The new Strata Building Bond and Inspections Scheme
Buying into dodgy developments may seem like bad luck, but it’s a bigger problem than that. Unbelievably, developers leave defects behind up to 85% of the time – and it’s often the buyers who are left to foot the hefty bills.
In New South Wales at least, that’s all changing. A new state government scheme – which began on 1 January – now requires property developers to pay a hefty bond to NSW Fair Trading. Home buyers will be better protected thanks to an Australian-first defect bond scheme, Minister for Innovation and Better Regulation Matt Kean said.
The Strata Building Bond and Inspections Scheme (the Scheme), the first of its kind in Australia, provides a structured process to rectify defects early in the building lifecycle.
Mr Kean said the new Scheme follows extensive industry consultation, and aims to reduce costs for both developers and buyers, cut time delays in rectifying issues, and minimise expensive and time consuming legal action.
The idea is to give new build buyers peace of mind as “the building bond can then be provided to owners’ corporations to rectify any defects – protecting consumers from developers walking out on dodgy or unfinished work.”
The 2% strata building bond applies to high-rise residential or mixed-use strata buildings of four storeys and more. The government says it will “incentivise developers to minimise any building issues” in the building process.
Developers will have to get defect inspection reports written as construction takes place, meaning problems can be solved “quickly and cost-effectively”.
It is music to the ears of strata buyers, who have often been left with headaches, time delays, hefty bills and the need to take life-consuming legal action.
Although many developers are honest and high quality, all too often dodgy players cut corners with construction or walk out on unfinished projects due to disputes.
In the worst cases, strata owners have been left millions out of pocket.
A side benefit of the strata building bond being calculated on the basis of 2% of the contract price is that NSW Fair Trading will take a look at the fairness of that price before giving the green light.
However, the new scheme has faced some criticism – and not just because the 2% bond may not cover the many millions that fixing serious building defects can often cost in NSW.
Some builders have pointed out that many defects occur because of flaws in the earliest conception phases of the project – not because of them.
And only “major defects” will be covered by the program’s full six-year warranty, with the vast bulk of the building problems – like leaks and cracks – protected for two years.
Not just that, the building inspector is basically chosen by the developer itself, and then called to work at any time during the first year or so after construction – even though many defects only appear after that.
Nonetheless, the strata building bond scheme adds in useful consumer protections, and is therefore a win for owners.
The big benefits of the Strata Building Bond and Inspections Scheme:
Developers will pay 2% of the contract price to NSW Fair Trading, who release the funds if building defects arise.
The defects will be assessed thanks to mandatory inspection reports, giving peace of mind to buyers as the development progresses and completes.
As it works on the basis of 2% of the contract price, that price of the development will be assessed by an independent assessor.
No cut corners
All too often, shonky developers would cut corners with construction and leave the issues for strata owners to resolve themselves.
Previously, disputes could be long and bitter and work could be left undone. The bond scheme aims to end conflicts and resolve building issues before they become major headaches.
Often with no money to fix the defects and no cooperation from the developer, architect or builder, strata owners would sometimes try to fix the building defects themselves.