Strata Building Bond and Inspections Scheme

Strata Building Bond and Inspections Scheme

February 19, 2018

A new strata building bond and inspections scheme started on 1 January 2018, and there are many important changes for owners to be aware of.

Effective from 1 January 2018 all building construction for owner’s corporation buildings (strata scheme buildings) that are four storeys or more and are residential (or partially residential) will need to enter into a building bond and inspections scheme *.

The detailed scheme is in place to ensure that any issues that are uncovered during an independent inspection can be resolved quickly and effectively with a dedicated focus.

Prior to the scheme post-completion building issues could be left unattended for months or even years if there was any discrepancy over who was responsible for the fault and subsequently who should pay for the fix. The mandatory new scheme also ensures that the building is thoroughly inspected by the third party. With funding having been previously set aside for corrections to be made, you can be sure nothing, however minor, will get swept under the rug.

This scheme conditions start from when a developer and a builder enter into a new building contract. At this point, the developer must submit a bond with the NSW Fair Trading Office that is equal to 2% of the building contract price. This money is then available to rectify any building defect found during an inspection. The defect inspection is mandatory. If the building passes all requirements and no faults are found (or faults do not exhaust the entire bond) the bond money is returned to the developer after a set period of time.

The building bond and inspection scheme take place between the Developer and the NSW Fair Trading Office, however, other parties are also involved and need to be aware of their roles in this scheme:

Those with involvement in the Strata building bond and inspections scheme are:
• The builder (who is contracted by the developer)
• the Owners Corporation
• the Strata inspector panel (this is the nominated parties where a building inspector can be sourced from)
• the building inspector (the one sourced from the panel)

The steps for completing the process are relatively straightforward and, if everything goes according to plan, lead to the money being fully refunded. It is therefore in the best interest of the developer to be thorough and maintain a high standard during the building process.

WHEN DOES THE PROCESS START?

As soon as the developer and builder enter into a contract to complete a Strata scheme residential (or partially residential) building that is four storeys or more, it is time to begin the process. The first step is for the developer to prepare the bond lodgement

The bond (2% of the contract value work) is lodged online to the Strata Building Bond and Inspections Scheme using a dedicated portal. The bank guarantee, together with the bond lodgement form, relevant building and construction details and the administration fee ($1,500) makes up the requirements for a completed bond lodgement.

When approved and accepted the received bond will trigger the release of the occupation certificate.

WHO HIRES THE BUILDING INSPECTOR?

It is the developer’s responsibility to source a building inspector through the approved channel (the Strata inspector panel).

The Strata inspection panel is in place to ensure the person carrying out the inspection has no business ties to the developer. For a genuine inspection to take place it is essential that the inspector be completely independent of the developer, that means no social, family or business ties. Careful checks are made and penalties are enforced if there has been any hidden or undisclosed connections between a developer and building inspector.

When a building inspector has been chosen the developer notifies both the Building Bond Secretary and the Owners Corporation for their approval. The developer’s choice can be rejected by these parties.

If an inspector choice is rejected or the developer fails to make a selection then an independent building inspector will be appointed by the Building Bond Secretary.

The building inspector will arrange a viewing date with the owner’s corporation to inspect the strata property with the billable work hours the inspector spends on that building being paid by the developer.

The building inspection takes place after the building work has been completed, typically between 15 and 18 months after the completion date.

The report is assessed by a number of people, including the owner’s corporation, the developer, the builder and the Building Bond Secretary.

If there are no defects reported the bond can be released back to the developer providing the adequate period of time has elapsed. The reason for having a waiting period on the bond return is to allow time for any additional faults to be revealed.

An interim report is completed by the building inspector 18 months after the completion date. If that report shows no issues the bond can be returned (typically two years after the completion date).

If any defects are detected the builder responsible for the defective work is required to rectify the issue. A final inspection of the building will take place to ensure that the additional work was completed and completed to high standards.

The final inspection usually takes place between 21 and 24 months after the building has been completed.

In order for the claim to be deducted from the bond, both the developer and the owner’s corporation must agree on the repair costs.

If the cost of the fix cannot be agreed on then the Building Bond Secretary will employ a surveyor, a third party expert, to determine fair repair costs.

The bond and inspection process is important for ensuring developers take full responsibility for safe and effective outcomes of their buildings, so that you, as the buyer can invest with confidence knowing that it’s in the developer’s best interest not to cut corners and to deliver a quality product.

* Strata residential buildings that are three storeys or under are not covered by this scheme. Instead, they are covered by the Home Building Compensation Fund.

Peta Stewart – Certified Practicing Conveyancer

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