Strata Building Bond and Inspections Scheme

Strata Building Bond and Inspections Scheme

The new Strata Building Bond and Inspections Scheme is set to commence on 1 January 2018.

The Scheme is a Government response to the City Futures Research Centre 2012 Report which found 85% of respondents, in buildings built since 2000, indicated that one or more defect(s) had been present in their scheme at some stage. For owners in schemes built since 2000 that had defects, 75% said that there were still some defects in their schemes that had not been fixed. The Scheme introduces a building bond and mandatory defect inspection reports with the aim to increase the quality of new strata high-rise buildings through a prompt and cost-effective resolution of building issues.

The scheme will only apply to construct residential or partially-residential strata properties that are four storeys in height or over and where construction contracts signed (or where there is no contract and build work commences) after 1 January 2018. Buildings that are three storeys in height or under, are covered by the Home Building Compensation Fund.

Developers will be required to lodge a bond or bank guarantee with NSW Fair Trading equal to two percent of the final contract price for residential and mixed-use high rise strata buildings. Any defective building work identified between 15 and 18 months but not rectified by the builder before the end of 24 months may be rectified using an amount secured by the building bond.

Since 1999, CRM Brokers has provided developers with an efficient and cost-effective way to satisfy financial guarantee requirements under contract through unsecured Surety Bonds. We have a specialised team ready to assist you in arranging the most appropriate surety bond.

Our experience in working alongside specialist underwriters will provide you with an understanding of the complexities surrounding the application of a bond. To discuss the topic further, contact a CRM Broker today on 1300 880 494 or make an enquiry online.

Stages in the Process

1. Preparing to lodge the building bond

Once a building contract is entered into between developer and builder to construct a strata scheme of four or more storeys, the developer should prepare to lodge their building bond equal to 2% of the contract for the building work. Due to the complex nature of the building bond application process, we strongly recommend you contact CRM Brokers well in advance of when you are required to lodge the bond. Contact Us today on 1300 880 494 or Make an Enquiry online.

2. Bond lodgement

The developer must, when giving a building bond to the Secretary, upload to the online portal:

  • the lodgement form
  • building bond (ie a bank guarantee or a ‘bond’)
  • supporting documents and information

NSW Fair Trading then verifies, receives and accepts the original building bond (ie a bank guarantee or a ‘bond’), which is required before an occupation certificate can be issued.

3. Appointing a building inspector

The developer sources a building inspector through the Strata inspector panels. The building inspector must be independent of the developer. The developer can be penalised for failing to disclose any connection with the building inspector. Likewise, the building inspector can be penalised for failing to disclose any connection with the developer.

The developer must notify Fair Trading and the owners corporation of the proposed appointment of the building inspector. The owners corporation then approve or refuse to approve the building inspector being appointed.

Fair Trading will appoint an independent building inspector if:

  • the developer fails to organise for one to be appointed
  • the owners corporation rejects the building inspector that the developer seeks to appoint.

The building inspector then arranges a date with the owners corporation to inspect the strata property. At all stages where a building inspector is used in the process, the developer pays for their work.

4. Interim inspection and report

The building inspector conducts their first inspection of the strata property and completes a report identifying any defective building work. 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 – two years after the date of completion (not at 18 months when the interim report is provided by the building inspector).

If there are defects, the builder responsible for the defective work must rectify them. The developer must also organise the building inspector to conduct a final inspection. If the original building inspector is unavailable, the developer must advise the Secretary of that fact, or make an application to the Secretary to appoint a building inspector. The Secretary appoints the new building inspector and notifies the owners corporation and developer of the appointment.

5. Final inspection and report

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.

6. Release of bond

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

  • the cost to rectify the defects must be agreed to by both parties. The Secretary will then claim that amount from the issuer of the building bond for payment to the owners corporation, or
  • the developer can agree to release part or all of the bond money to the owners corporation.

 

7. Completing the process

Fair Trading facilitates the release of the bond money. The owners corporation must use any money they receive to fix the defects identified. After the defects are fixed, any money left over must be returned to the developer. There is an alternative review process if the owners corporation or developer disagrees with how much bond money, if any, is returned to the developer or paid to the owners corporation.

 

For Further Information

  • CRM Brokers Surety Bond website provides more information in relation to the various bonds available.