On 7 August 2018 the Building Amendment (Registration of Building Trades and Other Matters) Bill 2018 (Vic) (Bill) was released to the public following its second reading in Victoria’s Legislative Assembly.
The Bill addresses key issues raised in the Victorian Cladding Taskforce’s Interim Report produced on 1 December 2017. Readers will be familiar with the dangers of cladding; in 2014, the Lacrosse tower fire in Melbourne resulted in significant property damage, and in 2017, 72 people died in the London Grenfell Tower tragedy.
Prohibition of cladding products
The Bill gives the Minister for Planning the power to prohibit the use of a ‘high risk’ external wall cladding product if it presents a serious risk to human life or property.
The second reading speech states that aluminium composite panels with a polyethylene core (ACP) and expanded polystyrene cladding (EPS) are likely to be banned. Builders who fail to comply with any prohibition will be liable under the Building Act 1993 (Vic) for a fine of up to $400,000 or five years’ imprisonment.
Funding to rectify non-compliant cladding
The Bill also introduces ‘cladding rectification agreements’ (CRA). A CRA is an agreement between a council, an owner or owners corporation, and a lender, which is designed to provide owners or owners corporations access to affordable loans to finance the rectification of non-compliant cladding. CRAs can only be used to fund the rectification of cladding that has been specified by the Minister in the Government Gazette.
Under a CRA, the lender will advance funds to the owner or owners corporation to undertake rectification works. Councils will levy a ‘cladding rectification charge’ on the affected properties, and the proceeds of the charge will be used to repay the loan, interest, and any agreed administrative charge. The amount loaned is to be repaid in equal instalments, spread over at least a ten year period in order to reduce the burden on owners by minimising the amount of each instalment. Notably, the loan attaches to the property and transfers to any subsequent owner.
75% of owners corporation members must vote to enter a CRA. Because the charge takes priority ahead of existing mortgages, owners and owners corporations must also provide the council with relevant financial details of mortgages, taxes, rates and charges owing on each lot, ensuring
control over debt levels so as not to diminish the security of existing mortgages.
According to the second reading speech, “to date, councils have indicated qualified support to the CRA proposal provided that some level of financial and administrative incentives/support is available by the State Government to encourage take up by councils in entering into these agreements”.
The provisions relating to CRAs are proposed to come into operation on 30 October 2018, with parliamentary debate on the Bill scheduled for 21 August 2018.
Potential impact of CRAs
The utility and uptake of CRAs remains to be seen. While CRAs could be a boon for property owners, providing a centralised, clear and regulated mechanism to rectify an issue for which they bear no blame, the cost and viability of the loans, and how they compare to private lending products is as yet unknown and untested.
Moreover, while CRA loans may provide a financial solution to owners bearing the high costs of rectification works, they do not address the underlying issue of who is liable for the installation of the cladding in the first place. Government guidance on liability is the next vexing issue for the Taskforce.
Authors: Lachlan Ingram & Ellen Hogan
Stephen Natoli, Partner
T: +61 3 9321 9796
Kyle Siebel, Partner
T: +61 3 9321 9877
Scott Alden, Partner
T: +61 2 8083 0419
Christine Jones, Partner
T: +61 2 8083 0477
Helena Golovanoff, Partner
T: +61 2 8083 0443
Troy Lewis, Partner & National Head of Construction and Infrastructure
T: +61 7 3135 0614
Stephen Burton, Partner
T: +61 7 3135 0604
Suzy Cairney, Partner
T: +61 7 3135 0684
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