminium cladding as a major defect, which means it is subject to the extended six-year warranty period under the Home Building Act.

The second, announced last month, was banning flammable cladding on buildings higher than two storeys to be applied retrospectively.

While the decisions would not please all affected owners, they now knew where they stood. Up until this point owners have been living in a state of hope, fear and trepidation, waiting to see which way the Government would jump before taking the next step.

We now have a clear picture of just what the legal position is. Owners of buildings completed after 2012 can claim flammable cladding as a major defect and demand rectification under the Home Building Warranty.

The retrospective nature of the ban means owners of pre-2012 buildings are on notice that the cladding must be removed and responsibility falls to them.

It’s not the outcome that many will have hoped for, and some will take legal advice seeking compensation elsewhere, but the priority for owners now is to find the best means to fix their buildings and restore the value of their property by making them safe and compliant.

Owners have been under immense pressure since the Lacrosse fire in Melbourne and the fatal Grenfell tower fire in London, dealing first with concerns for their own and tenants’ safety and then the financial implications, as a raft of inquiries has exposed systematic failings in the application of Australia’s building code and certification processes.

Lannock Strata Finance has held a series of cladding information seminars across the country to give strata owners and managers expert practical advice about how to deal with the cladding threat.

The first stage in coming to grips with this crisis is getting educated but the most pressing concern for most, is “who pays?”.

Owners got their first hint that this was going to be costly when insurance renewals came due. Many saw huge premium increases in buildings clad in composite aluminium panels or even if they were unable to prove it did not contain the cladding.

It’s now over a year since the Grenfell fire forced authorities to get serious about the issue and the time for debate and blame laying is now being overtaken by the need to act.

This year-long uncertainty has been debilitating for many owners, particularly those on fixed incomes or who are highly leveraged and faced with crippling repair bills. With potential multi-million dollar rectification bills hanging over them, they can’t sell without taking a financial hit and they will struggle to find the funds to pay for the works if the Owners’ Corporation decides on a special levy.

Every strata needs to consider what will be the fairest solution for all owners that will allow rectification work to proceed and not cause harm to those who simply cannot tap into additional funds.

For all owners, many of whom take little interest in strata affairs, this is a time when they need to be pro-active. Decisions about financing rectification works are going to impact on the value of the asset, and investors faced with slim yields and diminishing capital gain, need to think beyond merely collecting the rent.

Contact Lannock for more information on financing options for cladding rectification and strata fire safety compliance.