The incident responsible for prompting immediate global action was the horrendous incident in June 2017 at Grenfell Tower in London, which nobody hopes to ever see again. 71 people lost their lives that night and countless more families have been impacted by the event; several who are still seeking some form of closure. The public enquiry (The UK’s largest) is set to run into 2020 and around 15 households are still living in hotels over a year after the events occurred.

Further to the above, it is becoming increasingly important for Builders, Developers, Strata & Property Managers, Tenants and all parties involved to be well educated in these ongoing Cladding issues.

The Building Commissioner will publish fortnightly updates on the audit and will report on the findings at the conclusion.

Source: https://www.commerce.wa.gov.au/building-commission/state-wide-cladding-audit

Here in WA, an issue with builders is that so many have gone into receivership over the last few years. This leads to the question: what’s going to happen in this situation? Building defects are an ongoing cause for concern as to who is going to pay to rectify faults (leaking windows is a common one). In some cases, the strata sinking fund (the contingency fund all owners place money into) is being used to rectify defects – at a cost to owners. If insurers are not going to foot the bill regarding defects, then they are probably not going to replace millions of dollars’ worth of non-compliant material.

All eyes will be on this system and perhaps we’ll see other States follow suit where an outcome does not fall in favour of owners.

As mentioned in the previous section, with so many WA builders going bust it’s a scenario without clear answers.

As a Building insurance policy comes up for renewal (6-8 weeks out), insurers are sending out questionnaires to the party managing the policy, asking to confirm whether cladding is attached to the insured building in question. If the response is yes, insurers typically want to know the type of cladding being used and the percentage attached to the building; the risk is assessed from there.

One major strata insurer told us that if the potential for a large loss is calculated to be anything over $10,000,000 they would consider not providing insurance terms at all – this may provide some perspective on the size of properties with cladding that insurers are still willing to insure. Premiums are set according to the residual risk of damage occurring – the higher the risk, the higher the premium.

The above tells you that each Building really is assessed on a case by case basis, as there are so many factors for insurers to consider. The more information the insurer can be given, the better chance you have of being offered favourable terms at renewal.

One revolutionary idea is to use expandable graphite in the construction of cladding: these coarse flakes (when treated with acid and heat) split apart and increase in volume by up to 300 times. The expandable graphite (when pressed into sheets) is already used for heat and fire protection in applications ranging from building materials to consumer electronics and fuel cells – cladding is certainly a realistic possibility.

Multiple projects are underway in Africa to increase stocks of graphite, so while the technology is still in its infancy, companies and creative minds are striving to improve the safety of construction materials being used and take the recent tragic global events very seriously.

Newly installed cladding in the Grenfell Tower has been identified as a possible cause of the fire that has taken as many as 80 victims, if not more. Residents of Dubai’s Torch Tower were luckily able to escape in time and avoid harm, but this is the second time since 2015 that the tower has gone up in flames. The common fact with these two situations is that there were no methods implemented to correct the issues with their external cladding. Whether this was caused by unawareness of the defects or the decision not to act on the issues, remains up for debate.

• The Australian Reinsurance Pool Corporation (ARPC) is responsible for collecting a terrorism levy for commercial buildings under the Terrorism Insurance Act 2003.

• Recently the ARPC changed how they define a commercial building, which will impact the insurance policies for strata properties valued over $50 million, all commercial properties and mixed use strata’s with a commercial aspect of 20% and above.

• The definition of a terrorism exclusion or exception in an (eligible) insurance contract has been amended to include acts described as “chemical“, “biological“, “polluting“, “contaminating“, “pathogenic“, poisoning“ or words of similar effect.

•  Mixed-use and residential buildings (as described above) that previously did not attract a terrorism levy will now have to pay an additional premium for this at next renewal (after July 1st, 2017).

• Insurers will be required to collect Terrorism Insurance Scheme premiums on behalf of the ARPC

• The high volume of modern residential Strata properties that now include commercial tenancies have caused the government to broaden the eligible property definition

• These properties are now eligible for compensation payable under the Terrorism Insurance Act

This scenario presses home the need to have a thorough and detailed building inspection carried out immediately post build; it can be a very difficult and drawn out process to have the builders or developers rectify this situation if left too late. Also, highlighted by this scenario is the importance of installing compliant materials from the beginning as insurers are typically not responsible for the cost of replacing non-compliant materials.

For more details about the Lacrosse tower issues, see The Age article below.

Click here.

It is common for owners to set this figure incorrectly, as they often use the building value of the property. The replacement cost of a building is usually greater than the building value as it is designed to consider various factors that may come into play if a loss occurs. These could include the costs of upgrading the building to current regulations after a loss, removing debris from the site so rebuilding can occur, and covering the loss of rental income incurred. To ensure all these costs are included and up to date, it is recommended that an Insurance Building Replacement Valuation be carried out by a qualified professional at least every 3 years.

The article below outlines what you must consider when setting the Building Sum Insured value.

Click here.

This will be interesting to watch unfold as owners historically have issues deciding on even small matters. Having them work together on something so large and complex will be challenging, but could be an innovation in WA and a blueprint for the future of property development.