This update follows on from our National Cladding Update September 2018 Alert which outlined the state of developments across Australia as at September 2018. Since then, a number of important developments have occurred.
A more in depth dive into each of these developments is set out below.
On 4 December the Commonwealth Senate Economics References Committee released their final report:
Non-conforming building products: the need for a coherent and robust regulatory regime
The report concerns non-conforming building products generally, including cladding. The report made nine recommendations that impact directly upon non-compliant cladding, 5 of which they consider require urgent action. The recommendations focus on trying to achieve regulatory consistency nationally, better reporting mechanisms and greater accountability to prevent the use of non-compliant cladding.
The five recommendations that should be considered for urgent action are as follows.
The final report also adopts a number of recommendations from the Senate Inquiry's interim report into non-compliant cladding, including:
The Victoria Building Authority has conducted and completed its audits of 1316 buildings in classes 2, 3 and 9. The buildings that fall within those classes are apartments, hotels, motels and student accommodation above 3 storeys, as well as hospitals, schools and aged care facilities above 2 storeys.
As a result of the audit, in some cases, building notices and emergency orders under the Building Act 1993 have been issued by municipal building surveyors.
Similarly, around Australia building authorities have conducted cladding audits in South Australia, Western Australia and the Australian Capital Territory.
The ATO has ruled that cladding rectification works to commercial office buildings do not classify as 'repairs' and such works are considered to be a capital improvement.
The ATO ruled that removing and replacing the external cladding of a commercial high-rise building will not be treated as a repair under section 25-10 of the Income Tax Assessment Act 1997.
The ATO considered that meaning of 'repair' and relied on a previous ruling in stating that a repair is a 'mere replacement' of a part of something or a correction of something that is already there and has become worn out or dilapidated. The ruling states that cladding rectification works constitute an improvement which created a ‘new function’ on a building. The ATO justified this ruling by stating that the new ‘function’ is making the building’s exterior non-combustible and fire resistant.
The effect of this ruling is that commercial building owners may not be able to deduct the cost of non-compliant cladding rectification works, and instead will have to depreciate the cost over a number of years.
Where works are done to commercial buildings that produce income, the cost of cladding rectification works may be deducted as a depreciating asset over a 25-year period as 'capital works'.
On 26 September 2018, amendments to the Building Act 1993 (Vic) came into effect which permits the Minister for Planning to declare the use of high risk cladding products to be prohibited.
We note that while the Minister has the ability to declare the use of high risk cladding products to be prohibited, that power has not yet been exercised by the Minister.
These amendments empower the Minister to make declarations prohibiting the use of high risk external wall cladding products where satisfied that such products cause or will likely cause risk of:
External wall cladding product is defined as 'any product or material that is, or could be, used on or in the external wall of a building (including an attachment or ancillary element), but excluding any product or material that the regulations state is not an external wall cladding product'.
New law passed in NSW and QLD this year impose reporting requirements on building owners of certain types of buildings. Private building owners of certain types of buildings in both NSW and QLD are required to report and register their buildings online by the following dates:
The information required in each of the two States differs slightly:
Following the Victorian Building Authority's second cladding audit, the VBA identified 44 buildings were considered to be in a high-risk category.
As a result, on 5 October 2018, by Ministerial Declaration, the Minister for Planning appointed the VBA to act as municipal building surveyor for those 44 buildings.
This Ministerial Declaration allows the VBA to ensure a consistent response to non-compliant cladding and to enforce building standards for these high-risk buildings.
In the United Kingdom, the Building (Amendment) Regulations 2018 was laid before the UK Parliament on 29 November and is set to come into force on 21 December 2018.
The amendments introduce a prohibition on combustible cladding on all new high rise buildings above 18 metres as well as hospitals, residential care homes, dormitories and student accommodation.
For these types of buildings, the ban prohibits the use of cladding products that do not satisfy the European fire rating of Class A1 or A2.
In Australia, products that meet AS 1530.1 (the BCA test for non-combustibility) are likely in most cases to satisfy the European fire rating of Class A1. However, in Australia we do not have an equivalent to the European fire rating of Class A2.
The ban does not extend to existing buildings or current projects in certain circumstances. However, the ban will apply to buildings where there is a material change in use.