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Building Defect Bond is delayed

Building Defect Bond is delayed

Building Defect Bond is delayed

Developers are off the hook for another six months as the new strata building defect bond scheme, which was due to start on 1 July, will now begin 1 January 2018.

The Building Defect Bond Scheme, introduced under the Strata Management Act 2015, was designed to provide greater protection against defective building works & ensure that any defects are attended to in a timely manner.

It will now apply to all new contracts for residential (or part residential) works from 1 January 2018.

The building defect bond scheme applies to building work to construct residential or partially-residential strata properties that do not require coverage under the Home Building Compensation Fund (those over three storeys in height).

This reform introduces a building bond and mandatory defect inspection reports. It will provide a structured, proactive process that resolves building issues quickly and cost effectively. This will raise confidence in the quality of new strata high-rise buildings.

The building defect bond must be equal to 2% of the contract price for the building work. Provision of the building bond is required prior to the issue of occupation certificates to cover the costs of defect rectification works that are identified in the final inspection report to be procured under the new scheme.

Mandatory Defect Inspection Reports

  • The independent building inspector conducts their first inspection of the strata property and completes a report of their findings. This happens between 15 and 18 months after the building work has been completed.
  • The owners corporation, developer, builder responsible for any defective work and Fair Trading receive copies of the report.
  • If no defects are identified, the bond may be released to the developer.
  • If there are defects, the developer/builder responsible for the defective work must organise for them to be fixed. They must also organise the building inspector to conduct a final inspection.
  • The building inspector arranges with the owners corporation to conduct a final inspection of the property. This happens between 21 and 24 months after the building work has been completed.
  • The building inspector provides a final report to the developer, the owners corporation, builder responsible for any defective work and Fair Trading. This report will assess whether the defects identified in the interim report have been fixed.

Release of the Building Defect Bond

If there are no defects, the bond is released in full to the developer.

If there are defects:

  • the owners corporation can claim the bond money in full or in part, or
  • the developer can agree to release part or all of the bond money to the owners corporation.

© State of New South Wales (NSW Fair Trading). For current information go to fairtrading.nsw.gov.au

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