Publications - Property and Development
Building Bonds and the new Strata Defects Regime
February 2018
Snapshot
The Strata Schemes Management Act 2015 (NSW) commenced on 1 January 2018, introducing a new strata defects regime. Applying to construction contracts entered into after that date, the requirements of the new regime (which replaces that previously provided for in the Strata Scheme Management Act 1996 (NSW)) significantly affect the obligations of developers and, in turn, contractors.
The new strata defects regime is intended to address defects in new high-rise strata building by mandating:
The new strata defects regime only applies to original construction of strata of four or more stories for residential or mixed use with mixed residential purposes.
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Inspection Reports
Where a site is subject to the new strata defect regime, the developer must appoint an independent building inspector (at their own cost) to carry out interim and final inspections.
The interim report is to identify any defective building work and must be provided not earlier than 15 months and not later than 18 months after completion of the work.
The final report must be carried out by the same inspector and provided not earlier than 21 months and not later than 2 years after the completion of the work.
A final inspection report will not be required if:
Building Bonds
For developments which are subject to the new strata defects regime, the developer must lodge a building bond of 2% of the contract price with Fair Trading. The purpose of the bond is to secure funding for the payment of the costs of rectifying any defective work identified in the final inspection report.
The bond must be in the form of a bank guarantee or bond and must be lodged before the occupation certificate is issued for any part of a building affected by the work.
The bond or part thereof may be released to the owners corporation either through application to Fair Trading or if defects are identified in the final report. The bond must be claimed either two years after the date of completion of the work, or within 60 days after the final report.
The bond must be used to rectify defects and any excess must be paid back to the developer. It cannot be kept as a form of compensation.
Fair Trading have created an online portal for the strata defects regime to management the lodgement of all documents related to building bonds, accept payment of building bonds, and generally manage all matters related to building bonds. Developers are required to register with the online portal and must pay an administration fee of $1,500.00 for each bond lodgement application.
Where can I find more information?
Fair Trading have set out the requirements of the new strata defects regime, as well as information about how to register for the online portal and lodge documents, at https://www.fairtrading.nsw.gov.au/housing-and-property/strata-building-bond-and-inspections-scheme.
If you require any assistance with understanding how you may be affected by the new strata defects regime or if you would like to know more about the new regime generally, please contact us.
The Strata Schemes Management Act 2015 (NSW) commenced on 1 January 2018, introducing a new strata defects regime. Applying to construction contracts entered into after that date, the requirements of the new regime (which replaces that previously provided for in the Strata Scheme Management Act 1996 (NSW)) significantly affect the obligations of developers and, in turn, contractors.
The new strata defects regime is intended to address defects in new high-rise strata building by mandating:
- a compulsory 2% building bond to be paid by the developer to cover any potential defects in the building works; and
- an inspection scheme by an independent building inspector.
The new strata defects regime only applies to original construction of strata of four or more stories for residential or mixed use with mixed residential purposes.
___________________________________________________________________________________________________________________________________________
Inspection Reports
Where a site is subject to the new strata defect regime, the developer must appoint an independent building inspector (at their own cost) to carry out interim and final inspections.
The interim report is to identify any defective building work and must be provided not earlier than 15 months and not later than 18 months after completion of the work.
The final report must be carried out by the same inspector and provided not earlier than 21 months and not later than 2 years after the completion of the work.
A final inspection report will not be required if:
- the interim report was prepared by a building inspector arranged by Fair Trading and the report did not identify any defects; or
- the interim report did not identify any defects and Fair Trading has determined a final report will not be necessary, following an application.
Building Bonds
For developments which are subject to the new strata defects regime, the developer must lodge a building bond of 2% of the contract price with Fair Trading. The purpose of the bond is to secure funding for the payment of the costs of rectifying any defective work identified in the final inspection report.
The bond must be in the form of a bank guarantee or bond and must be lodged before the occupation certificate is issued for any part of a building affected by the work.
The bond or part thereof may be released to the owners corporation either through application to Fair Trading or if defects are identified in the final report. The bond must be claimed either two years after the date of completion of the work, or within 60 days after the final report.
The bond must be used to rectify defects and any excess must be paid back to the developer. It cannot be kept as a form of compensation.
Fair Trading have created an online portal for the strata defects regime to management the lodgement of all documents related to building bonds, accept payment of building bonds, and generally manage all matters related to building bonds. Developers are required to register with the online portal and must pay an administration fee of $1,500.00 for each bond lodgement application.
Where can I find more information?
Fair Trading have set out the requirements of the new strata defects regime, as well as information about how to register for the online portal and lodge documents, at https://www.fairtrading.nsw.gov.au/housing-and-property/strata-building-bond-and-inspections-scheme.
If you require any assistance with understanding how you may be affected by the new strata defects regime or if you would like to know more about the new regime generally, please contact us.
