calculate the strata building bond
  • November 9, 2021
  • Effective Building
  • 0

When the developer and the builder enter into the contract, this is where the Strata Building Bond and Inspections Scheme becomes applicable. This covers all building work on strata properties that are four storeys or higher and are partly or entire residential. This has been implemented since January 1, 2018. 

Developers need to register to use the Scheme’s online portal after works have started. The online portal issues each project a distinct identifier number and is used for all the Scheme’s requirements.

NSW Planning Portal is where projects will be lodged.

Building Bond: Part 1 of the Scheme

The building bond is the first part of the scheme. For whatever works the Scheme applies, developers need to lodge a building bond with NSW Fair Trading that is 2% of the contract value (total price during the issuance of the occupation certificate). If there’s no contract, the quantity surveyor determines the contract price. 

Lodgment and Disbursement of the Building bond

Aside from paying $1500 as the administration fee, the developer needs to upload the lodgment form, building bond, and supporting documents. 

Prior to the issuance of the occupation certificate, the Secretary of NSW Fair Trading confirms the lodged bond. If the occupation certificate is issued before lodging the building bond, penalties will apply.

Why is Building Bond Necessary?

The building bond is used to secure funds that may be used to pay for the rectification costs of any defective works found in the final inspection report. If there are no defects, then the building bond is fully released to the developer.  

However, if building defects are found, these are steps to do concerning the building bond disbursement.

The parties agree on the total costs needed to rectify the defective works.

Once a price has finally agreed, the Building Bond Secretary will claim this amount from the building bond issuer and pay it to the Owners Corporation. In contrast, the developer may directly release a part or all of the building bond to the Owners Corporation.

If the parties are not on the same page regarding the costs needed to fix the defective works, the Secretary will hire a quantity surveyor to estimate the amount needed.

The developer and Owners Corporation will be the ones to pay the costs of engaging a quantity surveyor.

The Secretary manages the release of the building bond money. Any money released must be used to rectify defective works in the final inspection report, and any money left should be returned to the developer.

Mandatory Defect Inspection Report: Part II of the Scheme

Mandatory defect inspection report is the second part of the scheme. As stated above, the building bond will only be released upon the final inspection report given by the building inspector.

Appointment of a Building Inspector

Within 12 months of issuing the occupation certificate, the developer will source and appoint an independent building inspector. Strata Inspection Panel has a list of inspectors to choose from and is selected for the specific purpose. 

The developer will notify the Building Bond Secretary and Owners Corporation of their selection, approving or rejecting the appointment.

In case that the developer isn’t able to source a building inspector or if the Owners Corporation denies the proposed building inspector, the Building Bond Secretary will appoint the building inspector.

Finding a Building Inspector

Authorised professional associations may create and maintain a strata inspection panel (SIP). They can appoint an individual to be a panel member if they are satisfied if they are qualified to inspect works and produce reports per the Scheme requirements. 

As of February 2021, the Australian Institute of Quantity Surveyors and the Australian Society of Building Consultants (where Elie Farah, EBC’s professional building inspector is a member), are the associations that established a SIP.

Inspections and Reporting

First Inspection: 15-18 Months After Completing the Building Work

This is where the building inspector will issue an interim report in identifying defective works. The report is upload to the online portal and accessible by the developer, the OC, the Secretary, and the builder responsible for the defective works. 

If there are no defects, the building bond may be released, but not two years from completion.

If defects are found, the builder responsible for the defective works must fix them before the final inspection. If the defects are no fixed before the final inspection, the building bond can be used to pay the associated costs of fixing any defective works.

Final Inspection: 21 to 24 months After Completing the Building Work

If the building inspector who did the initial inspection is unavailable, the developer must advise the Building Bond Secretary to find a new building inspector. 

Here, the building inspector will issue a report determining whether the defects found in the interim report are rectified. Like in the initial inspection, the report should be uploaded to the online portal and accessible by the authorised people.

The developer will be the one to pay all costs associated with a building inspector.

Right of Review

If the developer or Owners Corporation disagrees with the amount of building bond released, the developer can ask the Secretary to review. This review application must be made through the online portal within 14 days after a sent notice of the released bond. The developer should advise the Secretary regarding the decision and provide any information.
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About Elie Farah

Elie Farah is a Building Consultant with over 25 years of experience in the property industry. Elie has specialised knowledge in development acquisitions, blue-chip properties and inspections, as well as flood-affected and waterfront properties, heritage buildings, bushfire management and existing use rights.

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