By Chloe Moorfoot, Partner
It is estimated there are thousands of buildings in Victoria affected by the (now) defective combustible cladding issues. As the combustible cladding rectification fund dries up, it is clear that local government municipalities will be soaked by a new wave of claims and responsibilities to bring about rectification.
Background of the Combustible Cladding Nightmare
This week, the Victorian Government has issued a statement to A Current Affair relating to the Cladding Rectification Program and the Local Government Municipalities’ responsibility. This was done to lead the charge in fixing the combustible cladding nightmare. Where lot owners incur costs through rectification of the combustible cladding, they can take legal action to pursue those costs.
As a result, the Victorian Building Authority (VBA) issued an audit to identify the buildings with combustible and defecting cladding. The Victorian Building Authority categorised the buildings that were considered “high-risk”, “medium risk” and “low risk”.
Cladding Safety Victoria prioritised using the $600 million fund to rectify the “high risk” buildings. However, this is only sufficient funding to rectify a fraction of the buildings impacted by the combustible cladding nightmare. As the fund dries up, the burning question is, what about the rest of the buildings?
Occupants of the lower risk buildings are largely left to deal with the cladding mess on their own. Additionally, many owners unable to fund the costs of the cladding rectification works (and other consequential losses). Therefore, it is anticipated there will be a flood of claims arising against builders, building surveyors and local municipal councils.
Liability Risks for Local Councils:
We consider there will be two key risk areas for local municipalities to be on top of:
1. Buildings already afflicted with defective cladding:
a. Firstly, local councils are responsible for enforcing he building orders issued on any affected buildings in its municipality. Either by the MBS, the VBA or the CSV. Failure to do so, risks the council becoming liable to:
i. the VBA or the CSV should they incur losses or costs as a result; or
ii. General members of the public, including individual lot owners within a affected building, that incur loss, damage or injury as a result of defective cladding issues.
b. Local councils that have entered into a Cladding Rectification Agreement are responsible for ensuring the flow of repayments between owners and the lending body. It also owes a duty of care to the individual owners when arranging the CRA. They may become liable to lending institutions and/or individual owners if:
i. The repayments are not made in accordance with the terms of the CRA;
ii. If any individual lot owner suffers financial distress as a result of being overleveraged; or
iii. If the loaned amount is not used towards cladding rectification within a reasonable amount of time.
2. Regarding future buildings to be constructed with cladding:
Furthermore, local councils are also likely to be burdened with the responsibility of conducting more thorough and stringent due diligence and certifications when presented with designs and applications for building permits for proposed buildings using cladding
In conclusion, the combustible cladding nightmare is only just beginning. Moreover, as the situation heats up it will be critical that Local Government Municipalities remain on top of their obligations and risk strategies. Finally, this will be the first of a series of articles that FAL Lawyers will be releasing on the Victorian Combustible Cladding issue providing advice on how Local Governments can be prepared.
If you have any immediate questions in relation to these matters, for more information please contact our Construction Team, Chloe Moorfoot (Chloe.Moorfoot@fal-lawyers.com.au) and Malcolm Liu (Malcolm.Liu@fal-lawyers.com.au).