As of 1 July 2020, changes to the management of building defects and bonds in New South Wales’ strata schemes came into effect.
The changes follow amendments in the:
- Strata Schemes Management Amendment (Building Defects Scheme) Act 2018 (the Amendment Act), and
- Strata Schemes Management Amendment (Building Defects Scheme) Regulation 2020 (the Amendment Regulation).
This scheme applies to residential or mixed-use residential strata properties that are four storeys or higher on building where the contract was entered into on or after 1 January 2018. These new laws have been formed by the NSW Government to help increase the quality of new residential buildings whilst get tougher on rectifying building defects to avoid poorly built strata buildings and faulty workmanship.
These new laws particularly focus on the requirements of a property developer paying a building bond in a timely manner as well as appointing a building inspector to inspect a building and prepare an interim report and a final report about its building defects.
What are the key changes of the Strata Schemes Management Amendment?
There are a number of key changes that came into effect as of 1 July 2020. These include the following:
New building bond payment date
Previously, property developers were only required to pay a building bond before an occupation certificate was issued for the building. Under these new laws, a developer has to pay and lodge the building bond before an application is made for the occupation certificate.
Developers face higher penalties when failing to provide a building bond
Under these new laws by NSW Fair Trading, developers can risk facing higher penalties when failing to provide a building bond to secure payment for defective building work, rising from $22,000 (200 penalty units) to $1.1 million (10,000 penalty units). Developers can also face an additional daily penalty of up to $22,000 (200 penalty units) for each day the offence continues.
Changes to verify the two per cent contract price
Developers are required to lodge a bond to the Commissioner for Fair Trading equal to two per cent of the contract price for the building work. The ‘contract price’ now refers to the total price paid or is payable under all applicable contracts as at the date of issue of the occupation certificate, which also includes unpaid accounts. A building inspector will inspect the building for any defects and any costs for the rectification work can be taken out of the bond. These changes to the law mean that it is an offence for a developer to knowingly provide false or misleading information about the contract price of the building work.
More power to the Commissioner for Fair Trading
If the developers and owners cannot agree on the amount of the building bond to be released for repair work, then the Commissioner for Fair Trading has the power to determine this amount for them. A report can be provided to detail the necessary work required and the costs of rectifying the defects identified to determine the amount of the bond that should be released to the owners corporation. However, this report will need to be paid for by the developer and owners corporation and information will be required from both parties to assist with the report.
The building bond can be used for unpaid costs
Under the new laws, the building bond can be used towards any unpaid costs of a building inspector who has undertaken an initial or final report or an individual who has prepared a report for the Commissioner where the developer has not paid those costs and has died, ceased to exist, cannot be found or is insolvent.
90 Days to claim the building bond
The timeframe for an owners corporation to claim the building bond has increased from 60 days to 90 days after the final report concerning the building defects is passed to the Commissioner.
Cancelling the building bond
From 1 July 2020, the Commissioner has the power to cancel the building bond paid by a developer if an interim report by a building inspector fails to identify any defects or if part of the amount secured by the building bond has been claimed or realised by the Commissioner.
NCAT application changes
As of 1 July 2020, a property developer will only be able to apply to NCAT (The NSW Civil and Administrative Tribunal) for an order outlining the contract price amount for the building work to find out how much of the building bond the developer has to pay in the limited circumstances prescribed by the strata regulations.
A debt recovery mechanism
The Commissioner will now be entitled to recover from a developer any unpaid or insufficient bonds. An owners corporation will be entitled to claim from the Commissioner any amount recovered by the Commissioner from the developer for payment to the owners corporation.
New investigative and enforcement powers
The Secretary has new investigative and enforcement powers relating to the Building Defects Scheme set out in Part 11 of the Strata Schemes Management Act 2015.
Public register of qualified building inspectors
Professional associations are now required to keep and maintain a public register containing details of members of their strata inspector panel.
Protecting building inspectors from personal liability
‘Good faith’ immunity from liability is available to protect professional associations, building inspectors, independent building inspectors, people acting under the building inspector’s direction, and the Commissioner.
What do these new building defects and bonds laws mean?
Not only do these new laws bring greater clarity to all parties involved, they also provide owners corporations with more strength to make claims against property developers and builders to have any major defects or structural defects rectified. The extension of the strata building bond length from 60 to 90 days will help with this, alongside greater maximum penalties for developers who fail to provide a building bond as well as debt recovery methods to recover amounts from developers.
Want to learn more?
To find out more about the changes to the management of building defect bonds in strata schemes in New South Wales, contact your strata manager at The Strata Collective today.