23 July 2019

Why your clients are ‘in the dark’ on devastating defects

This article was originally published by Real Estate Business on 23 July 2019. 

An increasing number of apartment buyers are unaware if their building poses a threat of combustible cladding, according to two property lawyers.

Bartier Perry partner David Creais said buyers are being “left in the dark” about whether an apartment block is covered in combustible cladding, with sellers under little legal obligation to report such risks.

“Buyer options will be severely limited and costly when it comes to determining if an apartment block’s cladding is safe,” Mr Creais said, noting even strata committee records may not always record if cladding had been or was being assessed.

A similar sentiment was echoed by Bartier Perry senior associate Mark Glynn, who said it “would be close to impossible” for apartment buyers to get an independent assessment of the cladding risk.

“Firstly because the cost of having someone actually take and test a sample from a high-rise before purchase will be prohibitive, and secondly because right now there are only two laboratories nationwide recognised by the Insurance Council as qualified to undertake such an assessment,” he explained.

“Finally, because while the NSW state government had compiled lists of at-risk apartment blocks, these are not being made public, with the government citing the disadvantage that it could bring to property owners.”

Advice to apartment buyers

Despite his aforementioned comments about strata committees not always recording cladding assessments, Mr Creais noted this is the best place for buyers to start when looking into potential risks.

“Buyers should carry out a detailed search of the strata committee’s records, meetings, minutes and the wider correspondence issued or received by the owners corporation, down to whether there has even been a quote obtained for rectification work,” he said.

“[However,] this could be a significant forensic exercise which would impose extra costs.”

Further, Mr Creais advised buyers to look to the banks, saying the refusal of a mortgage may be a good indication that an apartment block has been identified as a future fire risk.

“The banks are pushing pretty hard to get an understanding of which apartment block’s cladding complies with safety regulations and those that are at risk and will be aided by the Australian Property Institute Valuation Protocol, which requires valuers to report if a building appears to be clad, is known to be clad or of non-compliant cladding is known to be present,” Mr Creais said.

“Ultimately, it may be a bank’s refusal to approve a mortgage that will be a blessing in disguise for some apartment buyers.”

Earlier this year, Queensland’s state government introduced new combustible cladding regulations, with property owners required to complete a checklist to ensure buildings covered in this are properly and easily identifiable through the one register.

Enhanced regulation comes after the 2017 Grenfell Tower fire, believed to be caused by the apartment complex’s cladding.