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Strata stakeholders in turmoil over cladding crisis

Strata owners corporations are facing insurance premium rises of 300 per cent in response to the flammable cladding crisis, while one Sydney owner we spoke to is facing serious financial hardship from replacement costs. There’s an urgent need for accountability but little action.

Thousands of apartment owners around the country are in a world of pain and uncertainty as the insurance industry and legislation enter reactive mode over flammable cladding on apartment buildings.

For a start, there are strata body corporates that have been hit with increases of up to 300 per cent in insurance premiums, according to Ace Body Corporate Management chief executive Stephen Raff.

Mr Raff told The Fifth Estate many owners were “still in a situation of risk” regarding the safety of their buildings, and the financial and liability implications of non-conforming cladding installations.

Despite the audits in states including South Australia, Western Australia, NSW, the ACT, Queensland and Victoria, nothing has changed in terms of addressing the impacts on owners of existing apartments.

Owners and owners corporations (OCs) are still potentially liable for the costs of testing, gathering relevant documentation and any required remediation or mitigation efforts, Mr Raff said.

Some of the strata properties his company manages are in the process of having facade cladding tested, with two consultants offering a sliding scale of fees depending on the percentage of facade deemed suspect.

The next step is going through the challenging process of establishing who is liable if non-conforming, flammable product is identified.

Owners corporations under the gun

stephen raff

Stephen Raff

Mr Raff said some OCs were already being told by insurance providers that they cannot obtain cover for the building; others have seen premiums shoot up to a level the OC cannot afford. In extreme cases, the rise is as much as 300 per cent.

Insurers have also expanded their criteria for risky cladding beyond the aluminium composite cladding that was the key factor in the Docklands fire at Lacrosse. Any cladding with a polyethylene core is now also on the blacklist, with insurers now requesting disclosure of cladding type and flammability, Mr Raff said.

Paperwork OCs are being asked to present includes the original structural engineers report, fire engineers report, plans, building permits, certifications for building systems and details of which cladding product, including brand, was installed and where.

Not only is it often extremely difficult for OCs to obtain these documents, hunting them down involves costs.

Mr Raff said OCs were effectively being “held to ransom” until they removed or replaced non-conforming cladding, and the onus is on the OC to fund the works.

Where OCs do undertake testing, if the extent is cladding is found to comprise a small percentage of the facade, some insurers will lower the premiums accordingly, Mr Raff said.

Mitigation strategies a building may have in place, including sprinklers, hydrant locations and evacuation strategies are also taken into account.

In terms of evacuation procedures, not every strata building has effective and well-understood plans in place.

With so many apartments occupied by tenants of investor owners, there is also an information gap that needs addressing to ensure awareness of escape routes.

There can also be complications, such as electronic security gates that do not function if the power goes out.

Who should shoulder responsibility?

The question still remains: who should really shoulder the responsibility for non-conforming cladding installations.

“The federal government should take responsibility,” Mr Raff said.

It is the government’s import rules that have allowed the cladding along with other dodgy products, such as glass that will explode for no obvious reason and electrical cabling with a hard casing prone to cracking, into the country, he said.

“Owners should be reimbursed [by the government]. They should be under no burden of costs at all.

“If the federal government will not hold builders and developers responsible – they should pay.”

Owners between rock and hard place

One apartment owner that is affected by the cladding fiasco, and concerned about the recent draft NSW Planning legislation that would see apartment buildings potentially added to a register of risky properties, told The Fifth Estate her strata body is “between a rock and a hard place”.

“We’ve been investigating our options and, while we’re being told to urgently replace our existing cladding with this or that product at great expense to the owners, who may or may not be able to afford it, how do we know that product won’t be deemed non-compliant in the future and we have to go through the whole process again?

“I moved into an apartment so I didn’t have to worry about looking after a big house. Now I’m knee deep in trouble I didn’t cause and facing financial hardship. So much for the joys of downsizing!”

Paul Keating, managing director of Strata Community Insurance, said combustible cladding was a “public health and safety issue”.

“It has been pushed around by a number of stakeholders,” he said.

Ultimately, the building code requires cladding not to be flammable, he said. As insurers, companies like his have been assuming the building complies.

Regulators have let owners down

Paul Keating

“The regulators have let owners down big time,” he told The Fifth Estate, with the “relaxed compliance” process for building certification a major problem.

The situation “needs government intervention and regulation”.

There was a “massive issue” with defects in buildings built over the last 10-12 years, he said, and cladding is just one of many problems. Other examples he has seen include balconies without waterproofing and one project not two years old in North Queensland where the roof hadn’t even been tied down.

He said the cost of insurance was only one part of the struggle for owners – another part was needing to fund any rectification or mitigation measures.

In terms of insurance, his company looks to help OCs identify the material and its location. The degree of dodgy product then influences the premiums.

He said OCs “absolutely struggle” to find the paperwork associated with their building’s specifications.

The paperwork his company requires is the certificate of conformity for the cladding products.

“It is exceptionally difficult to get documentation from the original owner and developer.”

Without that paperwork, there could be a need to get the product tested, which is costly.

“It’s not easy, and the question is, how much do you test? There could be several products on a building. It is not a simple solution.

“This is a really tough challenge to be working through at the moment.”

Urgent need for accountability

Owners Corporation Network executive officer Karen Stiles told The Fifth Estate it was “essential that at-risk buildings are urgently identified and steps taken to make them safe”.

“Then we need to have a grown up conversation about who is responsible and how to stop this happening in future.”

Ms Stiles said there needed to be regulation that made every person in the construction supply chain responsible for their actions.

“But then someone actually has to enforce that legislation. Until now it’s been a case of, ‘Stop! Or I’ll shout “Stop!” again.’ And here we are.

“We need to move to swift and serious consequences for bad industry behaviour. That’s what will level the playing field for good operators who are being undercut, and provide the consumer protection our community expects and deserves.

“Right now you get more consumer protection for a $10 toaster than a $1 million apartment. That’s just crazy.”

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Comments

5 Responses to “Strata stakeholders in turmoil over cladding crisis”

  • Garry says:

    In no way should the taxpayer be on the hook for this. If you make an investment decision, including buying shoddily built units, you shoulder the risk and the reward. I don’t hear Mr Raff advocating property investors send their huge negatively geared profits back to the taxpayer when things go right. Same rules apply when things go wrong. Of course the builders, certifiers and developers should pay for it, and the government should make that happen.

  • Linden Stokes says:

    If your new phone catches on fire the maker accepts responsibility. If your new car malfunctions the maker accepts responsibility. So why is there any discussion around this? Please help me understand why it is different in the case of aluminium cladding products. And don’t give me ‘they are safe if the right systems are in place’. Eg sprinklers. What if the sprinklers malfunction? Who is responsible?

  • Christopher says:

    Certifiers should not work for the people they are certifying.

  • Kevin Cobley says:

    The cost of replacement cladding should be spread across, builders, subcontractors, certifiers, developers, real estate agents (sellers of dodgy products, these people should do their own due diligence before selling), State, Federal and Local Government.
    Politicians should also be held personally liable, this would ensure that this wouldn’t happen again.
    The homeowner should spend nothing and should be compensated by the crew of criminal clowns that allowed this situation to occur.
    Cladding should be banned as should internal plasterboard walling, all multi-occupant dwelling should have masonry walling as a basic requirement.

  • AP says:

    Another group being hit are the certifiers with their insurance premiums skyrocketing. Yet again those who do the right thing smashed by the actions of those who don’t.

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