Tribunal rules in favour of owners for defects

Tribunal rules in favour of owners for defects

In a landmark ruling, NSW Civil and Administrative Tribunal (NCAT) rule combustible cladding as a major defect and orders for its removal – a win for owners corporations.

Buying into a new lifestyle-designed community association was supposed to be an easy step into a convenient and amenities-driven way of living. However, an exciting purchase turned into an almost four-year battle over one of the most complex defect issues: combustible cladding.

On 4 August 2020, however, as an Australian first that ruled in favour of owners, the NSW Civil and Administrative Tribunal upheld that the Biowood cladding used on the building is combustible. Meaning it’s a significant fire safety risk contributing to the spread of fire, is a major defect, and must be taken down and replaced.

With so many newly constructed buildings suffering from defects right across Australia, we interviewed the building’s Dynamic Property Services strata manager, Derek McKinstry, to better understand the process.

  1. Cladding diagnosis and cohesive management
  2. Three key steps for committees, owners, and a successful defects process
  3. What this means for the industry and owners moving forward

1. Cladding diagnosis and cohesive management

Since Melbourne’s Lacrosse Building fire in 2014 and London’s tragic Grenfell Towner incident in 2017, most people have become aware of a specific type of combustible cladding. Aluminium composite panels and expanded polystyrene that’s typically used for structural purposes and has been the product of investigation across Australia.
For Derek’s committee and owners, however, the issue hasn’t been the classic cladding people now commonly know. Instead, the defective cladding on their building is known as Biowood.

The unexpected fire risk: Biowood is a composite material of 70% pulped wood and 23% PVC

Biowood is a composite material of 70% pulped wood and 23% PVC which is used for aesthetics and its wood-like appearance. “It’s not the same kind of cladding most people would have heard about, it’s a different kind, one that’s used for a wood-like look on the façade of buildings,” said Derek.

“In this case, it was the building manager, Natalie, who raised the issue of cladding across the site. Natalie is a proactive building manager and asked the committee whether they would be prepared to have the cladding assessed by experts, and they agreed. The expert came back with a report that found the cladding on a number of the buildings was non-compliant.

Effective strata management takes a team effort

“We have been the strata management company for the community association and three of its strata schemes since it was developed in 2016. At each step of the way the relationship between myself, the building manager, and the committee has been about teamwork. That’s what good strata management is all about. It’s about working with each other and making the decisions that are always in the best interest of the owners corporation no matter what the challenge is.

“Once we had the first report that showed the cladding was non-compliant, as the strata manager, I guided the committee on the next steps of what to do and who to talk to. Having someone who is experienced in the process makes it easier for all the parties involved. I have been a strata manager for 20 years, so I know what to do and how to guide the process,” said Derek.

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2. Three key steps for committees, owners, and a successful defects process

With Australia plagued by building defects, it’s important committees and owners know about the landmark ruling and what helps to achieve a successful defects process.

“This case is significant because it is the first time a Court or a Tribunal in Australia has upheld that cladding is combustible and was in breach of the statutory warranties under the Home Building Act 1989.

The other significant fact is that the Tribunal, during the case’s Appeal, showed that just because an occupation certificate is issued doesn’t mean an owners corporation can’t bring an action against the builder or developer for a statutory warranties breach.

“This process could have been much tougher than it was, but we had some pretty key factors working smoothly. The three major elements were: 1) the committee communicated and worked well together 2) the role of the strata manager was understood by the committee which meant we worked well as a team 3) the legal counsel was terrific and very supportive.

“It might seem obvious, but having supportive legal counsel changes the experience for owners and the committee. The owners’ lawyers were very commercially responsible. They didn’t have the owners corporation spending large amounts to chase little in return or anything like that. They would often come to committee meetings and provide easy to understand information on what was happening with the claim, they kept communication lines open, and they prepared owners for what was ahead. For example, they had already informed the committee that an appeal on the original decision was expected. Owners always knew what was ahead of them.

“The committee should be commended for their dedication in trying to resolve this issue which has now reached a successful outcome. They worked together cohesively and focused on their communication with each other. This makes the defects process much easier. It is so important for the committee and owners to communicate well together. For example, the chairperson of the committee would write an additional report, and this would accompany the AGM notice. Now, this isn’t routine nor standard practice, but it shows a willingness to keep everyone informed.

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3. What this means for the industry and owners moving forward

According to the scheme’s legal counsel, the Tribunal’s decision represents a win for owners corporations and sends another timely warning to builders and developers that the use of combustible cladding is fraught with risk and carries substantial consequences.

While, for owners and committees, this cladding issue highlights the need to inspect and report on all major building systems and structures when moving into a newly constructed building, even those that are primarily for aesthetics. It also shows, that with changing environments, the ability for owners to hold the developer, builder, or original owner responsible for defective building work is growing.

“Australia is amidst a defects crisis, and it’s great to see a verdict like this. The Tribunal’s decisions, along with the legislative changes and taskforces that are happening in each state, will start to restore consumer confidence. If people have made a significant investment into an apartment or multi-owed property, it is reasonable to expect it is going to be fit for purpose, compliant, and safe,” said Derek.

If you’d like to stay in touch with legislation updates and to access helpful resources, click here to visit our legislation updates webpage to stay informed. Or for a consultation to review your common property insurance by our CommunitySure insurance team, click here.

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