The Building Defect Bond Scheme will provide greater
protection to owners in NSW strata schemes. For builders and
developers, the legislation will have significant implications for
From 1 July 2017, Developers entering Construction Contracts for
multi-storey residential developments will need to pay a Building
Bond to the Department of Fair Trading.
Who will the Bond Apply to?
The Building Bond will apply to all Developers who enter
construction contracts on or after 1 July 2017.
The Building Bond will be payable for all construction contracts
after 1 July 2017 where the building is strata titled and more than
3 stories (i.e. multi-storey).
How will the Bond Work?
All Developers meeting the above criteria must provide a Bond,
prior to the Occupational Certificate being issued. The Bond is to
be for 2% of the total Contract amount payable to the Developer.
The Bond is paid to the Department of Fair Trading and will be held
in a trust account.
The Developer must appoint an Independent Building Inspector (from
a list of accredited inspectors) to prepare an interim report
between 15 – 18 months after the building works are complete,
as well as a final report 21 – 24 months after completion. If
the Developer does not appoint a Building Inspector, one will be
appointed by the Department of Fair Trading. The Building Inspector
must be independent of the Builder/Developer.
If any defects are identified in the report, and are not
rectified by the time the second (and final) report is prepared,
the Owners Corporation may make a claim to the Department of Fair
Trading for the release of all or part of the Bond to pay for the
rectification works at any time, up to 2 years after the
Occupational Certificate is issued, or 60 days after the final
report is given (whichever is later).
Return of the Bond
The Department of Fair Trading will, on application by the
Developer, return the Bond (or the balance of it) to the Developer
if there are no unsatisfied claims at the expiration of the 2 year
period. There are detailed steps and applications required to be
taken by Developers to retrieve the Bond. Based on the present
legislation, there does not appear to be any scope for the Bond to
be released to other parties (i.e. such as to the Builder).
Therefore, all applications for recovery of the Building Bond must
be made by the Developer.
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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A lessee will need to demonstrate that the genuine interests of the lessor will be protected if relief is granted.
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