Victoria's building industry has entered another significant phase of regulatory reform, with the former Cladding Rectification Levy now replaced by the Building Reform Levy.

While many project teams will notice an immediate reduction in levy costs, the changes represent much more than a simple fee adjustment. They form part of a broader overhaul of Victoria's building regulatory framework, designed to strengthen consumer protection, improve industry accountability and support the ongoing operation of the Building and Plumbing Commission (BPC).

For developers, architects, builders and consultants, understanding how these changes affect current and future projects is important when planning budgets and navigating the building permit process.

Looking back - why was the Cladding Rectification Levy introduced?

The Cladding Rectification Levy was introduced by the Victorian Government in 2020 following the widespread identification of combustible cladding on buildings throughout Victoria.

The levy was established to fund Cladding Safety Victoria and assist with the rectification of high-risk buildings identified as requiring remediation following the state's extensive cladding audit program.

Over recent years, the levy has generated significant funding to support remediation works across hundreds of buildings, helping to improve public safety while reducing financial impacts on affected owners.

As that rectification program approaches completion, the Victorian Government has transitioned away from the temporary funding model established specifically for cladding rectification.

Introducing the Building Reform Levy

As part of Victoria's broader building reform package, the Cladding Rectification Levy has now been replaced by the Building Reform Levy.

Rather than funding a dedicated cladding rectification program, the new levy will contribute towards the ongoing administration of Victoria's building regulatory system, including the operation of the Building and Plumbing Commission.

The reforms are intended to strengthen oversight of the building industry while supporting improved compliance, enforcement, practitioner regulation and consumer confidence across the sector.

The levy therefore represents a shift in focus - from funding the rectification of legacy building issues to supporting the long-term operation and continual improvement of Victoria's building regulatory framework.

What has changed?

For many developments, the most noticeable outcome will be a reduction in building permit levy costs.

The Building Reform Levy applies more narrowly than the previous Cladding Rectification Levy, with higher project thresholds and revised levy rates resulting in lower contributions for many developments.

For eligible metropolitan projects, the threshold has increased from $800,000 to $1.5 million, meaning a significant number of smaller developments will no longer attract this component of the Building Permit Levy.

For larger projects that remain subject to the levy, the revised calculation methodology is expected to substantially reduce overall levy costs when compared to the previous framework.

While every project should be assessed individually, the reforms are expected to provide meaningful cost savings across much of the development industry.

What does this mean for projects already underway?

One of the most common questions arising from the reforms is whether projects that have already paid the Cladding Rectification Levy will receive a refund or adjustment.

In most cases, the answer is no.

Where a building permit has already been issued and the applicable Building Permit Levy has been paid under the previous legislative framework, those levy arrangements remain unchanged. The reforms are not retrospective and generally do not alter obligations that have already been satisfied.

Projects that have already obtained a building permit should therefore expect to continue under the levy requirements that applied at the time the permit was issued.

What about projects yet to obtain a building permit?

Projects currently in design, documentation or awaiting a building permit stand to benefit the most from the reforms.

Where a building permit application is made following commencement of the new legislation, the Building Reform Levy will apply in place of the former Cladding Rectification Levy.

Depending on the size, classification and location of the development, this may result in a noticeable reduction in statutory levy costs and should be considered when preparing project budgets and development feasibility assessments.

For developers managing multiple projects over an extended delivery program, the cumulative savings may be significant.

The levy is only one part of broader reform

Although the revised levy has attracted considerable attention, it represents only one component of Victoria's wider building reform agenda.

The broader legislative package includes reforms intended to:

• strengthen consumer protection throughout the building process;
• improve regulatory oversight and enforcement;
• provide greater accountability for building practitioners;
• support higher quality building outcomes; and
• continue the transition to the Building and Plumbing Commission as Victoria's primary building regulator.

Collectively, these reforms seek to improve confidence across the building industry while providing clearer regulatory pathways for practitioners and consumers alike.

As further elements of the reform package are progressively implemented, industry participants should expect continued changes to Victoria's building regulatory landscape.

How Krneta can assist

Legislative reforms often create uncertainty, particularly during transitional periods where existing and future projects may be subject to different requirements.

At Krneta, we continue to monitor changes to Victoria's building legislation to ensure our advice remains current and practical throughout every stage of the statutory approvals process.

If you are preparing a project for building permit, or would like to understand how the Building Reform Levy may affect your development, our team is available to assist with project-specific advice and guidance.