A day clad with announcements

16 July 2019

According to the Final Report, out of a total pool of 1,069 private buildings, the Taskforce has deemed 72 to be “extreme risk” with a further 409 in the “highest risk” category (accounting for, respectively, 7% and 38% of the buildings with cladding which have been inspected and assessed to date).

The Victorian Government has already announced that 15 properties have been selected for rectification through funding from the 2019/2020 budget leaving open the question as to when the funding will be available to the remaining 466 properties.

At this stage the Victorian Government has indicated it will directly fund half the rectification and called on the Federal Government to contribute the remaining $300 million required. That assumes that previous estimates are inflated and the properties can be fixed within this amount.

Should the Federal Government continue to decline to contribute, the outstanding $300 million will be raised over the next five years through changes to the building permit levy. It is estimated the levy increase will affect 6% of permits, with permits for low-rise buildings and building works under $800,000 being excluded from the increase.

The Final Report has recommended that the Victorian Government offsets the costs of the rectification program from “wrongdoers” and insurers while potentially having owners transfer their recovery rights to the state as a condition of receiving rectification funding. While the Government has been quick to announce the partial funding, the devil will be in the detail with no announcements made as to how it will perform its due diligence around scoping and costing the works.

Cladding Safety Victoria will be contacting owners corporations and property owners shortly, beginning with those whose buildings are identified as high risk in the Final Report. A referral to Cladding Safety Victoria will trigger a six-step rectification process as outlined here.

Relevantly however, it is unclear whether the Victorian Government will be seeking to subrogate recovery rights immediately. If the Victorian Government does seek to recover from construction professionals and insurers, it runs the risk of perpetuating the current insurance and construction related crisis by discouraging insurers to re-enter the professional indemnity market, particularly for building surveyors. Moreover, such an approach seemingly ignores and is at odds with the Victorian Government’s recent regulatory changes which enable building professionals, such as building surveyors, to maintain their registration despite their professional indemnity insurance containing ‘cladding exclusions’ aimed at excluding cover for cladding related claims. Put simply, it may result in the Victorian Government having to pursue building surveyors for effectively uninsured losses.

Today’s announcements come after it was revealed last month that owners were yet to take up the Victorian Government’s offer for owners to enter into cladding rectification agreements.

The Final Report can be viewed here.

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