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NSW Unit Bond Scheme – Building Defects 2 Years From Completion

The Strata Building Bond and Inspections Scheme is intended to do two important things:

1. Provide a financial incentive for developers and builders to build sound residential high-rise buildings.
2. Permit owners to identify defective work and have it fixed promptly and cost-effectively.

As laudable as these goals are, they are not self-executing, so owners should understand how to use the law to protect their investment.

Operationally, the scheme works through three levels of responsibility. Imagine a pyramid, if you will. At the top, the rules impose obligations on developers. The responsibility for monitoring developers’ compliance falls principally to the owners’ corporation — the middle slice.

Individual owners, those most immediately affected by shoddy work, make up the base of the pyramid. To take action, they must work through the owners’ corporation. That requires being proactive. Above all, vigilance and attention to tight deadlines are essential.

The basics

The scheme extends financial protections to purchasers of units within buildings of three or more storeys constructed (or contracted for construction) from 1 January 2018. The developer must post a bond of 2 per cent of the contract price of the building work to be used to remedy structural defects.

In addition, the developer must appoint an independent building inspector to inspect the construction work.

Residual funds will be paid back to the developer on maturation of the bond — two years from the date of completion of the building.

Vigilance and more vigilance within a tight time frame

Two years is a relatively short period of time within which to discover construction flaws, so owners and owners’ corporations must investigate and report defects promptly.

In addition, individual owners who wish to object to the appointment of a building inspector by the owners’ corporation must give the Building Bond Secretary a written notice of the objection and reasons for the objection within 14 days after the approval.

The interim and final condition reports must be given to the Department of Fair Trading, the developer, the owners’ corporation and any builder responsible for the construction within 14 days of the date the report is completed. There is also a limited opportunity for reviewing decisions. Applications for review of decisions must be made within two weeks after the notice of the decision has been given.

In sum, owners must realise and be prepared to monitor these deadlines and act quickly. The time limits for many essential actions are very short.

Other limits

Experts have also expressed concerns about the practical limits of owner protections. For example:

Unscrupulous developers may leave defects in the building to the value of 2 per cent and engage only “developer-friendly” inspectors.

There is no protection for off-the-plan purchasers where developers cannot raise the security bond and therefore do not register the strata plan.

Subcontractors may not be aware of the commercial impact of extended defects liability periods which may increase insolvency rates.

The scheme provides improved protections for buyers of high-rise units, but they are not airtight, and enforcement may fall to individual owners in ways that they do not realise. Better protection for buyers may depend on sound legal advice and a wider legal perspective.

By Rolf Howard, managing partner, Owen Hodge Lawyers. 

Note: This blog was originally posted on Smart Property Investment’s sister brand, REB.

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