WINDSOR LEGAL
FLAMMABLE CLADDING INFORMATION
If you are considering purchasing a unit built in the last twenty years you will need to check whether the building has flammable cladding. Australia is estimated to have around 3,400 buildings with flammable cladding, many of them in Victoria. We regularly see contracts for buildings that have flammable cladding and we feel its necessary to warn our clients about the risks.
On 1 February, 2021 the Victorian government banned the use of flammable cladding so any buildings constructed after that date are unlikely to have this issue. The Victorian government set up the Victorian Cladding Safety Authority (CSA) which conducted a state-wide audit of buildings with cladding and provides funding for rectification works to some of those buildings.
According to the Victorian Building Authority (VBA) there were two types of cladding which pose a potential risk because they increase the speed at which fire will travel in a building. Aluminium composite panels ‘ACP’ and expanded polystyrene ‘EP’. Even though newer buildings are mostly at risk, we have found that even old buildings may be at risk if they have had renovations using modern materials.
Many buildings have been identified by local councils and the VBA as containing flammable cladding and building notices are issued against those buildings.
This is obviously a safety risk. It is also a lending risk and financial risk for buyers. Even if the cladding is not on the unit itself, if it is anywhere on the building it is the responsibility of all owners to pay for the removal. These works will be arranged and usually funded through levies payable by the owners through the Owners Corporation.
Lending risk
Banks do not like lending on buildings with flammable cladding. They are highly unlikely to lend on a purchase if the building has flammable cladding and the owners have done nothing to remove it. You do not want to face the situation of signing a contract to purchase a unit and then finding out that your bank will not give you a loan because the property has flammable cladding
Many banks will not lend on buildings with flammable cladding or they will demand to see that the Owners Corporation has taken action to rectify the problem. We have even seen lender’s valuers inspect properties and find cladding which was never noticed by the Owners Corporation previously. The loan application is subsequently declined. If this occurs, we can refer you to skilled mortgage brokers who can advise you on different lenders and how they view the cladding issue.
The best way to protect yourself is to ask for a Subject to Finance condition if you are purchasing a unit built in 2000-2021. If you have properly complied with the finance condition and the loan application is declined (for flammable cladding or any other reason) you can cancel the contract and get your deposit refunded.
Even if you are not applying for a loan, you could ask for a special condition requiring the building to be confirmed as free from any flammable cladding.
You should also ask us to review the contract before you sign it. If the flammable cladding is a known issue, it should be disclosed in the Vendor Statement (known as the “Section 32). There should be a mention of the issue in the Owners Corporation documents, and there may even be a building notice disclosed in the documents. We need to look for this information and advise you on the risks. We can advise you to request certain special conditions. You can then investigate further with the council, Owners Corporation or VBA. As mentioned above, in some cases the issue may not be disclosed in the Section 32 documents so its best that you ask for a Subject to Finance condition just in case your bank raises it as an issue.
Financial Risk
Once flammable cladding is identified, financial risk always arises for the owners. Around 1/5 of all buildings identified as containing flammable cladding in Victoria have been classed as being of significant risk. The Cladding Safety Authority (CSA) has provided funding to a minority of those seriously affected buildings. That may include funding for project and site management and rectification works.
Not all buildings with cladding have been assisted by the CSA. The vast majority of buildings have no financial support and the owners need to fund the works themselves through their Owners Corporations. Some Owners Corporations have taken legal action against the builders involved. Legal action can take years to be resolved and can cost thousands of dollars in legal fees. Most Owners Corporations will introduce levies for the removal works which are payable by the owners themselves. This can easily run in to the tens of thousands of dollars for each owner.
We recommend that you give this issue serious attention prior to signing a contract. Always ask for a Subject to Finance condition on new units. If you discover that the building has flammable cladding you can choose not to continue with the purchase or you may decide that you will try to negotiate a lower price.
Before signing the contract please contact us to complete a Contract Review and you should consider arranging a building inspection.
If you are considering purchasing a unit built in the last twenty years you will need to check whether the building has flammable cladding. Australia is estimated to have around 3,400 buildings with flammable cladding, many of them in Victoria. We regularly see contracts for buildings that have flammable cladding and we feel its necessary to warn our clients about the risks.
On 1 February, 2021 the Victorian government banned the use of flammable cladding so any buildings constructed after that date are unlikely to have this issue. The Victorian government set up the Victorian Cladding Safety Authority (CSA) which conducted a state-wide audit of buildings with cladding and provides funding for rectification works to some of those buildings.
According to the Victorian Building Authority (VBA) there were two types of cladding which pose a potential risk because they increase the speed at which fire will travel in a building. Aluminium composite panels ‘ACP’ and expanded polystyrene ‘EP’. Even though newer buildings are mostly at risk, we have found that even old buildings may be at risk if they have had renovations using modern materials.
Many buildings have been identified by local councils and the VBA as containing flammable cladding and building notices are issued against those buildings.
This is obviously a safety risk. It is also a lending risk and financial risk for buyers. Even if the cladding is not on the unit itself, if it is anywhere on the building it is the responsibility of all owners to pay for the removal. These works will be arranged and usually funded through levies payable by the owners through the Owners Corporation.
Lending risk
Banks do not like lending on buildings with flammable cladding. They are highly unlikely to lend on a purchase if the building has flammable cladding and the owners have done nothing to remove it. You do not want to face the situation of signing a contract to purchase a unit and then finding out that your bank will not give you a loan because the property has flammable cladding
Many banks will not lend on buildings with flammable cladding or they will demand to see that the Owners Corporation has taken action to rectify the problem. We have even seen lender’s valuers inspect properties and find cladding which was never noticed by the Owners Corporation previously. The loan application is subsequently declined. If this occurs, we can refer you to skilled mortgage brokers who can advise you on different lenders and how they view the cladding issue.
The best way to protect yourself is to ask for a Subject to Finance condition if you are purchasing a unit built in 2000-2021. If you have properly complied with the finance condition and the loan application is declined (for flammable cladding or any other reason) you can cancel the contract and get your deposit refunded.
Even if you are not applying for a loan, you could ask for a special condition requiring the building to be confirmed as free from any flammable cladding.
You should also ask us to review the contract before you sign it. If the flammable cladding is a known issue, it should be disclosed in the Vendor Statement (known as the “Section 32). There should be a mention of the issue in the Owners Corporation documents, and there may even be a building notice disclosed in the documents. We need to look for this information and advise you on the risks. We can advise you to request certain special conditions. You can then investigate further with the council, Owners Corporation or VBA. As mentioned above, in some cases the issue may not be disclosed in the Section 32 documents so its best that you ask for a Subject to Finance condition just in case your bank raises it as an issue.
Financial Risk
Once flammable cladding is identified, financial risk always arises for the owners. Around 1/5 of all buildings identified as containing flammable cladding in Victoria have been classed as being of significant risk. The Cladding Safety Authority (CSA) has provided funding to a minority of those seriously affected buildings. That may include funding for project and site management and rectification works.
Not all buildings with cladding have been assisted by the CSA. The vast majority of buildings have no financial support and the owners need to fund the works themselves through their Owners Corporations. Some Owners Corporations have taken legal action against the builders involved. Legal action can take years to be resolved and can cost thousands of dollars in legal fees. Most Owners Corporations will introduce levies for the removal works which are payable by the owners themselves. This can easily run in to the tens of thousands of dollars for each owner.
We recommend that you give this issue serious attention prior to signing a contract. Always ask for a Subject to Finance condition on new units. If you discover that the building has flammable cladding you can choose not to continue with the purchase or you may decide that you will try to negotiate a lower price.
Before signing the contract please contact us to complete a Contract Review and you should consider arranging a building inspection.
