Legal Update: The Mr Fluffy Buyback and Demolition Scheme

February, 2015

On 28 October 2014 the ACT Government announced the Loose Fill Asbestos  Buyback and Demolition Scheme (Scheme), under which the ACT Government is offering to purchase and demolish the 1021 homes in the ACT that are known to be affected by loose-fill asbestos insulation (more commonly known as ‘Mr Fluffy’).

On 4 December 2014, the Appropriation (Loose-fill Asbestos Insulation Eradication) Bill 2014-2015 was passed by the ACT Legislative Assembly, to provide for the appropriation of additional monies to fund the Asbestos Response Taskforce (Taskforce) and to administer the Scheme.

This article provides a brief overview of the Scheme as it applies to owners of affected homes.

Background

Between 1988 and 1993 the ACT and Commonwealth Governments undertook a program intended to remove visible and accessible loose-fill asbestos insulation from affected homes in the ACT.

Unfortunately, this program did not go far enough, and loose-fill asbestos fibres remained in parts of the affected homes, including in many cases in the roof spaces, wall cavities, air conditioning/heating systems, and cupboards.

As the ongoing exposure risks from the continuing presence of loose-fill asbestos fibres became better understood, the ACT Government wrote to residents of affected homes in February 2014, highlighting the dangers involved, and recommending that they obtain an asbestos assessment.

Following increased public concern and awareness, and having regard to the findings of a number of completed asbestos assessments, the ACT Government established the Taskforce and announced the Scheme.

Who is an Eligible Homeowner?

Subject to limited exceptions, an ‘Eligible Homeowner’ will generally be the person who is the owner (ie the registered Crown Lessee) of an ‘affected block’ as at 28 October 2014 (and who remains the owner at the time of the surrender of the affected block).  Where two or more people are the Crown Lessees (either as tenants in common or as joint tenants), they are all Eligible Homeowners of the affected block.

An affected block is the land (that is the subject of an individual Crown Lease) on which a house has been built that contains, or has contained, loose-fill asbestos insulation.  The Taskforce determines whether a block is an affected block.

For those Eligible Homeowners who have renovated, an affected block has been defined to include a home where any element of the original building remains, even if the renovations were substantial. The Scheme does not apply to a home where the loose-fill asbestos insulation has been entirely removed, or the home was demolished, before 18 February 2014. If the loose-fill asbestos insulation was removed and the home demolished after 18 February 2014 and before 28 October 2014, then the market value of the home will be reimbursed to the Eligible Homeowner (without surrendering ownership of the land).

The Scheme also applies to units subject to the Units Titles Act 2001 (ACT) but, due to the nature of such units, the buyback process will be determined as between the unit owner and the Taskforce.

How to participate in the Scheme?

In order to participate in the Scheme, an Eligible Homeowner must apply to the Taskforce to surrender their affected block by no later than 30 June 2015.

Importantly, submitting an application does not bind the Eligible Homeowner to sell their home to the ACT Government – it merely commences the process that is contemplated by the Scheme, which is a process that can be opted-out of by an Eligible Homeowner up until surrender.

What surrender sum will be paid under the Scheme?

Once the application from the Eligible Homeowner has been accepted by the Taskforce, the Australian Property Institute (API), on behalf of the Taskforce, will arrange for two independent valuations of the market value of the affected block as at 28 October 2014.

The valuers will ignore the presence of loose-fill asbestos contamination and any minor maintenance or presentation issues (although other forms of contamination and other defects will be taken into account). Generally, any complete unapproved structures will be valued as if they were approved.

Both valuations will be provided to both the Eligible Homeowner and the Taskforce, and the Taskforce will then formalise the buyback offer in a draft deed of surrender (Deed) in which the surrender sum will be the average of the two valuations.

The Eligible Homeowner will then have 60 days in which to:

(a) accept the surrender sum offered; or
(b) reject the surrender sum offered and request (at the Eligible Homeowner’s cost) a ‘Presidential Valuation’, being a third independent valuation from a senior valuer appointed by the  President of the API who was not involved in either of the first two valuations; or
(c) not proceed with the surrender process (ie withdraw the application).

The only other circumstance where a Presidential Valuation may be obtained is where there is a difference of ten per cent or more in the first two valuations, in which case a Presidential Valuation may be sought by the Taskforce (at the Taskforce’s cost).

In any circumstance where a Presidential Valuation is obtained, this will determine the surrender sum offered (and previous valuations cannot be relied upon, even if they assessed a value that is higher than the Presidential Valuation).  In such cases, Eligible Homeowners will again have 60 days in which to accept the surrender sum offered or not proceed with the surrender process.

It is noted that a different valuation approach applies to affected blocks that were subject to a completed contract of sale entered into between 18 February 2014 and 28 October 2014.  In those cases, the value set out in the contract of sale will be the value of the affected block for the purposes of the Scheme.

What other benefits apply under the Scheme?

Where an Eligible Homeowner elects to accept the surrender sum offered, then in addition to the surrender sum, they will also receive the following under the Scheme:

(a) $1,000 (to be paid at settlement) to cover the Eligible Homeowner’s legal costs;
(b)  a waiver of the stamp duty on the purchase of a residential property in the ACT up to the value of duty that would have been payable on a property of the value determined by the valuation of the affected block under the Scheme;  and
(c) following remediation of the affected block, a first right of refusal to repurchase the affected block (or part of the affected block, if subdivided) from the ACT Government at the market value determined independently (assuming the best and highest value use of the land) for the ACT Government at the time it is offered for sale (assuming that the Eligible Homeowner elected to have this right included in their application to participate in the Scheme, and it was included in the Deed).

The emergency assistance scheme administered by the Taskforce will also continue to be available for Eligible Homeowners, providing up to $10,000 (and an additional $2,000 for each dependent).

Some commercial banks and other institutions are also providing financial assistance to those affected by loose-fill asbestos insulation (including lower interest rates, discounted bridging finance, reduced lender’s mortgage insurance and the like).

What surrender documentation is involved?

The Deed forms part of the surrender pack that will be provided to the Eligible Homeowner by the Taskforce when offering the surrender sum. The Deed must be executed by the Eligible Homeowner in order to participate in the Scheme.

Amongst other things, the Deed will contain a waiver clause, under which the Eligible Homeowner waives their rights against the Commonwealth and ACT Governments in relation to any claims, liability or loss arising from or incurred in connection with the Crown Lease, the surrender of the Crown Lease, or the use and occupation of the affected block (including any rights under the Planning and Development Act 2007 (ACT) for payment or compensation regarding improvements or goods on the land).  Importantly, the waiver does not extend to personal injury.

The Eligible Homeowner will also be required to have a solicitor sign a Certificate of Independent Legal Advice (the Certificate) once the solicitor has explained the legal effect of the Deed and any associated documents. The Certificate also forms part of the surrender pack and must be executed by a legal practitioner in order to participate in the Scheme.

Each Eligible Homeowner may also need to complete one or more statutory declarations, depending on the information provided by the Eligible Homeowner in the application form submitted to the Taskforce.  Statutory declarations may be required to establish that the Eligible Homeowner has not exchanged a contract of sale for the affected block as a seller, and that the home on the affected block is not currently occupied under a residential tenancy agreement.

Is participation in the Scheme compulsory?

As mentioned above, Eligible Homeowners may elect not to participate in the Scheme.

However, if an Eligible Homeowner is inclined to elect not to participate in the Scheme, then we strongly recommended that they obtain detailed and customised legal advice regarding the potential consequences of doing so, and that they obtain this advice well in advance of the deadline for lodging an application to participate in the Scheme (ie well in advance of 30 June 2015).

While the consequences of non-participation will vary from case to case, they could include, for example, the possibility that the affected block will be compulsorily acquired by the ACT Government at a future date under the Lands Acquisition Act 1994 (ACT) (LAA Act).  If this were to happen, then it is important to note that the valuation process and methodology that applies under the LAA Act differs significantly from the valuation process and methodology that is being applied under the Scheme.   It is, however, worth noting that as at the date of publication of this article, the ACT Government has advised that it is not considering compulsory acquisition of affected blocks at this stage.

Other possible consequences are likely to include stringent additional obligations being imposed on the Eligible Homeowner to mitigate the ongoing exposure risks from the continuing presence of loose-fill asbestos insulation.  These could include, for example, restrictions on the use of particular appliances within the home (such as air conditioning / heating systems) or of particular areas of the home (such as roof spaces, wall cavities, and cupboards), depending on the nature and extent of the contamination.

Eligible Homeowners should also discuss with their solicitor whether they are likely to have a cause of action if they do not participate in the Scheme. This, and the relevant remedies available, will depend on the particular circumstances of each Eligible Homeowner.

Overview of the Scheme

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Contact Mills Oakley

The property lawyers in Mills Oakley’s Canberra office are very experienced in assisting owners of ACT properties that are affected by loose-fill asbestos insulation, and are very familiar with the Scheme and all of the surrender documentation involved.  Please don’t hesitate to contact them with any queries that you may have.

adam
Adam Peppinck | Partner
T: +61 2 6196 5203
M: +61 407 883 757
E: apeppinck@millsoakley.com.au

 

The information in this article is not legal advice and should not be relied upon in any circumstance. Advice will vary depending on the particular circumstances of each affected person.

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