Owners to take-out 2nd mortgages for flammable cladding repairs

By Leith van Onselen

Following recent reports about apartment owners being stung by huge costs and being embroiled in legal battles relating to replacing dangerous flammable cladding, Domain reports today that apartment owners in the 435 NSW buildings identified to have been built with potentially high-risk combustible cladding may have to take out new mortgages to raise the money to make them safe:

“There’s no comfort for anyone in this situation,” warns Stephen Goddard, the chair of the peak apartment-owners body Owners Corporation Network…

… it is the duty of the apartment owners to make these buildings safe and, if they can’t afford any other way of doing it, then they’d better take out a new mortgage to get this work done. They’ve got to get it fixed because failure to do so could not only result in loss of money but, more importantly, life”…

“It’s only as deadlines from insurance companies, fire orders and government rectification orders are starting to kick in that people are now starting to face up to their responsibilities…

While Victoria has announced it will offer low-interest, long-term loans that can be used to replace their combustible polyethylene-core aluminium cladding, the NSW government is not planning a similarly…

The situation has been made worse for Sydney apartment owners because the NSW Government reduced the warranty claim window to just two years from seven:

A change in law two years ago cut the window to make such claims from seven years, in part to reduce the risks for the statutory warranty insurance the state government underwrote.

This meant owners of buildings built under a contract agreed after 1 February, 2012 – which includes many built in the current housing boom – would not be able to claw back the costs of rectifying any non-compliant cladding. This is the view of David Bannerman, the principal of North Sydney-based Bannermans Lawyers.

“For the lot owner, it’s a personal safety risk, but also it’s a significant financial risk because the cost of rectifying is going to be significant and the ability to recover that cost from the people who were responsible is very limited”…

What a mess. Through no fault of their own, many apartment owners are facing potential financial ruin.

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Comments

  1. Jumping jack flash

    ooh a second mortgage.
    For when owing just one houseload of debt isn’t enough to soothe the burning.

    I can see that ending well for those poor sods…

    I’m actually surprised they could find debt to secure against the pyres.

  2. Wait you left out the most important sentence from the article – the Property Council response. They think *we* should pay:

    “Ideally, in situations where it would be unjust or inequitable for owners of affected buildings, the government should consider funding the rectification works that are required.”

  3. “There’s no comfort for anyone in this situation,”

    There’s no comfort for anyone because the spineless and corrupt walking toilet blockages in government watered down protections consumers previously enjoyed after being bribed by their developer mates.

    There’s no comfort for anyone because even had those protections been in place these $2 companies, specifically registered for the purposes of protecting the criminal and corrupt, will simply shut shop, and the folks behind them will go home to their multi-million dollar mansions and fill out the paperwork to register another company created for the specific purpose of covering for shonks and thieves, and knowing that the aforementioned spineless and corrupt walking toilet blockages in government are too worthless/gutless/paid off to pass/enforce laws to stop them doing so.

    Disclaimer: I don’t own one of these apartments, nor do I know anyone who does.

    • Yes , it is very blatant, government behaviour, suddenly reduce the claim period from 7 to 2 years.
      This NSW LNP government acted in a similar manner when it savagely reduced payments and conditions for injured workers by suddenly changing the Workers Compensation Act a few years ago. They claimed the Workers Comp fund was broke, turned out it wasn’t.

    • I don’t work in the industry but apparently those companies arent just about being dodgy. It is to simplify legal contracts. Especially where there is a group of investors or whatever.

  4. The NSW Government may have cut the specific builders warranty period down but domestic building work is also covered by the consumer guarantees under the Australian Consumer Law. This doesn’t have a fixed claims limitation period. Of course, doesn’t help with claims against $2 companies and there is no statutory warranty insurance on high-rise buildings. They were exempted after private insurers stopped offering cover for these.

      • Jumping jack flash

        Yeah, see that’s what surprises me. Couldn’t get insurance, but could get a 2nd mortgage with these things as security…

        Must’ve been with LuigiBank and required a left kneecap as downpayment or something…

      • Isn’t it a condition of a mortgage that the asset is insured for the duration that it’s financed?

  5. Banks won’t consider these apartments as equity in any refinancing.
    Banks won’t lend you money to buy one (in case you were insane) so owners can’t sell.
    Many owners are overseas nationals who don’t want to pay and it will be very hard (impossible?) for body corporations to force them to.
    Many apartments structurally can’t accommodated alternative cladding, so there is no ‘solution’ other than to tear down and rebuild.
    Anyone leasing one is entitled (and would be well advised) to GTF out of there and any lease agreement is voided by the danger posed by cladding.
    No-one. Repeat no-one wants to take any responsibility.
    Complete cluster. Utter. Complete. Cluster.

    • Wonderful, just wonderful!
      The public sitting in the middle of this mess and the government has to start backing some of the players? Builders pay? (but what will my donor mates do?) Owners pay? (Imagine the voting backlash?) Government pays? (sounds about right, and we can give it a nice name to distract everyone)

      • Government pays will go down like this:

        “This government reduced liability to the developer mates and are now raising taxes to protect the landed elite/AirbnB hosts/property investors/developers who were able to afford property in Sydney! Meanwhile there are x% of people who cannot afford a first home!”

        Given that stamp duty takings are decreasing the government could only cover this stuff with a levy or something. Which would be applied at a state level. So drought struggling farmers in Dubbo would be funding AirBnB hosts in downtown Sydney.

        Not impossible to pull off but its the sort of move that might do more than just cost them government- it could shatter the Nationals/LNP alliance, entrench a third party that campaigns on property ownership etc.

  6. Forrest GumpMEMBER

    How can you get insurance on these apartments? And even if you did get insurance, I assume the insurance companies would provide a “Watered down” (Sorry for the Pun) policy that prevents claiming against it in the event of any fire related damage or repairs.

    Further to that, the banks will demand that the owner has an insurance policy to protect the bank against the asset being burnt down, or flooded…this still has a long way to play out.

    Post comment Edit: Read Stephens comment above

  7. Wait till someone dies then charge the builders with manslaughter.
    If they registered a $2 company then charge them with murder and use the $2 company structure as evidence that they knew something was wrong.

  8. Australia is one of the world’s riskiest housing markets: Oxford
    https://www.afr.com/real-estate/australia-is-one-of-the-worlds-riskiest-housing-markets-oxford-20180913-h15bu0
    [by Nick Lenaghan

    Australia’s housing is among the four riskiest markets in the world, with a stronger prospect of falling prices posing a threat to economic activity, according to Oxford Economics.

    The housing market dangers were “especially acute” in Sweden, Australia, Canada and Hong Kong, according to Oxford, which weighed a range of risk factors, including housing valuations compared to long-term averages.

    “In all four, valuations are very elevated, there has been a lengthy housing boom, debt levels are high and there is a significant share of floating rate debt,” Oxford’s lead economist Adam Slater wrote in a research note.]

  9. A while ago I was at a Property Council lunch (on someone else’s dime) and witnessed the head of the nsw property council tell a room full of people that there’s no need for the government to ban flammable cladding for risk on anyone dying because in Australia ’we just don’t build like in the UK’.

    The speech was followed by the NSW treasurer who went to state that house affordability was all about ‘supply, supply, supply’. He seemed to leave in a hurry before dessert, probably had to go bail out his brother from prison after raping another girl at Sydney Uni.

  10. Caveat flametor. Many are facing potential financial ruin by buying into three property bubbles stacked on top of each other that are now coming apart at the seems. None of this is my problem. Whatever.

  11. A lot of people believe that the fire in the Grenfell tower in London was caused by flammable cladding.
    If you were able to see the 150+ photos released the day after the fire by one of the major newspapers
    in London you would have noticed that the building was burning from within long before the cladding
    caught fire. The causes of the fire were;
    1. A refrigerator that caught fire on one of the lower levels of the building.
    2. Blocked stairwells that were used for furniture storage.
    3. Non functioning fire doors that were held open.

    The report will eventually be released and I may be wrong. Time will tell.
    I do accept that the flammable cladding made the fire far worse and will
    have to be removed from buildings around the world. A very expensive exercise indeed.

    • darklydrawlMEMBER

      That is all correct, but the external cladding is what turned the thing into a complete death trap. The fire should have never run up and around the building to that extent and speed. What was really sad was you could tell hours before their deaths that all of those people waving from the upper floors were going to die. There was no way they were going to be rescued or escape. It truely was a horror show to witness.

      I am more interested if anyone goes to jail – given the residents had put in multiple official complaints about fire risk (both internal (fire doors etc) and external (cladding)) and those claims were rejected or dismissed.

    • There is video footage of the fire. Are you for real with this garbage? Even if fire exits etc are blocked that would just explain a high casualty count. The fire was the cladding. The same has been seen in Melbourne and Dubai. MB talked about cladding BEFORE Grenfell. The fire service was warning about cladding long before Grenfell.

      The Melbourne fire was in an almost empty building, lit by a frikkin cigarette. You gonna bring up blocked exits there too?

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