WA: Q&A What if your strata building has combustible cladding?

This article is about your building’s obligations arising from a cladding audit or other building defects. How do you know if your building has combustible cladding?

Table of Contents:

• QUESTION: In regards to cladding, what is your recommended source of information to determine what product is actually being used?
• ARTICLE: WA Cladding Audit: Strata Finance May Assist Your Building’s Obligations

Question: In regards to cladding, what is your recommended source of information to determine what product is actually being used?

Answer: There’s no real proper way of determining what cladding is on a building other than doing what we refer to as exploratory work or destructive work.

Obviously combustible cladding is quite a significant feature at the moment in Australia and around the world in terms of what’s happening. There’s all sorts of various means of identifying what is on your building. I’m presuming, in this instance, there might be some suspicion or concern about what’s there and you may want to know what is the material on your building?

Certainly in most instances, there’s no real proper way of determining what cladding is on a building other than doing what we refer to as exploratory work or destructive work. What that is, I don’t like using the word destructive, but it is taking a sample from a building. It is about taking a core sample out of the building and being able to look at and get that core sample tested, and then that will determine whether the material is actually compliant, combustible, or not. That’s the that’s the beginning of the whole journey, is starting with that testing, that’s where it commences.

One of the biggest problems in the industry with this cladding debacle is that you would expect that you would be able to pull out some construction documents and have a look at the documents themselves as to what particular cladding was specified in the first place by the architect or even delivery documents. What was delivered and put on the building. I can categorically tell you that information is inherently unreliable because this period of time we’ve been through where quite often builders don’t follow the original design, or a developer may put pressure on a builder to get it finished quicker and buy a cheaper material or whatever. The only real way to understand what’s on the building is to get that tested. You’d be pulling off a portion of the material, looking for markings and things on the back of the cladding. Normally when we do that, we’ll do it in a discreet location in the building. We want to do it on the front facade or anything. We’ll find some way where you can do it and test that just to see where that’s going.

There’s pressure from insurers at the moment. They are paranoid, they are asking owners to please explain, ‘Do you have a building that has got combustible cladding?. It is a pretty unfair question in my view because most owners really don’t know.

If you are concerned at all, there are avenues to get tests done. This will at least give you some peace of mind as to whether a material on the building is flammable or not and then that would start you on a journey down a pathway of remediation if that was the case.

Regarding costs involved for this type of explorative work, it’s on a case by case basis. Ordinarily, it’s going to depend on the building. Another important issue I’ll add into is (depending on the size of the building, you’re talking about), the other issue we’ve found with combustible cladding on a lot of buildings is that we will do a test in a particular place on a building, and we’ll determine that that might not be combustible. But we’ll get around the corner and do another test and it’s a completely different product and it is combustible. Depending on the size of the building, sometimes there has to be a series of samples taken. Again, in the industry, there’s lots of different things that have occurred, but sometimes a builder might get three quarters away through, they’ve ran out of materials, I urgently want to get the job finished, they ring around, they try and find where they can get something, somebody’s got a material and they’ll say, ‘It’ll be fine, just put it on’, and it turned out it was combustible. It might have been a mixed use of materials through whatever reasons. Quite often it does result in doing multiple tests, not just one.

Bruce McKenzie
Sedgwick
E: [email protected]
P: 1300 735 720

This post appears in Strata News #526.

ARTICLE: Cladding Audit: Strata Finance May Assist Your Building’s Obligations

If you are living in a strata titled building you may be aware that the Western Australian Government are in the process of undertaking a state-wide cladding audit of public and private buildings, resulting in:

• 477 private buildings identified as having cladding; and
• The introduction of new applicable building standards for non-combustible external walls for new building work, to prevent the use of combustible cladding in the future.

The combustible cladding audit is currently in Stages 3 and 4 of Phase 2 (of a 3 Phase process) with authorities conducting detailed risk assessments and preparing recommendations to local government permit authorities for the making of remedial building orders.

Should your strata schemes be subject to a remedial building order, your building may be required to remove and replace some cladding in order to maintain the safety of residents. As recent examples in the media demonstrate, this rectification could run into millions of dollars.

Recent examples such as the Opal Tower building defects saga in Sydney, show how building defects can cause major problems and financial hardship for a strata company, with high costs for building defect reports and rectification being the norm.

It is fair to say that most schemes will not be financially prepared to deal with the impacts of a remedial building order on their buildings or a building defect situation. Strata schemes with suspected cladding or building defects should now begin their financial planning for how they will deal with any possible rectification costs.

Strata Finance Explained

What is it?

When a strata company needs money for cladding rectification costs, essential fire services upgrades, renovation or rectification works, emergency repairs, green initiatives, insurance premiums, litigation or other capital requirements there are essentially three options to choose from:

• use money from a reserve fund (only if a reserve fund has been established and the expense is included in the annual budget)
• raise a levy
• take out a loan to cover the costs

All options are viable and should be considered depending on the circumstances but what if the budget was not allocated in the reserve fund? Special levies are not often the favourite choice of owners as they are required to find the money to pay for this unplanned expense. By choosing strata finance however, funds are provided directly to the strata company and the expense is paid through levies over time thereby taking away the burden of a lump sum. Strata financing provides the ability to commence work immediately without the need to raise unpopular special levies or wait for enough money to accumulate in a reserve fund.

What are the benefits of strata finance?

There are many benefits of using strata finance including the following:

• peace of mind
• the loans are unsecured and offered directly to strata company
• by taking out a loan a strata company is reducing the immediate cost burden for works
• funds can be accessed quickly once approved and projects can be carried out with minimal delay
• cash flow is freed up
• loans can be used to ensure that buildings are compliant and residents are safe now
• improved lifestyle
• strata financing can save time and expense plus provide complete certainty of funding
• it allows emergency works, repairs and maintenance to be completed immediately without further deterioration or risk to health and safety
• finance may offer greater flexibility and peace of mind that capital values and building standards are maintained or improved
• instead of doing small jobs as money becomes available, multiple repairs, maintenance or refurbishments can be bundled into one project, saving time and money whilst minimising disruption to owners
• no large financial burdens
• loan repayments are incorporated into quarterly levies/fees
• there is no mortgage or personal guarantee required to secure a loan
• increase the value of an owner’s asset
• repairs and improvements will help maintain and may even improve the value of an asset
• for investors, rental and tenancy stability are enhanced

Who will benefit from strata financing?

• The strata council will benefit as they will be able to make decisions quickly and not need to drag out the process to raise funds for essential works.
• The owners will benefit as they will not be lumbered with the burden of having to pay a hefty levy. They will also see that the value of their asset is maintained and often improved.
• The building will benefit from having works completed quickly and not experiencing further deterioration or inconvenience to owners.

The decision of which funding option your strata title uses will depend on the circumstances but you do have choices and should consider them all.

One of the biggest advantages of Strata Finance in relation to cladding compliance and building defects is that the strata scheme will have the freedom and flexibility of engaging the necessary contractors in a timely manner and not being prevented from doing the urgent works required because some owners may have neglected to pay their levies.

Debbie Barker
StrataLoans
E: [email protected]
P: 1300 785 045

This post appears in Strata News #319.

Have a question about accessing strata finance if your building is affected by the WA cladding audit or something to add to the article? Leave a comment below.

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• WA: Refurbishment Works – Consider the Impact on Fire Safety

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