Combustible Cladding: Red flags for Shopping Centre Owners

nstruction Code 2019 was adopted on 1 May 2019. Reform has been targeted primarily at buildings that are considered to be ‘high-risk’ based on use (eg. residential, public gatherings etc) and construction type (eg multi-storey towers). We have given a high level overview of some of the key reforms, and have identified some ‘red flags’ for shopping centre owners to consider when navigating this flurry of reform. Owners should establish whether their centre is caught by reforms applicable for their jurisdiction and then take steps to manage statutory, contractual and other risks as appropriate. New South Wales Effective 15 August 2018, the NSW Commissioner for Fair Trading prohibited the use of certain types of aluminium composite panels (ACP) in certain classes of buildings. This ban prohibits ACP with a core comprised of more than 30% polyethylene in any external cladding, external wall, external insulation, façade or rendered finish (ACP Ban) and is retrospective in its application (ie. it applies even if the ACP was installed prior to the introduction of the ACP Ban). The ACP Ban applies to: • Class 2, 3 and 9 buildings of type A construction with a rise in storeys of 3 or more; • Class 5, 6, 7 and 8 buildings of type A construction with a rise in storeys of 4 or more; • Class 2, 3 and 9 buildings of type B construction with a rise in storeys of 2 or more; and • Class 5, 6, 7 and 8 buildings of type B construction with a rise in storeys of 3 or more. Shopping centres are typically class 6 buildings. In assessing a rise in storeys, consideration should also be given to the height of any residential or office towers forming part of any mixed used site/centre. Certain authorities have the power to issue a rectification order for affected buildings if occupants of the building are, or will likely be, at risk of death or serious injury from the use of the ACP. The order can require the owner to eliminate the safety risk by remediating the building. The Environmental Planning and Assessment Regulation 2000 (NSW) was also amended in 2018 to introduce a requirement for building owners to register buildings with external combustible cladding if a building (or part of it) is two or more storeys high and falls within an affected class (eg. classes 2, 3, 4 and 9). The registration process is carried out online using the NSW Government portal. While shopping centres (typically class 6 buildings) are not generally required to be registered, they may be caught by the reforms if they are mixed use buildings and capture another class of building that has been targeted by the reform (eg. class 9 public assembly buildings). Accordingly, shopping centre owners should consider whether their building (or part of it) falls within an affected class, having particular regard to class 9 public assembly buildings. Examples of ‘public assembly’ buildings may include: theatres, cinemas, schools, day-care centres, hospitals, public transport buildings, sporting facilities, nightclubs etc. For buildings occupied before 22 October 2018, owners were required to register by 22 February 2019. New buildings must be registered within four months of the building first being occupied. NSW has also introduced other reforms, including the imposition of obligations on building owners to provide information to the Department about their building, building inspection powers and penalties in certain circumstances. Relevant planning policy has also been amended to exclude (or restrict) external combustible cladding from exempt development depending on the class of building and relevant development standards. Queensland Recent amendments to the Building Regulation 2006 (QLD), require registration of certain ‘private buildings’, being class 2, 3, 4, 5, 6, 7, 8 or 9 buildings of type A or B construction, for which building development approval was given after 1 January 1994 but before 1 October 2018 for work to construct the building or to alter the cladding on the building. As we’ve said earlier, Shopping centres are typically class 6 buildings. Using the Safer Buildings Checklist, the Queensland Building and Construction Commission (QBCC) conducts cladding checks on registered buildings in three stages: Part 1: Building owners (or their approved agent) were required to register the building and answer four questions by 29 March 2019 Part 2: Building owners are required to engage a building industry professional to confirm the information provided in Part 1 and complete a building industry professional statement by 31 July 2019 Part 3: Building owners are required to engage a fire engineer to provide a technical assessment and information and give details to QBCC by 31 October 2019. The building owner is then required to answer four questions and upload a fire engineer statement and building fire safety risk assessment by 3 May 2021. Part 1 is compulsory. Where no combustible external cladding has been used, building owners can exit after part 1. The Queensland Building and Construction Commission Act 1991 (Qld) was also amended to contemplate broad (and retrospective) investigative and rectification powers in relation to any identified non-compliant building product. The amendments contemplate the power to recall or issue warnings in relation to building products. Monetary penalties may apply for non-compliance along with investigations, rectification orders etc. The Queensland Government has also recently announced that it proposes to introduce a ban similar to the ACP Ban in New South Wales. Victoria The Building Act 1993 (Vic) has been amended so that: • The Minister for Planning has the power to prohibit the use of external wall cladding products by declaration. The Minister can make the declaration if he or she is satisfied that the product causes, or will likely cause, risk of: – Death or serious injury to building occupants, neighbours or the general public; or – Severe property damage; • Emergency orders and building orders can require destructive testing of building material • Authorised persons can enter buildings (other than residential buildings) for inspection and may demolish, open, cut or test building material (including destructive testing) The Local Government Act 1989 (Vic) has been amended to allow building owners to finance rectification costs of non-compliant cladding via repayments through council rates (if the Council has opted in). These arrangements are known as Cladding Rectification Agreements (CRAs). Victoria has also introduced broad investigative and rectification powers. Other jurisdictions and national response Most jurisdictions have formed taskforces to carry out cladding audits. These audits are being carried out to identify buildings with combustible cladding and to inform regulators on the appropriate response. On 1 May 2019, all states and the Northern Territory adopted the National Construction Code 2019. Part of the Code was adopted by the Australian Capital Territory on 1 June 2019, with the remainder of the Code being adopted on 1 September 2019. The code is overseen by the Australian Building Codes Board and provides the minimum necessary requirements for new buildings and new works in existing buildings. Among other things, the code introduces new acceptable construction practices for cladding. What are some of the red flags for shopping centre owners? In considering whether a shopping centre may be affected by the new reforms, you should work through the following issues to determine whether compliance is required and to what extent. (a) Affected Centre – determine whether or not your centre is affected by the new reforms. This will likely depend on the height of the building (eg. rise in storeys) and whether any part of the shopping centre falls within an affected class (eg. “public assembly” building etc). Relevant criteria will likely vary depending on the location of the centre and applicable jurisdiction. (b) Combustible Cladding – consider whether there is any suspected combustible cladding at an Affected Centre and seek further advice regarding identification of materials and options for performance management if cladding is found to be present (ie. engage specialist technical consultants). (c) Statutory Obligations – if an Affected Centre is suspected to have combustible cladding, consider the statutory reform and requirements applicable within the relevant jurisdiction (eg. registration, removal etc), and seek legal advice on compliance if necessary. (d) Contractual Obligations – review any relevant contractual obligations which may apply to an Affected Centre if combustible cladding is present and not properly disclosed or managed (eg. leases, service contracts, employment agreements etc). (e) Insurance Obligations – consider (and comply with) any disclosure obligations under existing or proposed insurance policies to ensure that the Affected Centre is properly insured and consider potential impact on premiums and renewal. We expect the reforms to continue and to extend to other building classes – watch this space. Disclaimer: This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought having regard to any particular facts or circumstances.