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Strata Law Reform – New Building Defect Bond Scheme

On 30 November 2016, significant amendments to the NSW strata laws came into effect in accordance with the Strata Scheme Management Act 2015 (NSW). This led to a significant overhaul of the strata laws which previously governed NSW. Whilst this article will not go into detail with respect to all of the changes, it will instead focus on one extensive amendment, namely the Building Defect Bond Scheme. This particular scheme did not come into effect until 1 January 2018 after previously being anticipated to commence on 1 July 2017.

What is the Building Defect Bond Scheme?

Essentially, Developers entering Construction Contracts for multi-storey residential or partially- residential strata developments that are four storeys or more in height on or after 1 January 2018 will need to pay a Building Bond to the Department of fair trading.

Under the Scheme, all developers meeting the criteria explained above have to provide a bond to the department of fair trading prior to the occupation certificate (“OC”) issuing. The bond is a building bond, totalling 2% of the contract price. once the bond is paid to the department of fair trading, it is to be held in a trust account.

Requirement for an Independent building inspector

All developers that meet the above criteria, that is entering into a contract for a multi storey residential or partially- residential strata development that is four storeys or more in height on or after 1 January 2018, will need to appoint an independent building inspector from the strata inspector panel, with the approval of the owners corporation. If no independent building inspector is appointed, the department will appoint one.

Interim Inspection

Between 15 to 18 Months after the building work is completed, the independent building inspector is to inspect the strata property and prepare an interim report identifying any defective building work.

Defects Rectification

If no defects are identified by the independent building inspector after the interim inspection, the bond may be released to the developer two years after the date of completion of the building work. If defects are identified, they must be rectified by the developer.

Second and final inspection

Between 21 to 24 months after the building work has been completed, the independent building inspector will conduct a final inspection of the strata property and prepare a final report.

Payment of building bond

If no defects are identified after the second and final inspection, the building bond may be released in full to the developer.

However, if defects still remain, the owners corporation may make a claim to the department of fair trading for the release of all or part of the building bond to pay the costs of rectification. The timeframe which the owners corporation has to do this is up to two years after the Occupation certificate is issued, or 60 days after the final report is given, whichever is later.

If there are no unsatisfied claims at the end of the two year period, the department of fair trading will, on the application of the developer, return the bond to the developer.

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