Colin Knowles thought he was buying his dream home in Pyrmont in 2000. Little did he know his apartment building was covered in a flammable and dangerous cladding now considered illegal.

Eighteen years on and Mr Knowles and his neighbours face a $7 million bill to have it replaced because of mounting pressure first by insurers and now legislated by the state government to remove it.

“The owners are greatly concerned at how much money they have to pay out,” Mr Knowles, chairman of his strata committee, said. “They believe they bought into a building which was all signed off on by inspectors, government certificates, the fire brigade and everybody else, only to find that now they’re left with a huge debt and we’ve got no recourse.”

The government last week announced corporations could be fined up to $1.1 million for installing the dangerous cladding, and individuals fined up to $220,000.

But the ban also applies retrospectively, leaving potentially hundreds of NSW strata owners out of pocket because they are left to carry out remediation work themselves.

Since the product is classified as a major defect, residents have the right to have repairs completed by the responsible builder for up to six years after its completion. Owners also have the right to pursue the builder under statutory warranty provisions for up to seven years.

But it is unclear whether owners in homes built before 2012 have any form of recourse at all.

The NSW Cladding Taskforce found more than 400 buildings, half of them residential, had dangerous cladding that increased fire risks. It is unknown how many were built before 2012.

Mr Knowles said he and the rest of the owners in his building have no other choice than to cover the cost themselves, citing legal advice received.

Mr Knowles said only 85 apartments — or 19 storeys — in the complex were affected, yet all 200 owners have to pay a special levy to fix the problem.

If they proceed, each owner faces a $10,000 levy per quarter instead of the current $3000 for at least five years – something they worry will deter future buyers.

The strata committee will come to a decision by year’s end, but Mr Knowles said the state government should step in to help owners in affected homes built before 2012.

“I’d like to see the government realise they’ve buggered it up over the time, both through a very slack approval process and not a lot of control over flammability and other issues,” he said.

Strata Community Australia NSW president Chris Duggan said a systemic failure allowed the installation of the product.

“Undoubtedly people have taken shortcuts along the way and they’ve been beneficiaries of the system, but the lot owner is inheriting the problem,” Mr Duggan said.

He said the government should follow Victoria’s lead and offer low-interest loans to help strata owners not covered by any existing provisions to pay for remediation work.

Fair Trading commissioner Rose Webb said: “For residential buildings, owners have rights to pursue the builder under statutory warranty provisions. Individuals should seek their own independent legal advice about their rights and legal options.”

“At the Building Minister’s Forum in April this year, the NSW Government called for a national report to examine who is liable for having unsafe cladding rectified on buildings, who pays, and who the costs can be recovered from.”