Cladding Replacement Funding Applications: a possible alternative to compliance assessments at the Building Appeals Board

Cladding Replacement Funding Applications: a possible alternative to compliance assessments at the Building Appeals Board

18 Jun 2021

By Justin Cotton, Director, Lovegrove & Cotton – Construction and Planning Lawyers

Over the last few years in Victoria, there has been a plethora of matters before the Building Appeals Board with regard to compliance assessments for Aluminium Composite Panels, or ACPs.  These applications are seeking approval from the Board for “combustible” cladding material to remain on a building.

This determination is applied for notwithstanding that the cladding material is deemed “combustible” under the Building Code and is therefore seen as non-compliant with the prescriptive Code requirements.

Such an application may be made under section 160A of the Building Act 1993 for a compliance assessment, and is often made in response to a Building Notice or a Building Order from either a local Council or the Victorian Building Authority. A legitimate and arguably more amenable route would be to apply to the Building Appeals Board to appeal a Building Notice or Building Order (rather than pursuing a s160A compliance application).

The Notice or Order will generally call for the ACP cladding to be removed entirely from the building, or that there be a determination obtained from the Building Appeals Board (“the BAB”) that there is sufficient compliance with performance requirements under the Building Code to allow some or all of the cladding to remain.

To recap, there are two routes to compliance with Building Code standards, in order to meet the minimum benchmarks.  This is via satisfaction of the “prescriptive” deemed-to-satisfy Building Code requirements, or alternatively via a “performance” based solution that can be demonstrated to be at least equivalent to the prescriptive standards.

As part of that BAB application it will be necessary to have a supporting fire engineering report that looks at all active and passive fire safety mechanisms and features at the building, such as any sprinkler system, building occupant warning systems, paths of travel and egress and accessibility to fire fighting personnel, as well as an examination of the nature and location of the cladding product itself.

However, there is also the ability of the owner of a building, or an Owners Corporation (responsible for common property in apartment buildings) to make a cladding replacement funding application to Cladding Safety Victoria to replace the combustible cladding on a building.

Consideration would need to be given by a building owner about whether to pursue such a cladding replacement funding application with CSV.  If funding is accepted, then subject to a funding agreement being entered into with CSV and a builder engaged for the rectification and replacement work, the Owner will not need to pay for the cost of replacement and an expensive and uncertain BAB proceeding would not be necessary.

Recent legislation in regard to Cladding Safety Victoria (“CSV”) and funding for cladding replacement has commenced from 1 February 2021.  Namely, there is the Cladding Safety Victoria Act 2020 (“the CSV Act”) and the Cladding Safety Victoria Regulations 2020 (“the Regulations”).

Sections 27-29 of the CSV Act are the cladding replacement funding requirements with CSV.  Pursuant to section 27, a notification can be made by the Municipal Building Surveyor of Council to CSV.  That notification is that, in the opinion of the MBS, a particular building is in need of cladding rectification work (which can mean replacement of cladding with non-combustible material).

Following any section 27 notification by the Council MBS, the provisions of sections 28 to 29 of the Act are activated.  Section 28 states that CSV must prioritise for “potential financial assistance” any buildings in respect of which it has been notified by an MBS that cladding rectification work is needed.  CSV must have regard to “the prescribed criteria” when prioritising a building in this way.  (Refer to Clause 7 of the CSV Regulations in this regard).

Pursuant to section 29 of the CSV Act, CSV may invite the owner or Owners Corporation of a building that has been prioritised under section 28 to apply to register for potential financial assistance for cladding rectification work.  Subsection 29(2) says that: “After considering an application to register an owner or owners corporation of a building for potential financial assistance, Cladding Safety Victoria may accept or refuse to accept the application.” 

It is said at s29(3) that CSV must consider the prescribed matters when deciding whether to accept or refuse to accept the application.  Also, if CSV refuses to accept an application, a notice of refusal must include reasons for the decision (s29(8)).

Clause 7 of the Regulations contains CSV’s cladding replacement funding assessment criteria as they now stand.  The current VBA system of risk categorisation of “low”, “moderate”, “high” or “extreme risk” are not, or are no longer, the criteria.

Section 5 of the CSV Act states that Cladding Safety Victoria is a body corporate with perpetual succession and that may sue or be sued.  This opens up the possibility that owners could take legal action against the CSV or there could be a ‘class action’ if certain contractual or duty or care circumstances arise.

There is no discernible and specific right of appeal should the CSV decline an application for CSV funding made by Owners.  That said, and noting the requirement of the CSV to give written reasons for a decision declining a cladding replacement funding application (s29(8)), there is bound to be a general administrative law right of judicial review to the Supreme Court. This could be on the grounds that any decision to decline an application for funding was made unreasonably or by mis-applying the prescribed matters, taking into account irrelevant considerations, and so forth.

Therefore, if CSV declines a cladding replacement funding application there are likely to be appeal rights for an Owners Corporation (if they so choose) to the Supreme Court on administrative law grounds, and in any event there would be an option to commence or continue a Building Appeals Board proceeding for a compliance assessment under s160A of the Act.

In light of certain recent developments in Victoria, including in particular the Minister’s Prohibition Declaration that effectively ‘banned’ the new use of certain combustible cladding products from 1 February 2021, it may be harder to argue that a large apartment building is not able to qualify for full cladding replacement funding from CSV.

The previous CSV criteria to qualify for funding was “high risk or greater”, however that risk category is now not part of the CSV laws that came into force at the start of February 2021.

Clause 7 of the Regulations refers to “Prioritisation of buildings for potential financial assistance” and it says (amongst other things):

“(1) For the purposes of section 28(2) of the Act, Cladding Safety Victoria must have regard to the following criteria when prioritising a building for potential financial assistance –

 (a) any written advice from the Authority, the municipal building surveyor or Fire Rescue Victoria about the overall risk to the building associated with any non-compliant or non-conforming external wall cladding product;…”

From 1 February 2021, various ‘combustible’ cladding products, including for instance Alpolic / fr cladding, were banned by the Minister of Planning (pursuant to the Ministerial Declaration), due to not having at least 93% inert material core composition.  This ban is prospective only and not retrospective.  A number of cladding products are now effectively banned for use on new buildings.

While previously there was some thought that ACP products that had less than 30% combustible polymer core were seen as lower risk, and only risk category “B” under the Insurance Council of Australia guideline, this marker is now effectively superseded by the Ministerial Prohibition Declaration.

While there may be fire engineering experts who disagree with the Minister’s ban on certain cladding products, this situation is now something that Owners should take into consideration in terms of:

(i)           likely increased insurance premiums (or excess increases) in the future (the Minister’s Risk Impact Statement prior to the Minister’s Declaration anticipates this may occur); and

(ii)           possible reduced property values (also known as “the Stigma effect”) due to having a banned cladding product in large quantities on a building’s façade (compare for example the New Zealand experience in terms of the Stigma effect of ‘leaky’ buildings).

The language of the Minister in the Prohibition Declaration is worth noting in that he was said to be satisfied that:

“…use of the (banned) external wall cladding product is or will likely cause— (a) occupants of the building to be at risk of death or serious injury; or (b) occupants of neighbouring buildings to be at risk of death or serious injury; or (c) members of the public to be at risk of death or serious injury; or (d) property to be at risk of severe damage..”

We note the stated grounds behind the Minister’s Prohibition include a declaration that a “risk of severe damage” is likely (in the future).  This is not something that is necessarily covered by a performance-based section 160A compliance assessment through the BAB process, which is an assessment on compliance with the Building Code performance requirements for the building as designed and constructed.  It is also not something that would be covered by a Section 142 application to appeal a Building Notice or Order.  However, it will have an effect on Insurers and consumers into the future.

For instance, if we look at the situation with asbestos on buildings this has created insurance issues and reduced the property value of buildings decades after construction.  In some cases, Insurers will not even offer coverage for buildings that contain asbestos because of the likely clean-up costs and risks, despite any consideration that the asbestos may have been compliant at the time of construction, and despite the asbestos ‘ban’ not being retrospective.

As well as the language used in the Minister’s Prohibition Declaration (made in late December 2020 and effective from February 2021), there can be reference to language used in Statements of Contention lodged at the BAB by ‘interested parties’, or in Building Notices or Orders.   Where that language is calling for cladding replacement it can possibly support an argument by Owners that the prescribed criteria for cladding replacement funding have been met.

Owners need to be mindful of the risks of embarking on an application for a compliance assessment at the BAB, where there could be a decision that large sections of cladding need to be replaced, and then finding later on that CSV does not regard the situation as “high priority” enough to qualify for replacement funding.  In such a situation the Owners will be required to pay for cladding replacement themselves in what will be a very expensive exercise.

Even a BAB outcome that no cladding needs to be replaced could be problematic if it leaves a “banned” cladding product in large quantities on a building, due to the possible increased insurance costs and diminution in property value.

For legal advice and assistance about building regulations and your rights and responsibilities with regard to combustible cladding matters and Building Notices and Orders, do not hesitate to engage construction law practitioners who are well versed in this area of law.

 

Lovegrove & Cotton Lawyers to the Building Industry

For thirty years, Lovegrove & Cotton have represented builders, building surveyors and building practitioners in Melbourne, Canberra, Sydney and Queensland. Justin Cotton is a leading Australian construction lawyer and widely respected in the building fraternity. Justin is the Chairperson of the HIA Industrial Relations and Legal Services Committee. Lovegrove & Cotton can help practitioners resolve any type of building dispute and are leading in the area of building practitioner advocacy.

If you wish to engage the firm, feel free to contact us via our website or by emailing enquiries@lclawyers.com.au.