As of 1 of January 2018, the building defect bond scheme came into effect. Otherwise referred to as the strata building bond and inspections scheme, it is a system designed to put a degree of responsibilities on developers to streamline the process of effectively fixing building defects.
The terms apply to any contract entered into by a developer and builder any time from 1 January 2018.
This particular scheme applies to residential and partially-residential strata properties of four storeys or higher. There is a separate scheme for buildings of three storeys and under called the Home Building Compensation Fund.
How Does The Building Bond Work?
Before construction commences or the occupation certificate is issued for the building, the developers must lodge a bond with NSW Fair Training at 2% of the contract price. This bond secures funds (up to the amount of the bond) that can then be used to pay the costs of rectifying any defective building work identified up to two years after construction is finished.
If any defective building work is not rectified prior to the final inspection, the bond will be used to pay the costs for these. If there are no issues, the bond is returned to the developer in full.
How Does The Strata Building Bond Benefit Buyers?
The strata building bond protects buyers from defective building work and delays in repairs. By paying a bond, the developers are encouraged to quickly and effectively address any construction or building issues. If a developer does not carry out repair work for any reason, the bond is used to pay any costs, alleviating buyers of any financial responsibility.
The inclusion of mandatory inspection reports further ensures quality and safety. It also streamlines the process, ensuring that developers are proactively looking for and aiming to resolve any building issues efficiently.
There are two inspections, the first is around 18 months after the building is finished (referred to as the interim inspection) and the other (the final inspection) around 24 months after construction is finished. In order for the developers to receive their bond back, any defects highlighted in the interim report must be addressed and fixed prior to the final report.
By having both inspections a while after construction is finished, it allows inspectors to identify issues and defects that may not surface immediately or prior to full use or occupation of the building.
Overall, the scheme protects buyers from any delays, financial burdens or careless construction mistakes resulting in otherwise avoidable building defects.
Want To Know More?
If you’ve recently bought a new-build strata property and need more information on the Strata Building Bond, contact your strata management team.