Introduction of the Cladding Safety Victoria Bill 2020 (Vic)

Establishment of CSV

The CSV Bill establishes the CSV as a body corporate separate from the Victorian Building Authority (VBA). The CSV will administer the cladding rectification program in order to support Victorians to rectify non-compliant or non-conforming external wall cladding products to improve safety. The CSV Bill removes the cladding rectification functions currently administered by the VBA and allocates these functions to the CSV. The CSV will have many functions including:

• Prioritising buildings for potential financial assistance.
• Deciding whether or not to grant financial assistance.
• Determining the amounts of financial assistance.
• Monitoring cladding rectification work when financial assistance has been provided.
• Procuring building practitioners and engaging technical design and project management services to support owners and owners corporations.

The CSV will also notify the appropriate parties, including regulators and municipal building surveyors, about matters relating to compliance and enforcement under the proposed new law, the Building Act, or any other Act.

Financial assistance for cladding rectification work

Part 3 of the CSV Bill sets out the procedure for the grant of financial assistance for cladding rectification work. In broad terms, the procedure involves a 3 step process:

• Step 1 – CSV decides whether to prioritise a building for potential financial assistance.
• Step 2 – CSV decides whether to register the owner or owners corporation of a prioritised building for financial assistance.
• Step 3 – CSV decides whether to grant financial assistance in respect of the building.

This procedure does not apply to government buildings – CSV will facilitate the rectification of those buildings in accordance with government policy.

Step 1 - Prioritisation

A municipal building surveyor (MBS) can notify the CSV of any building the MBS considers requires cladding rectification work. CSV must prioritise for potential financial assistance any such building notified by a municipal building surveyor.

The CSV Bill requires that the CSV must have regard to prescribed criteria when prioritising a building for potential financial assistance. If the CSV Bill is passed the criteria will be specified in the CSV Regulations.

Step 2 - Registration

CSV may invite the owner or owners corporation of a building that has been prioritised to apply to be registered for financial assistance for cladding rectification work. CSV can accept or refuse to accept the application, but must consider prescribed matters when making its decision. The matters that the CSV must take into account will be included in the CSV Regulations.

Step 3 - Granting financial assistance

Once the CSV has accepted an application by an owner or owners corporation to be registered for potential financial assistance, it must then decide whether to grant or refuse to grant financial assistance to the owner or owners corporation.

In making the decision, CSV can evaluate the building to determine the extent of cladding rectification work required to mitigate the risks associated with any non-compliant or non-conforming external wall cladding product.

If CSV grants financial assistance, it must enter into a funding agreement with the owner or owners corporation of the building. The form and terms of this agreement will be prescribed in the CSV Regulations.

Changes to limitation periods for cladding building actions

The CSV Bill proposes to extend the limitation period for building actions under section 134 of the Building Act from 10 years to 12 years after the date of issue of the occupancy permit for “cladding building actions”. Cladding building actions are defined as:

“a building action in connection with, or otherwise related to, a product or material that is, or could be, a non-compliant or non-conforming external wall cladding product.”

This extended limitation period will only apply where a cladding building action became statutorily time barred between 16 July 2019 and 12 months after the new provision comes into effect.

According to the Explanatory Memorandum, the intention of the reform is to provide the State and building owners additional time to conduct due diligence activities, to identify relevant building work and building practitioners against whom to bring proceedings. This is intended to have a deterrent effect on the building industry, and assist the State to recover costs associated with the cladding rectification program.

The proposed extension will benefit many owners and owners corporations and, on the other hand, will be detrimental to many builders, where the relevant limitation period would otherwise have expired on or after 16 July 2019.

Master Builders Victoria have expressed concern that the proposed extension would leave builders vulnerable to claims they could not have foreseen, nor protected against. Among other reasons, they say that imposing the extension retrospectively will mean that practitioners will no longer have the opportunity to notify insurers of claims under policies that protect against cladding related claims – because current forms of policies available in the market exclude cladding related claims.

Subrogation provisions

The CSV Bill proposes to amend section 137F of the Building Act, and includes provisions stating when the Crown will be subrogated to all rights and remedies available to building owners.

Rights of subrogation to the State will apply where the CSV grants financial assistance to building owners and owners corporations in relation to cladding rectification work, allowing the State to commence proceedings against relevant building practitioners to recoup the funding.

Where the State has previously granted financial assistance to owners and owners corporations, the CSV Bill does not affect existing rights of subrogation and these rights remain with the State.

Building permit levy calculation

The amendments to the CSV Bill made in the Legislative Assembly are to provisions in the Building Act that provide for an additional building permit levy on building permits where the works are/ will be in metropolitan Melbourne for the construction of class 2, 3, 4, 5, 6, 7 and 8 buildings. This is the additional levy that was payable from 1 January 2020 for the purpose of funding cladding rectification work.

The amendments are designed to address a situation where the works involve more than one class and include both classes that attract the levy and also class 1, 9 or 10. The amendments provide for the VBA to calculate the amount of the additional levy based only on the cost (including both labour and material) of the building work for the construction of the class 2, 3, 4, 5, 6, 7 and 8 parts of the work. This will have the effect of reducing the levy payable in respect of some mixed development projects.

There is also a transitional provision providing for the amendment to apply to the calculation of levy as if it was in operation from 1 January 2020. Therefore, if passed, levy refunds may be payable to owners of mixed developments where the levy was calculated and paid on or after 1 January 2020.

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We would like to thank John Tullio for his contributions to this article.