Vincent Young - Contracts, Law, Security of
According to an announcement made by NSW Fair Trading:
the new strata laws (Strata Schemes Development Act 2015
and the Strata Schemes Management Act 2015) will commence on
30 November 2016; and
the building bond scheme will commence on 1 July
We set out below a brief refresher on the building bond scheme
contained in the new strata laws.
What is the Building Bond Scheme?
The building bond scheme applies to strata developments over 3
storeys and requires the developer to provide the Office of Finance
with a bond equal to 2% of the price for the building work. The
bond must be provided prior to the issue of the occupation
certificate for the strata scheme. The purpose of the bond is to
guarantee the rectification of defective building work by the
Under the building bond scheme the developer must appoint a
building inspector (which cannot be the contractor) to conduct an
interim report and final report on the defective building work in
the strata scheme.
The interim report must be prepared between 15-18 months after
completion of the building work.
The final report must be prepared between 21-24 months after
completion of the building work. The purpose of the final report is
to identify defects in the interim report which were not rectified
and further defects caused by the rectification works. The final
report cannot set out new defects.
Any defective building works identified in the final report will
entitle the owners corporation to apply to the Office of Finance to
call on the building bond. Any surplus of the building bond not
used by the owners corporation to meet the cost of defect
rectification will be returned to the developer.
The building bond scheme has significant implications for both
developers and contractors involved in strata developments over 3
storeys. Developers must ensure that their constructions contracts
have adequate provisions in relation to the defects liability
period and the contractor's security. Contractors are likely to
see contracts containing longer defects liability periods and also
the retention of security for a longer period of time.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Warranties can be risk-shifting mechanisms when the party giving the warranty is not the party at fault for the defect.
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