At a glance
- the cladding taskforce co-chaired by Ted Baillieu and John Thwaites continues to oversee the audit process underway by the VBA which has almost completed an audited of 1,400 buildings state wide
- Victorian Government Budget for 2018/19 allocated $16.5m for the VBA to continue its work on the addressing non-compliant cladding and to heighten the prevalence of on-site audits
- amending legislation and a new set of building regulations intended to fortify inspection, testing and notice requirements relating to building work have come into operation respectively on 1 July 2018 and 2 June 2018
- the VBA has provided guidance as to what to do now to reduce fire risk and what you should do if you are buying an apartment that may have combustible cladding
- a bill introduced on 7 August 2018 to the Victorian parliament, which is currently before the Legislative Council, and:
- is the first to propose a funding and repayment scheme to facilitate rectification of non-compliant cladding for certain types of rectification works on rateable land
- allows for destructive testing to be required in an Emergency Order or a Building Order
- allows private building surveyors to issue building notices at any time, even after an occupancy permit is issued
- allows the Minister to declare the use of high risk cladding products to be prohibited
In more detail
1. Amendments to the Building Act 1993 (Vic)
In the last year, there have been significant changes in respect of inspecting, testing and notifying requirements to assist in enhancing the building industry attitudes and ensuring practitioner's obedience.
The Building Amendment (Enforcement and Other Measures) Act 2017 became operative on 1 July 2018 andfortified the inspection requirements for building work (listed in Part 4 of the Building Act 1993 (Vic)) in the following manner:
- a building surveyor is required to inspect building work where a permit has been issued in person;
- a building owner can cause building works to be inspected at any time;
- adequate records must be kept in respect of the inspection upon request given to the VBA, the MBS, the building owner and any other prescribed person;
- persons carrying out inspections must be a registered building surveyor or inspector and is authorised to carry out the inspection;
- notably where the inspection to be carried out relates to fire safety, the prescribed inspector must be a fire safety engineer;
- a building surveyor is empower to cause building work to be demolished, open or cut into or tested if required to ensure it can carry out its functions under the legislation.
2. New Building Regulations 2018 (Vic)
The Building Regulations 2018 (Vic) commenced on 2 June 2018 providing:
- new reference numbering system for many of the former regulations that have been retained, although the Department of Environment, Land, Water and Planning has helpfully published a 'cheat sheet' setting out the number of the former regulations and their corresponding new reference number;
- new requirements as to the documenting of performance solutions;
- a mandatory notification stage and inspections if the building work comprises of fire and smoke resistant elements.
3. Proposed new legislation: Building Amendment (Registration of Building Trades and Other Matters) Bill 2018 (Vic)
On 7 August 2018, the Building Amendment (Registration of Building Trades and Other Matters) Bill 2018 (Vic) was released to the public. On this same day, Hon. Minister Richard Wynne delivered the second reading speech in the Legislative Assembly highlighting that an important contextual focus for the Bill is around the contentious issue of combustible cladding. What we can see from these proposed amendments are responses to the recommendations contained in the Victorian Cladding Taskforce Interim Report released late last year (this report is explained further on in this Alert).
The Bill contains important amendments to:
- the Building Act 1993 (Vic) by prohibiting the use of certain wall cladding products; and
- the Local Government Act 1989 (Vic) by establishing a scheme to enable local councils to enter into agreements to rectify cladding on buildings, and to provide for councils to declare and levy charges to fund such rectification.
The key amendments are explained below.
3.1. Extended ability to continue issuing building notices/orders
In order to eradicate confusion surrounding the decision handed down in LU Simon and others v Victorian Building Authority  VSC 805, the Bill expressly confirms the continuing role and functions that private building surveyors (when acting in a capacity as a relevant building surveyor) hold.
Their functions are clarified through the insertion of a new s 40(2) which provides that a private building surveyor, when acting as the relevant building surveyor, is permitted to continue issuing such building notices/orders over a building which has already received an occupancy permit, a certificate of final inspection or a temporary approval.
The amendments intend to strengthen the already existing powers of a private building surveyor, and additionally seek to facilitate the effectiveness of the Victorian State-wide Cladding Audit. This clarification of a private building surveyor's functions has been explained as having the potential to assist in rectification works and to work alongside the VBA in an expeditious manner.
3.2. Destructive testing powers
In an attempt to further aid the Victorian State-wide Cladding Audit, the introduction of cohesive, destructive testing powers are set to be amalgamated into the Act. The government appears to be acting upon the recommendations made by numerous cladding expert taskforces, reports and the state-specific Victorian Cladding Taskforce. Notably, the approach that is being taken is to fortify the VBA's powers and bring them into line with powers already held by similar regulators around the globe.
The Bill introduces an ability for either a municipal building surveyor, a private building surveyor or the Victorian Building Authority (together 'authorised persons') to conduct such testing in order to determine the product's compliance, or non-compliance with the Building Act 1993 (Vic). the regulations and the BCA.
However, an authorised person may only exercise this power when it has a reasonable belief that the product may not adhere to the above standards. The use of this power is also restricted by a qualification that the requirement for destructive testing be based on a belief that is reasonably necessary (ie. immediate danger or risk to life, health and safety). The definition of this testing method provides that it is where the testing will destroy the building product or material. Only a prescribed testing authority accredited by the National Association of Testing Authorities (or other bodies as may be prescribed) may carry out the test, which may be occur out on site or at a testing location.
The introduction of these destructive testing powers can also be exercised after a certain building product or material has initially been tested, and can assist in providing clarification where the initial results are inconclusive.
As mentioned above, the ability to exercise these powers will further assist the Victorian State-wide Cladding Audit through providing a comprehensive, conclusive testing method for cladding materials which may not conform with the required standards.
The new destructive testing method regime is set to take effect from the day in which the Bill receives Royal Assent.
3.3. Minister may make declarations prohibiting the use of high risk cladding products
The Minister will become empowered 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:
- death or serious injury to building occupants or members of the public; or
- severe property damage.
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'.
Notably, such declarations may:
- may apply to a specified use, building or person, or a class of use building or person;
- may include conditions relating to how wall cladding products affected by any declarations may be used; and
- will not affect the use of external wall cladding products under permits if the permit applications were made before the declarations take effect.
These amendments are to take effect on a date to be proclaimed, or on 1 July 2019 if they have not commenced operating before that date.
3.4. Creation of a loan repayment mechanism to cover the cost of replacement cladding works
The Bill establishes a scheme to help reduce the cost for land owners and owners corporations of removing non-compliant cladding. The scheme will originate in a new Part 8B of the Local Government Act 1989 (Vic) and largely mirror the existing Environmental Upgrade Agreements which facilitate environmentally-friendly upgrades to commercial buildings.
In order to attract the operation of the scheme, the Minister must first publish a notice specifying the types of works that will attract the application of the scheme. In addition, to also be eligible, the land on which the building is located, must be 'rateable'. The definition of 'rateable land' in s 154 of the Local Government Act 1989 (Vic) provides that all land is rateable, unless an exclusion applies that can be found within s154.
Under the scheme, a council may enter into an agreement, known as a cladding rectification agreement (CRA), with owners of rateable land or owners corporations (where the rateable land is managed by an owners corporation) and a lending body (which may be the council). The lending body advances funds for the relevant removal works and the council raises a cladding rectification charge (charge) over the land the subject of the CRA.
The charge will constitute a service charge as specified in the new s185L(4) of the Local Government Act 1989 (Vic). Under s175(1A) of the existing legislation, the continuation of liability for such charges rests with a new owner, who becomes responsible for the instalments until the date the charges are set to be repaid. This aligns with the parliamentary intention for the charges to run with the land and burden any future owners of the land with the obligation to repay the charge.
The charge may be varied should there be any variation to the works or cost of the works. The council then collects the money received under the charge to repay the lending body and is entitled to charge an administrative cost to do, according to the second reading speech, this incentivises the program for municipal councils. The charge is repayable over a period of at least 10 years.
Conditions which must be met before a CRA is entered into
Before entering into a CRA, a council must be satisfied that the total amount of any taxes, rates, charges and mortgages owing:
- on the rateable land; or
- for each separate lot of rateable land where such land is managed by an owners corporation,
does not exceed the 'capital improved value' of the land or lots after the completion of the works undertaken under the CRA. In essence, the council must undertake a financial due diligence to ensure that the existing charges on the land together with the loan amounts under the CRA will not exceed the capital improved value of the land. However, a council may still enter a CRA where all existing mortgagees of the rateable land or lots agree in writing to the charge.
Further and relevantly, a charge must not exceed the expected value of the rateable land after the works are completed, unless all existing mortgagees agree otherwise.
Specific requirements for rateable land managed by owners corporations
Where the CRA is entered into in respect of rateable land managed by an owners corporation:
- it does not apply to common property; and
- the charge is to be apportioned based on the separate lots or occupancies of the land.
The owners corporation is not liable to pay the lending body if the charge is not paid – it remains a charge on the land (and is subject to recovery, along with penalty interest, in the same way as if it were a service charge).
Liability of occupier to pay charge
An occupier of rateable property is not liable to pay any part of the charge unless the occupier has specifically agreed to do so in writing. The owners corporations rules specified in the Owners Corporation Act 2006 (Vic) mandate that at least 75% of owners must concur with the desire to enter into such an agreement, thus upon reaching this threshold, will bind all owners within the building.
Owners corporations and affected building owners should seek independent advice prior to considering this option to see if it is an economically viable option in funding the cost of rectification works, should it be applicable.
Commercial landlords may pass on the cost to tenants
Under the proposed amendments, commercial landlords may be able to pass on charges to a building's occupiers only if the occupier has specifically agreed to do so in writing. As a result, the commercial occupier is liable for the amounts due under the CRA and can be pressed for payment by the council during the term of its lease.
4. Victorian Cladding Audit
4.1. Comprehensive State-wide Audit
The initial audit conducted by the City of Melbourne, the Metropolitan Fire Brigade and the VBA focused on 168 buildings in the metropolitan area. Our Alert on that audit can be found here. As at October 2017, 30 buildings identified in the initial audit remained non-compliant.
The first audit was used by the Taskforce to inform the methodology of conducting a more comprehensive Victoria-wide audit which commenced on 1 January 2018 and is well progressed. The audit is being conducted on buildings constructed after 1997.
As part of the audit, VBA's CEO Sue Eddy has released updates which provide guidance largely for occupiers and prospective purchasers.
The methodology of this audit includes:
- an initial visual assessment, if the assessment is unclear, it progresses to the next stage;
- an onsite inspection by the VBA acting as the municipal building surveyor;
- a risk assessment of the fire safety risk posed;
- potential issuing of an emergency order to ensure the building is safe for occupation; and
- rectification of the non-compliant building, where orders can be made against the builder or owner.
Where a building has been assessed as a 'high risk' the municipal building surveyor can consider serving an emergency order to require immediate rectification. If necessary, the municipal building surveyor could order evacuation of the building. This has not been considered necessary as yet.
The Taskforce has also encouraged private-building owners to undertake their own inspections.
The Taskforce is also in the process of developing the requirements for rectification. The standard will be evidence based and incorporate both Australian and international product test grades, fire modelling and full-scale fire tests. Once the requirements are settled, the VBA will integrate them into the audit.
5. Ministerial Guideline
In March of this year, the Minister for Planning issued its Ministerial guideline. That guideline requires building surveyors to have regard to the type of material to be used as cladding before issuing a building permit. If an ACP with a core of more than 30% PE or an EPS is to be used, a building surveyor must not issue a building permit unless and until the Building Appeals Board has first approved the design through a section 160A application. Our March Alert provides more details about the guideline.
Accompanying the guideline was a Building Product Safety Alert which warns building professionals about potential fire risks associated with the inappropriate use of:
- ACPs fabricated with a PE core of above 30%; and
- rendered expanded polystyrene products when used as wall cladding.
The guideline was issued as a response to the Taskforce's recommendation in its Interim Report released in November 2017. By virtue of section 188(7) of the Building Act 1993 (Vic), municipal building surveyors and private building surveyors 'must have regard' to this Ministerial Guideline in carrying out their functions, including when issuing building permits.
6. Victorian Cladding Taskforce Interim Report
The Victorian Cladding Taskforce's Interim Report of November 2017 voiced sentiments expressed by the Hackitt Interim Report in the UK. The report stated that the issue of non-compliant cladding is a result of:
- the supply and marketing of inappropriate building products;
- a failing compliance culture in the industry; and
- a fallible regulatory system.
The Interim Report also found that as the non-complying products were being used, a general complacency of the products' risks seemed to grow.
The Taskforce recommended the following:
- Victorian Government to place itself as a leader in Australia with both its auditing and regulatory functions;
- VBA to directed to continue its audit of privately owned, residential, multi-unit buildings whilst prioritising buildings identified with the combustible products;
- VBA to inform affected owners to seek professional advice on the issue;
- set a rectification standard which would permit fire safety engineers and private building surveyors to determine the best course of action to repair the defective cladding;
- research further into the apportioning rectification costs upon interested parties;
- the possibility of a statutory duty of care where building practitioners may be required to protect occupants and consumers residing in a residential strata building;
- following Queensland in possibly introducing shared responsibility legislation (see below for our discussion on this legislation) which would see a shared burden amongst building industry participants;
- for building practitioners to seek approval in respect of significant variations to building plans and to lodge plans which reflect the 'as built' specifications for a building;
- an overhaul of the private building surveyor model, the penalties and enforcement powers under the Building Act 1993 (Vic) to allow for swift intervention;
- a strengthening of fire safety designs including in the review, approval and inspection stage.
The Taskforce continues to work with all interested bodies in paving the way forward for dealing with this issue. If the Interim Report and its tone is anything to go by it is likely that we will see significant change in Victoria's regulatory system in its attempt to combat the inappropriate use of building products.
7. Victorian Building Authority - general
The VBA is in the auditing phase and is continuing to focus its attention on 'unsafe' and 'non-compliant' buildings, including buildings currently being constructed. The Authority has also made the issue widely known to builders, owners and future owners by way of its user-friendly information pages.
7.1. Article providing guidance to building owners and managers
The VBA has published an article in the June – August edition of the Facility Perspectives publication providing a six-step guide which building managers and owners can enact now manage fire risk.
They are as follows:
- Ensure that essential safety measures are operative and routinely maintained
- Ensure that pathways or stairways are not cluttered with storage
- Find out information about the building's history, keep up-to-date records, seek provision of the building's original documents
- Communicate with the original building surveyor or builder to ascertain the materials used
- Ensure that evacuation measures are known by all occupants of the building, and display these processes in commonly used area
- Inform yourself and keep up to do date with the Victorian Cladding Audit.
These simple steps can assist in managing your building and assist in answering queries from residents that may be posed to you.
7.2. Mandatory reporting requirements/notice to builders and property developers
In addition, CEO Sue Eddy released a notice actively requesting for more than 800 property developers and registered builders (individuals and companies) to:
- advise on the type of cladding being used throughout exteriors multi-storey buildings that are currently under construction; and
- confirm what types of products are being used in the same areas for those projects which have not yet commenced or are in progress.
Notably the 'mandatory reporting requirement' is intended to inform the VBA and will assist in '[driving] safety and [preventing] the improper use of combustible cladding on buildings'.
We understand the survey will assist in the VBA's inspections as part of the wider State-wide audit.
The notice incorporated the following:
- building surveyors to review building permits relating to fire safety;
- an acknowledgment of the Building Product Safety Alert on the improper use of ACPs as external cladding;
- the Minister's Guideline issued in March 2018; and
- for property developers and building companies to ensure that combustible cladding is not used on future projects unless approved by the Building Appeals Board.
If those issued with the notice failed to comply with its requests, then the failure constituted an offence which may give rise to disciplinary action by the VBA.
Responses to the above survey were due on 8 June 2018.
7.3. Regulator's guidance
The VBA has also made recommendations as to:
- what steps you can take now to reduce the risk of fire on your property by implementing these steps now
- what enquiries you should make if you are buying an apartment that may have combustible cladding