Rectifying Defective Cladding in Sydney and London: A Tale of Two Cities

The tragic fire at Grenfell Tower in 2017 left governments around the world racing to identify and rectify unsafe cladding. Australia was no exception, with the Lacrosse Tower fire in Victoria in 2014 preceding the events in London.

Background

In Sydney and across New South Wales, the Cladding Taskforce was established to identify apartment buildings with a high-risk combustible cladding façade that requires remediation.^[1] This was followed by the launch of Project Remediate in late 2020 by the NSW Government to rectify the defective cladding identified by the taskforce.

In London and throughout England, the Government has implemented the Building Safety Programme which includes a program to identify and remediate buildings with unsafe cladding.^[2]

Similar schemes to tackle the cladding crisis have also been instigated across other States and Territories in Australia (namely in Victoria,^[3] the ACT,^[4] and Queensland^[5]) and elsewhere in the world including the UAE.

We compare the different approaches of the governments of New South Wales and England below.

NSW: Project Remediate

Operation

Project Remediate, which is sponsored by the NSW Building Commissioner, provides a package which includes all arrangements for building assessment, investigation, design, project management and remediation.

Owners Corporations^[6] had the opportunity to “opt-in” to Project Remediate by registering their interest through the NSW Government Website although it is no longer accepting new registrations.^[7] If the Cladding Taskforce assesses that the building requires remediation, the Owners Corporation will then be able to apply for an interest-free loan to remediate the building.

Owners Corporations of non-compliant buildings who decide not to participate in Project Remediate must fund their own remediation work in consultation and compliance with local authorities.

Project management

The Office of Project Remediate, which oversees the program for the NSW Government, engaged Hansen Yuncken as the managing contractor to coordinate the entire remediation process.^[8] The managing contractor is the main point of contact and will schedule and triage the remediation projects.^[9] Hansen Yuncken oversees all aspects of the work including the procurement of the panel of service providers, which includes:

• A global façade consultant;
• Building investigators;
• Design teams (including designers, architects and quantity surveyors);
• Remediation contractors (i.e. the builders);
• Superintendents (i.e. the project managers); and
• Assurance consultants.

Eligibility

Currently, the eligible buildings for Project Remediate are Class 2 Residential buildings (i.e. domestic apartment buildings) which have been confirmed by the Cladding Taskforce as “high risk”.^[10]

Other Owners Corporations may register their interest in the program, after which the Office of Project Remediate will determine their eligibility in consultation and examination with the Cladding Taskforce.

Funding

Owners Corporations must pay for the remediation process. However, the Government will provide a 10 year interest-free loan with owners who experience particular financial hardship entitled to receive additional funding.^[11] Owners Corporations are also entitled to a payment of up to $15,000 to help with the strata management costs of participating in Project Remediate.^[12]

The loan covers:

• The costs of replacing the cladding, including façade system defects (window casings, slab edges, cavity barriers and moisture barriers);
• The Cladding Product Safety Panel and Façade Practitioner Services;
• The managing contractor services;
• The program-level costs of the assurance services (including the principal façade designer); and
• A portion of design services, with the balance funded by the Owners Corporation if it proceeds with remediation work under the program.

If other building defects which are not related to combustible cladding, are identified during the assessment, these will be documented and referred to NSW Fair Trading, who will then take action in accordance with the relevant residential building legislation.^[13]

Timetable

Though initially planned for target completion by the end of 2023, the start of the remediation works had been delayed due to the impact of COVID-19.^[14]

Once the Owners Corporation has registered its interest with Project Remediate, the process is as follows:

1. Managing contractor arranges building inspection
2. Designs are prepared
3. Contracts are prepared
4. Owners Corporation decides whether to “opt-in” to Project Remediate
5. Contracts are signed
6. Remediation works are arranged
7. Construction begins
8. Work is complete

As of 6 December 2023, 97 Owners Corporations in New South Wales had opted in to Project Remediate.^[15]

England: The Building Safety Fund

In contrast to Project Remediate, the English scheme provides financial support to applicants rather than a complete package.

In June 2020, the UK Government created the Building Safety Fund (BSF), to cover the costs of works required to address the fire risks associated with cladding on residential properties in England over 18 metres.^[16] The BSF is focused on providing funding, with the Government allocating £4.5bn to the fund,^[17] for remediation works. Unlike the NSW scheme, the Government does not actively control the remediation process.

One reason for this approach, compared to NSW, is that the affected buildings in England are often owned and/or managed by registered social housing providers, management companies, tenants’ associations and other entities who do not necessarily have sufficient funds to rectify the issues discovered in their buildings.

Another reason is that a homeowner of a residential property in a high-rise building will often own the property on a leasehold basis, whereby it has entered into a long-term lease with the freeholder. When the lease expires, ownership of the property reverts to the freeholder. This structure can complicate the funding and execution of necessary safety improvements, as freeholders and managing agents may lack the immediate financial resources or incentives to undertake such extensive projects.

In practice it will be the leaseholders’ nominated managing agents who represent and insulate the residents from liaising with the Government. For simplicity, we have continued to refer to homeowners in this article.   

Operation

The homeowners must engage their own construction team. This means that they must supply their own detailed project plan and costs, as well as engage the remediation contractor directly.

There are two different guidelines which apply – for those who applied in 2020^[18] and for new applicants after the fund re-opened to applicants in July 2022.^[19] The “new” applicants are required to procure a specialist Fire Risk Appraisal of External Walls report (FRAEW) which describes the fire risks associated with any external cladding and provides details of any recommended work to make the building safe.^[20] The Department for Levelling Up, Housing and Communities (DLUHC) will then assess the FRAEW to decide if the building is eligible for funding.

Project management

The homeowners are responsible for engaging competent professionals to work on the remediation. The homeowners must provide monthly reports to DLUHC as well as evidence of practical completion.^[21]

Eligibility

The homeowners may apply for funding from the BSF. The homeowner self-certifies its eligibility and requirements for remediation with the fund. The evidence supplied by the applicant is then used to determine eligibility by DLUHC, who carry out technical and legal checks, and then notify applicants of their decision.^[22]

As of March 2024, some groups of buildings have been transferred from the BSF to the Cladding Safety Scheme (CSS). The CSS, which was formally announced in November 2022 and has the same aims as the Building Safety Fund, runs parallel to the BSF and provides funding for medium-rise buildings over 11 metres.^[23] The relevant scheme depends on the location, the height of the building and when the application was made. For example, if an application was made after July 2023 on a residential building between 11 and 18 metres in London, then the CSS would apply.^[24]

Funding

The homeowners will receive the reasonable capital costs for eligible works directly related to the replacement of unsafe cladding systems. This includes:

• access, where apportioned appropriately and directly related to qualifying works (e.g., scaffolding, mast climber etc);
• removal and disposal of existing cladding;
• replacement materials;
• labour and reasonable on-costs to the contractor;
• professional team fees in respect of qualifying items; and
• managing agents’ fees in respect of administering qualifying expenditure.

DLUHC will also consider requests for funding for extraordinary technical requirements which incur extra costs essential to, but not normally associated with, removing and replacing unsafe cladding systems.

Similarly to the NSW scheme, all other works that are not directly related to remediation are not funded. This includes windows, internal works and other structural and fire safety works not related to life safety fire risks associated with cladding.^[25]

One of the immediate impacts of the cladding crisis has been the hardening of the insurance market with both homeowners and construction professionals subject to a sharp rise in premiums.^[26][27] As a response, the Government has agreed with 14 insurance brokers to change their practices to help leaseholders in buildings over 11 metres affected by fire safety issues which includes capping their commission to a maximum of 15%.^[28]

Payments will be made in instalments to the homeowners as follows:

Scenario 1: Projects which do not require pre-tender support

• 80% on entry into the remediation works contract; and
• 20% on reaching practical completion.

Scenario 2: Projects which require pre-tender support

• 10% on registration;
• 70% on entry into the remediation works contract; and
• 20% on reaching practical completion.

Pre-tender financial support is only available to a small number of social housing sector providers. To be eligible for this advance payment, the applicant must be registered, have passed DLUHC’s initial legal due diligence and be assessed by DLUHC as requiring pre-tender support.

Once the applicant has provided a detailed plan and full costs for the project, and if the DLUHC has approved funding, the applicant and DLUHC enter into a Grant Funding Agreement which sets out the full terms and conditions of the funding.

Timetable

The Government estimates that the full funding application may take up to a year. However, it may take longer depending on the size of the building as well as the scale and complexity of the remediation works.^[29]

There is no fixed timetable for the rectification of unsafe cladding in the UK. As of the end of August 2024, there are 4,771 residential buildings 11 metres and over in height identified with unsafe cladding which are being monitored by the DLUHC.^[30] Of these 4,771 buildings, remediation has been completed on 1,392. The Ministry of Housing, Communities and Local Government’s Remediation Portfolio Dashboard provides further figures on the number of buildings in each scheme and their progress.^[31] 

We expect the number of registrations to continue to rise, with the Association of Residential Managing Agents estimating that half a million people are living in a building with unsafe cladding.^[32]

Given that the onus is on the homeowner, who is rarely an expert in construction, to initiate and manage the rectification process, we have already seen considerable delays to obtaining funding and commencement of rectification works. These delays have been further prolonged on by COVID-19, the shortage of key materials and increased construction costs. 

Other Fire Safety Developments in England

The heightened focus on fire safety has led to the introduction of further building safety measures in England.

Building a Safer Future

The most impactful change to date to the building safety industry has been the steps taken following the review by Dame Judith Hackitt, “Building A Safer Future” and the implementation of many of its recommendations.

First, the pre-existing confidential and anonymous reporting system to improve structural safety (previously funded by the ICE, IStructE and the HSE) has been expanded into CROSS (Collaborative Reporting for Safer Structures) which now also accepts fire safety reports so that the industry can learn from mistakes and near-misses.

Second, and more visibly, the Government wrote to major housebuilders and other large developers requesting that they sign the developer remediation contract. If defective cladding is discovered on a building which they originally developed or refurbished over the last 30 years, the developers have committed to remediate the life-critical fire safety works and reimburse the Government for any funding received from Government remediation programs (including the BSF). As of 14 October 2024, 54 developers have signed the contract. ^[33]

EWS1

Certain residential buildings are required to have new fire safety certificates, known as the External Wall System 1 form (EWS1 Form). This provides a rating for building fire safety of the external wall systems, which is required to be renewed every 5 years.^[34]

The EWS1 Form was created to ensure residential buildings over 18m tall could be assessed for safety to allow lenders to offer mortgages. The use of the form has changed over time as it used to focus solely on the materials used in external wall systems but now has to use the Publicly Available Standard 9980:2020 (PAS 9980) methodology.

PAS 9980, published by the British Standards Institution, was developed by a panel of industry experts to determine a pragmatic approach to the remediation of historic fire safety and external wall issues. PAS 9980 allows for a properly qualified fire engineer to produce a numerical score for a building which relates to the risk to life safety of its occupants based on the fire safety and other measures present, as well as the materials used in its construction.

Crucially, PAS 9980 is designed to be a holistic review of the fire safety of a building which focuses on the impact on the life safety of its occupants. Since its publication in January 2022, PAS 9980 is the standard which BSF applications must assess risk against and is used to underpin EWS1 Form assessments.^[35]

Building Safety Act

The UK’s Building Safety Act 2022 (BSA) became law on 28 April 2022. This brought about the most sweeping changes to the processes required to develop a project in a generation, backed up by strong enforcement options which even undo hundreds of years of companies law and allow a piercing of the corporate veil. Previously, we have published articles looking at the history of the BSA and some of its key provisions (which can be accessed here and here).

The key features of the BSA are:

• Extended limitation period: homeowners benefit from an extended period to bring claims for defective building work from 6 years from the date of practical completion to 15 years for claims that accrue after the BSA took effect or 30 years retrospectively for claims that accrued before the BSA took effect.
• New homes warranty: developers of new build homes must provide buyers with a new homes warranty lasting for 15 years, although this requirement is not yet in force.
• Enforcement: remediation orders can be issued against developers and landlords, requiring them to remedy defects which cause a ‘building safety risk’ (not limited to risks arising purely from defective cladding).

In addition to the BSA, the UK Government has introduced two further initiatives to recoup the costs of funding cladding remediation from developers:

• Residential property developer tax: this came into effect on 1 April 2022, introduced a new 4% tax which applies to the largest residential property developers on the profits they make on UK residential property development.^[36]
• Building Safety Levy: the UK Government has published numerous consultations on the Building Safety Levy whereby developers on all new residential buildings in England requiring building control approval in England, will be required to pay a levy with the funds raised allocated to building safety expenses.^[37]

Therefore, through the BSA and these initiatives, the UK Government is seeking to shift the financial burden of the cladding crisis from homeowners to developers.^[38] 

Summary Table 

	NSW: Project Remediate	England: Building Safety Fund
What financial assistance is provided to homeowners?	10 year interest-free loan; strata management costs up to $15,000	The full reasonable capital costs of remediation
What is funded?	The interest-free loan and the arrangements for building assessment/investigation, design, remediation and a superintendent and an assurance consultant	Direct project costs relating to the reduction of life safety fire risks
Who organises the engagement of the construction team?	NSW Government	Homeowner[39]
Who is eligible?	Class 2 buildings (typically residential apartments) identified as ‘high risk’	Residential buildings 18m and over with cladding which do not conform to safety standards[40]

Conclusion

The move towards improved standards in building safety is of course welcome, but the lasting legacy of these changes is still to be determined as the industry continues to adapt to the evolving building safety landscape.

Only time will tell which government has the more effective approach. For a homeowner, the NSW approach appears to be less stressful, with Project Remediate managing the project and is likely to lead to quicker remediation. However, ultimately, an NSW homeowner will have to pay for the remediation works whilst their counterpart in England will not.

One would hope that governments around the world continue to monitor the strengths and weaknesses of the various remediation schemes, and where practical, amend their own strategies to ensure the best outcome is reached for the affected homeowners.

Please contact William Barrington (Special Counsel (Qualified and Admitted in England and Wales only), Sydney), James Rigney (Partner, Sydney) and Christopher Leadbetter (Partner, London) or another member of the Clyde & Co Projects and Construction team if you have any queries in relation to any of the issues addressed in this article.