A new class-action will have a big impact on the building industry.
I reckon the most interesting case before the courts right now is a class-action by the owners of apartments in Melbourne’s Lacrosse residential tower.
Basically, Lacrosse had the same outside cladding that was responsible for the Grenfell disaster in London. There was a fire in 2014 (thankfully no one was killed) and the owners are being forced to replace the cladding.
The owners, obviously, are trying to sue the builder, LU Simon, to make them pay for it.
From the AFR:
They want $24 million. On Monday, owners of the 328 apartments in Melbourne’s Lacrosse residential tower will start their long-awaited case for damages against builder LU Simon, over the combustible cladding placed on their building…
As they seek redress including an estimated $10.7 million in recladding costs, $1 million in lost rent and emergency accommodation costs and over $500,000 in insurance premium hikes, the Lacrosse owners are not the only apartment owners in Australia trying to resolve a cladding problem not of their own making. But they are the highest-profile group so far. And there will be more…
The Lacrosse owners are now finalising a loan of $11 million to replace the polyethylene-core panels that still wrap around their building on Melbourne’s La Trobe Street…
Combustible cladding forces insurance premiums higher, devalues apartments and even makes apartments unsaleable… And when it catches fire, it is dangerous…
It’s going to be really interesting to see where this one goes.
The best-case scenario for the owners is obviously that the builder has to foot the bill. That leaves their property values, (after the dangerous cladding has been replaced) more or less in tact.
But it’s not clear that it is going to go that way. There’s a good chance the builder did everything by the book – purchased cladding with the right certification and installed it correctly.
The problem could well be, as a lot of people in the building industry have been telling me, that sometimes when you’re buying cheap building materials from China, they’re not exactly as they claim to be.
For example, not as fire-retardant as they claim to be.
So the builder might have been doing the right thing, putting their faith in the certification processes behind the materials. Is it really their fault if the Australian or Chinese government certification process were subject to rorting?
It hardly seems fair to make them pay if they’ve been doing the right thing.
But that just leaves our owners on the hook, and it’s definitely not their fault.
But even if the courts find the builder liable, where does that leave us? How many builders and developers across the country have used materials that they thought were up to code?
Do we now say that every builder in the country is responsible for testing the quality of the materials that they use and ensuring that they’re up to code? Like, seriously?
That doesn’t seem workable.
It may also be a moot point in some places like NSW. The government there recently reduced the warranty claim window from seven years down to just two:
Also from the AFR:
Many owners of the 1000 NSW buildings identified with possible non-compliant cladding won’t be able to claim against their developer or builder because the two-year window to make such claims will have passed, a property lawyer says.
A change in law two years ago cut the window to make such claims from seven years, in part to reduce the risks for the statutory warranty insurance the state government underwrote.
This meant owners of buildings built under a contract agreed after 1 February, 2012 – which includes many built in the current housing boom – would not be able to claw back the costs of rectifying any non-compliant cladding. This is the view of David Bannerman, the principal of North Sydney-based Bannermans Lawyers.
So then it’s on the owner’s head?
So what, our due diligence as buyers now involves chasing a paper trail of materials used to make sure they were up to code – I mean, genuinely, really-truly up to code?
Who’s got time for that?
This is all just throwing a lot of uncertainty all over the place. As someone who buys property, but also as someone who develops property and engages builders, this is all just a risk I don’t know how to place.
Because while I think the flammable cladding is the highest profile example, I get the feeling it is the thin end of the wedge. Who knows what next?
So I feel sorry for the owners of Lacrosse, I feel sorry for the builder, but I’ll be watching what happens closely.