Written by Mark Ruttner on June 24, 2019. Posted in Blog, Real Estate Market

Combustible Cladding And Apartment Sector Is One And The Same … Perhaps

For Property Owners

The Victorian Building Authority (VBA) together with the Department of Environment, Land, Water and Planning is currently in the process of undertaking a statewide audit on behalf of the Victorian Government.

Properties under consideration include apartment complexes, motels and hotels (three storeys and above), buildings where Victorians gather as a large group, such as sporting areas, private schools, private hospitals and aged care facilities (two storeys and above) and government buildings in Victoria.

In order to ascertain whether a building has combustible cladding, the first point of call should be the Owner’s Corporation Manager and/or Building Manager.

In particular, residential apartment developments of which are three or more levels and built after March 1997 are subject to the audit.

Currently, a detailed list of affected developments is not available and hence, such matter remains as issue for owner occupiers, investors and tenants alike.

An overview of the current process is as follows:

Inspection and Audit report is undertaken for all buildings fitting the aforementioned classification
A panel review and risk assessment is undertaken by a Building Surveyor, a representative from the MFB or CFA and a fire engineer. Recommendations are thereafter advised to the property owners
If cladding is evident, the Municipal Building Surveyor may issue an Emergency Order for short-term fire safety measures. The Emergency Order must be disclosed in the Section 32 Statement
The Owner’s Corporation Manager implements the specified fire safety measures within a short timeframe, with works undertaken reviewed the Municipal Building Surveyor
The Municipal Building Surveyor issues a Building Notice of which must also be disclosed in the Section 32 Statement. The Owner’s Corporation must report to the VBA or their Municipal Building Surveyor as to the proposed plan to rectify the issues be it complete or partial replacement or others measures
A Building Order is then issued by the Municipal Building Surveyor requiring the building work to be undertaken. Upon the works being undertaken, a Building Permit will be issued
If deemed appropriate, the Municipal Building Surveyor will issue an amended Occupancy permit.

How does one determine whether a building is affected and what measures can one follow when considering the purchase of a residential apartment;

Liaise with the Owner’s Corporation Manager and seek specific advice as to whether any orders having been issued and if they have been complied with
Is the Owner’s Corporation Manager aware of any aluminium composite panels or expanded polystyrene having been used
Liaise with the local municipality, Victoria Building Authority (VBA) and building insurer and request any information they may have or be aware of with respect of the development
Seek independent advice from a Building Surveyor
Review current and previous Owner’s Corporation Manager Minutes
Obtain a copy of the current Essential Safety Measures Report
Refer to the Section 32 Statement as it should provide details of any outstanding building notices or orders

Questions that simply do not have any definitive answers include the following;

Are financial institutions lending on developments that are affected with combustible cladding?
If so, is there an effect on the loan to value ratio?
How is the marketability of such apartments affected?
Are these apartments in fact saleable?
How is the insurance industry dealing with such developments?
What is the effect on building insurance premiums?
What is the effect on the rental market and are tenants being advised accordingly?
Who will be ultimately responsible for the cost to repair/replace?

The current directive from the Australian Property Institute where are development is affected by cladding is summarised as follows;

“The Valuer is to clearly highlight in the Valuation Report where a development, based upon publicly available information, contains non-confirming cladding
The reliant party is to undertake further investigations as to the application, installation, specification and utilisation of the cladding and its compliance or otherwise
A clear statement that valuers are not experts in building materials and are not qualified to determine the existence of non-confirming cladding from a visual inspection alone and are not expected to make or required to make enquiries into whether the cladding is compliant or non-compliant
The valuation is to be based on information publicly available relating to the development
Re-sales within the development are to be used, where available, and any known market information regarding such sales should be commented on.
Commentary with regard to apartments currently on the real estate market should also be made”.

Source: Valuation Protocol – Cladding on Buildings – Australian Property Institute

In essence, the issue of combustible cladding is a complex one with no clear directive prevails as at today.

If you require any advisory/valuation/representation assistance, please do not hesitate to contact our office.

valuations@fvg.com.au
Mark Ruttner 0411 419 674
Jim Derzekos 0412 361 367

First Valuation Group
Ground Level, 18-22 Thomson Street
South Melbourne,Vic 3205