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Unacceptable Solutions Episode 5: The Strata Stitch Up

If there is one group of property owners who have fared badly in the cladding crisis, second only to the fire victims and their families, it is the owners of strata titled apartments.  

Their situation is unique and differs from corporate property owners in three ways. 

Firstly, they have no choice but to replace their cladding, and to replace it immediately. That liability comes from strata laws that say owners must keep their common property in good and serviceable repair and that has been held to mean you must fix it immediately it falls into disrepair and this extends to building defects that were caused by the original builder. It also doesn’t matter in the eyes of the law if the owners have the money or not - it’s a strict liability. 

Secondly, strata owners do not have the right to go uninsured or to self-insure as corporates do. Strata entitles are obliged by laws to insure their buildings each year for replacement value. So, insurers can, and indeed are forcing strata to embrace compliance and remove banned cladding from their buildings. It’s a take or leave it type negotiation for strata entities as apartments are unsaleable without strata insurance. 

Thirdly, strata owners whether they know it or not, are members of an unlimited liability entity and they are jointly and severally liable for their fellow owners contributions to the financial obligations of the strata to which they must belong. Take a minute to think that through. This sleeper of a legal conclusion is based on the fact that strata entities can’t be wound up until all their financial obligations and liabilities have been discharged and until then they are obliged by law to continue striking levies until the slate is clear. If someone can’t pay their levies they must be adjusted and re-levied until those that can pay clear the slate. 

So, let’s reflect on the position of a strata with combustible cladding. They must fix replace the cladding because state government has retrospectively banned their cladding and revoked their certification of compliance. They must replace it immediately because that’s what the strata laws say. They must also have insurance so their premiums skyrocket while they work out the remediation plan and get all owners to agree and fund the plan. And if there’s a fire in the meantime they will certainly not be covered for the cladding and depending on the circumstances they may not be covered for any loss at all. 

Strata owners can sometimes be their own worst enemies the way they procrastinate but this is a bad place to be coming from and they deserve a break, but I can’t see one coming their way. That would involve a massive capitulation by government who are blaming the construction industry and the construction industry who are blaming the government.

Both seem to have forgotten who pays their wages.