The Strata Schemes Management Amendment (Building Defects Scheme) Bill 2018

The Strata Schemes Management Amendment (Building Defects Scheme) Bill 2018 (the Bill) was introduced into Parliament on 15 August 2018. The Bill would amend the strata building defect bond and inspection scheme (the Scheme), which commenced on 1 January 2018.

The Scheme, which is housed in Part 11 of the Strata Schemes Management Act 2015 (the Act), introduced a process to streamline the identification and rectification of building defects in high rise strata buildings. In particular, the Scheme requires developers to pay a building bond equivalent to 2 per cent of the contract price for the building work to the Secretary of the Department of Finance in order to secure funding for the rectification of any building defects, which are to be investigated and the subject of reports at 15-18 and 21-24 months after completion of the work.

In a previous edition we discussed the public consultation draft of the Bill (Draft Bill), which can be found here.

In summary, the Draft Bill provided for the following:

  • a building bond would need to be lodged before the developer applies for the occupation certificate, rather than at any time before an occupation certificate is issued, as is currently required
  • authorised officers of Fair Trading would be provided with additional investigative powers to verify the building contract price on which the 2 per cent building bond is based
  • developers would be able to apply to the NSW Civil and Administrative Tribunal to have the contract price determined in prescribed circumstances
  • the Commissioner of Fair Trading (the Secretary) would have the power to enforce a debt recovery process to recover unpaid or underpaid building bonds from the developer
  • the maximum penalty for a developer who fails to lodge a building bond would be increased to range from $22,000 to $1.1 million, with a further $22,000 for each day the offence continues.

The Bill as introduced to Parliament includes the following further amendments to the Scheme:

  • a building bond would need to be in terms that are acceptable to the Secretary before the Secretary is required to accept it for lodgement
  • an amount secured by a building bond would need to be claimed or realised either two years after the date of completion of the building work, or 60 days after the final inspection report on the building work is given to the Secretary (rather than 90 days, as is currently required under the Scheme)
  • to ensure bond money is held for the shortest time possible, the Secretary would be authorised to release a building bond in the following circumstances:
    • if an interim report on the building work does not identify any defective building work
    • on the application of the developer, if the owners corporation agreed and if part of the amount secured by the building bond has been claimed or realised by the Secretary.

The Bill is currently before the Legislative Assembly and awaiting the second reading debate. Once the Bill passes and Regulations are prepared and in place, the amendments to Part 11 will commence.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.