Building defects bond scheme and strata blocks

strata scheme building defects bond

Changes to the Strata Schemes Management Act 2015.

Reforms to the Strata Schemes Management Act 2015 are an attempt to protect buyers of new strata lots from defective building works by facilitating the early identification and rectification of defects, thus leading to an improvement in the standard of construction of NSW residential strata.

Will reform fix the NSW defective building works epidemic?

The commencement of the Strata Schemes Management Act 2015 reforms was delayed until 1 January 2018.  But will this new regime be the magic bullet to fix to the defective work epidemic in NSW strata?

The Scheme attempts to ‘insure’ the risk of defective building work in residential strata properties over three stories by requiring developers to lodge a defects bond and to appoint building inspectors to carry out interim and final inspection reports. These properties fall outside the Home Building Compensation Fund Scheme.

One result is that, when defects became apparent and if the developer or builder was insolvent, Owners Corporations and lot owners, were left with no recourse (high but often not dry).

The lodgement of a 2% bond, by the developer is a condition precedent to the issue of an occupation certificate.  A developer is also obliged to appoint an inspector to carry out interim and final inspections – and produce reports – over a two year time frame.

Critics of the building defects bond scheme

Critics of the Scheme say that the bond is just not enough and developers may just price defects, and the bond, into budgets.

The Scheme seems to impose unenviable obligations upon inspectors as they cannot be “connected” to the developer and must act impartially (despite being paid by the developer).  It seems that conflicts will inevitably arise leading to further disputes.

However, absent an extended time period for statutory warranty claims or perhaps the imposition of personal liability on directors of developer companies, the Scheme will just have to do.

Download the latest Northern Beaches Construction Lawyers Newsletter (PDF) »

Do you need assistance with defective building in your strata scheme?

Clare Peacock is an experienced construction lawyer working on Sydney’s Northern Beaches.

Clare provides practical, cost-effective assistance regarding strata scheme disputes and defective building works.

Call 02 9452 9298  Send an Email  Online Enquiry

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