Construction Industry participants, especially builders and
developers should be prepared for the impact of the 2% Building
Bond Scheme which is effective from 1 July 2017.
The scheme is a consumer protection mechanism targeted at
identifying building defects in strata buildings within the 2 year
statutory warranty period and providing funding for rectification
of building defects, where it is not mandatory to have Home Owners
Warranty insurance in place.
Building Industry participants should take steps before 1 July
2017 to ensure projects are compliant with the 2% Building Bond
6 Point Action Item Strategy
Developers should have in place facilities to obtain bonds for
2% of building works costs. Builders should be prepared for
Developers to request provision of sufficient security until a 2%
building bond matures.
Bonds should be able to be claimed during the 2 to 3 year
period from the date of the occupation certificate.
A cost report from an independent quantity surveyor must be
obtained to set the contract price used to calculate the 2%
building bond where projects have no written contract, or the
builder and developer are related parties.
Developers may give consideration to ensuring building
contracts contain an adequate defect liability period and that
builders provide sufficient security to offset the 2% building
Developers may also give consideration to passing the costs of
the 2% building bond on to purchasers of completed strata
Developers need to carefully manage the time frames in the
legislation for a building inspector to perform interim and final
building inspections, and for notifications to be made to the
Secretary of the Department of Finance, Services and Innovation
Key Features To Note
The Building Bond Scheme will apply to
building works in the construction of new strata buildings
where contracts are entered into on or after 1 July 2017; or
where there is no contract, building works in the construction
of new strata buildings commenced on or after 1 July 2017.
The Building Bond Scheme only applies to the
construction of new strata buildings that are exempt from requiring
Home Owners Warranty insurance.
Independent building inspectors must be appointed by a
Developer, with the prior approval by an owners corporation at a
general resolution, where lots equating to 1/3 of the unit
entitlements are sold within 12 months from completion (i.e. the
Initial Period ends 12 months from completion).
If the Initial Period ends later than 12 months from completion
the Secretary has the power to appoint a building inspector.
Whether appointed by the Developer or the Secretary, the
Developer must meet the costs of the building inspector.
There are strict notification requirements for Developers to
keep the Secretary informed in relation to the appointment of a
building inspector, or where a building inspector can't be
An Interim Report is to be prepared by the building inspector
between 15 months to 18 months from completion.
The Developer and Builder will then have an opportunity to
rectify defects identified in the Interim Report and can access the
scheme upon giving 14 days written notice.
A Final Report is to be prepared by the building inspector
between 21 months to 2 years from completion. That report will
address defects identified in the Interim Report that haven't
been rectified, or any defects arising from rectification
The 2% building bond can be accessed to fund rectification of
any building defects identified in the Final Report,
Fines which be imposed if various aspects of the building
defects bond scheme are not complied and it is important for
developers to be aware of their obligations to avoid the risk of
prosecution which in addition to financial penalty can affect
reputation and divert resources from revenue raising arms of a
We can assist in providing strategic advice to you on the
building bond scheme or assisting you with the mechanics of the
scheme. Should you require further information please do not
hesitate to contact the writer.
Disclaimer: This article contains general advice only and does
not constitute legal advice. Readers' own particular facts and
circumstances may change the general advice in this article and it
is recommended that readers obtain legal advice in relation to
their own individual facts and circumstances.
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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