Owners Corporations that have identified their building contains flammable cladding, whether proactively or by Council inspection are placed in a tough predicament.

In most cases the cost to tear down this cladding and replace with non-flammable cladding is substantial so many schemes will consider two options:

1. Accept the higher risk of fire spreading and take no action.

2. Burden the scheme with significant debt and rectify the issue.

Option 1 is of course only available if the scheme has not received any orders from Council or notices to rectify from their insurer. It also ignores a significant safety issue.

As a third party, it appears obvious that the scheme should just deal with the cost and get the work done, however the individual owners that are required to pay for the works understandably feel hard done by. After all, flammable cladding should have never been installed by the builder in the first place.

In a situation where no-one is super keen to take responsibility for remedying, the Victorian Government has proposed a scheme whereby long-term, low-interest loans can be provided to affected schemes.

Compulsory payments would be charged through Council rates notices and as such would remain with the property for the life of the loan.

Minister for Planning Richard Wynne stated “As well as making properties safe and compliant with building laws, these financing agreements allow cladding to be removed quickly, without affecting property prices.”

The assumption that this scheme will prevent property prices being affected is a little misguided as we all know from Economics 101 that the value of an asset is significantly affected by its ongoing expenses. A buyer is going to pay less for a property with a massive debt looming over it compared with a debt free property.

The benefit of this scheme will be seen only when more detail is available. Owners Corporations can already take out strata loans through existing lenders, so this scheme will only create benefit in the case they can offer a lower interest rate and/or a longer loan term than is commercially available.

It’s indeed good to see efforts being made by Government to assist unit owners to deal with their situation in a responsible way and it will be interesting to see whether other states will follow suit or create their own novel solution.