Building and insurance law legal update: State of Victoria v L.U. Simon Builders Pty Ltd [2025] VSCA 52

The Victorian Court of Appeal has provided an important clarification on the State’s rights concerning cladding rectification costs.

In this case, the State funded the removal of dangerous cladding on a Melbourne building and sought to recover those costs from the builder being LU Simon Builders Pty Ltd.

The big issue in this case was whether funding from the State to the owners corporation gave rights of ‘subrogation’ to the State (basically a legal right to step into the shoes of the benefited party) on behalf of individual lot owners given payments were made to the owners corporation (OC). The builder contested that the State could claim and subrogate for these costs.

As background (for readers) on how ownership in strata buildings operates:

• a plan of subdivision for a strata building defines both the common property (owned by the OC) and individual lot owner property in a building.
• this can vary between buildings and comes down to the markings and notations on each relevant plan.
• contrary to popular belief (I pretty much get asked this question all the time - “oh, I thought the OC just owned all of the building structure directly?” - well NO - it depends).
• Therefore, the building structure can be owned in part by the individual lot owners directly and by the OC as common property.

In this case, cladding was installed on external walls of parts of the building and were owned by individual lot owners and on common property.

Relevantly, the Court confirmed that in effect under section 137F of the Building Act 1993 (Vic) the State is entitled to make payments to the OC both for itself and on behalf of individual lot owners and this entitles the State to be subrogated to the rights of both the OC and the individual lot owners.

This decision reinforces the State’s capacity to recover funds spent on cladding rectification where they have entered a funding agreement with the OC and not individually with lot owners (which is understood to be practically unworkable).

This case deals with a somewhat esoteric legal issue of subrogation and the ownership rights in strata properties, however, the significance of this case should not be underestimated for strata, building and legal professionals.

This is a huge step forward in relation to recoveries which could be very substantial. Cladding Safety Victoria is said to have funded the removal of unsafe cladding for literally hundreds of buildings and undoubtedly there are more out there.

It will be interesting to see how the State approaches cladding recovery mandates for legal services. The prospects of recovery will vary between builder but they would now be expected to be far higher and in addition given the Building Act also provides unique provisions to pursue officers under s137F (3) in addition to the building entity.

This article is a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Tagged as:

• property disputes
• building law