Hundreds of Australian buildings have been revealed to have flammable cladding. Who is ultimately responsible for rectifying the issue? 

After London’s Grenfell Tower tragedy, where fire broke out in a multi-storey building, killing over 70, and a similar fire affected the Lacross Tower in Docklands, the issue of unsafe Aluminium Composite Panelling (ACP) in building cladding has been a major headache for the property industry. 

Inspections have revealed hundreds of residential and commercial buildings have unsuitable cladding, which means there is a major safety risk in the event of a fire. In Victoria, of the 2,000 buildings audited, 360 were found to be high risk, 280 of moderate risk, and 140 of low risk.

Despite the states and the Commonwealth Government working together on building industry reform to prevent cladding and structural issues from impacting the community, the question remains as to who is responsible for repairing existing buildings which have been deemed unsafe. 

Where does the buck stop?

Because ACP cladding has only recently been deemed unsafe, the issue is a tricky one. 

Builders and architects are unlikely to be held liable as they can claim they weren’t aware of the risks when relying on ACP cladding. Executive Committees are equally exempt from fault if they approved the use of cladding before it was regulated against. 

To help fix this expensive and frustrating issue, those involved are looking to local councils and government bodies for financial support. 

In July 2019, Prime Minister Scott Morrison declared the cladding issue to be “a state responsibility”, reportedly saying on radio, “It's their responsibility, they need to deal with it.”

For NSW, the responsibility is a heavy one, with the Strata Community Association saying around $1 billion will be needed to fix the problem, and asking the NSW Government to chip in with emergency funding. 

In Victoria, Premier Daniel Andrews announced a $600m fund to pay for the rectification of 500 buildings identified as unsafe due to cladding. However, his call for federal support was rejected by federal industry minister Karen Andrews, who reportedly warned the Commonwealth “is not an ATM for the states”. 

Ms Andrews was quoted in The Guardian as saying, “This problem is of the states’ making and they need to step up and fix the problem and dig into their own pockets.”

As of mid-late 2019, it doesn’t seem there is a clear solution as to how the many commercial and residential buildings impacted by unsafe cladding will fund necessary upgrades. Some building and unit owners may be able to get insurance companies to cover the costs. Unfortunately, others face having to foot the bill themselves. 

The impact on the real estate industry

In the wake of the unsafe cladding debacle, many investors are finding it difficult to meet mortgage payments. Tenants, unwilling to live in unsafe premises, move out, and it can be difficult to replace them. 

What’s more, it can be almost impossible to sell if you own in a complex with cladding issues. Regulations mean you must inform the buyer of the problem, and no buyer is excited to purchase a home or office which may not be safe. 

The issue flows down the line to real estate professionals, who find themselves losing out due to the roadblocks in making sales and securing tenants. 

Safeguarding your business

As a real estate agent, strata manager or property manager, you must be aware of the cladding status of a building as part of due diligence. 

Fortunately, especially for low-rise structures, lower-cost solutions like sprinkler systems can offset the problem. In this situation, you may need to liaise with the Executive Committee and a team of professionals to determine the most cost-effective solution and explore what is covered by insurance. 

Before you take on a new property to lease or sell, investigate its safety status and whether it complies with current regulations. By avoiding buildings which have the problem and working with reliable, compliant building companies and executive committees, you can side-step the cladding issue and enjoy a more profitable business. 

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