Cladding crisis ‘solution’ isn’t as easy as it seems

A Victorian scheme to remove dangerous fire-prone cladding that covers hundreds of apartment buildings won’t have an immediate impact on strata premiums, according to a strata insurance expert. But that situation may change after the cladding is replaced, Strata Community Insurance MD Paul Keating says. Commenting on the Victorian Government’s tripartite loan scheme to help strata owners pay for removal of the cladding, he says owners’ hopes for an immediate reduction in premiums are unlikely to be met “until the risk has been mitigated, reduced or lowered”. “Until the rectification actually has taken place the risk is still not reduced.” The Cladding Rectification Agreements (CRA) scheme continues to draw heavy criticism ahead of its launch next month. While Victoria is the only state so far to have devised an affordable way for strata owners to replace defective cladding, detractors say the scheme is too complex to function properly. “There is no use reinventing the wheel here. There are far easier mechanisms in place to achieve the same outcome,” Roscon Property Services’ National GM Sahil Bhasin told Securing the minimum 75% support among strata owners to join the scheme is going to be difficult, especially when it’s not unusual for apartments owners to reside overseas. Adding to the complexity is the arrangement between lenders and local councils, which are also responsible for the collection of loan repayments via rates notices. “Councils have got no reasons to try to fast-track these because it’s no benefit to them. It’s just another burden.” Mr Bhasin said. Another legal grey area with lots of potential implications revolves around the loan contract. “It’s the owner corporation that signs the loan contract, so it looks like they are the borrower,” a strata industry source said. “But the lender can’t get money from the owners corporation, only from each of the owners – so who is actually the borrower?” Lannock Strata Finance CEO Paul Morton agrees the CRA is complex, and he has identified many areas in need of more thought. These include the difficulty in obtaining financial information from all strata owners, procedures for assessing owners’ financial position and fallback plans for payment arrears. “The CRA is a square peg that they are trying to fit into a round hole,” Mr Morton told Meanwhile, the state says it has completed the assessment of 1369 private buildings in Victoria and planning permits where cladding has been specified as a construction material. Some level of combustible cladding was found in 218 of the 550 completed buildings inspected by the Victorian Building Authority. The authority also identified 43 buildings as “highest risk” in a separate audit of selected buildings, the Victorian Cladding Taskforce says in a progress report. 

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