Developers of new 4 storeys and higher residential strata buildings are required to pay a building bond to NSW Fair Trading equal to 2% of the construction contract price. After January 1, 2018, the Strata Bond Scheme Inspection applies to all the building contracts.
After two years, this building bond can be used to pay for any found rectification work if the developer has failed to do so.
If you’re a developer with new project registrations from September 1, 2020, you can use the NSW Planning Portal.
However, if you’re a developer with projects registered before September 1, 2020, use the SBBIS ePortal.
Effective Building & Consultancy is an authorised inspector for the Australian Institute of Quantity Surveyors under the Strata Bond Scheme Inspection.
What Do You Need to Know about Strata Bond Scheme Inspection?
Under NSW law, there are two instruments that are most commonly referred to in strata matters:
- Home Building Act 199
- Strata Schemes Management Act 2015 (Part 2 2016)
Under the contract between you and your builder, there are warranties set out on what you are entitled to. Even if these warranties are not written into the contract you sign, the law states that they still apply.
Statutory warranties are in effect for six years from the date that any form of occupancy certificate is issued for the building. For the first two years, all defects are warranties and for the remaining four years, the warranty is limited to major defects.
These warranties are:
- the work will be in accordance with any plans and specifications set out in the contract
- the work will be performed with due care and skill
- materials will be new unless otherwise specified
- all materials supplied will be suitable for the purpose for which they are to be used
- the work will be done with due diligence and within the time stated in the contract, or otherwise in a reasonable time
- the work will be done in accordance with and will comply with, the Home Building Act 1989 or any other law
- the work will result in a dwelling that is reasonably fit to live in if the work includes:
i) construction of a dwelling
ii) making of alterations or additions to a dwelling
iii) repairing, renovation, decoration, or protective treatment
of a dwelling, the work will be done with due diligence and within the time stated in the contract, or otherwise in a reasonable time
- the work and any materials used will be reasonably fit for the specified purpose or result that the owner has advised the contractor while indicating that the owner relies on the contractor’s skill and judgment.
Strata Bond Scheme Inspection Process
Stage 1. Building Bond Lodgement
Lodge Bond for secretary approval before the issue of OC Bond = 2% of the contract price
Stage 2. Inspector Appointment (Within 12 Months)
In this stage, the developer must already appoint a building inspector within 12 months after the issuance of an occupation certificate. This allows people to occupy the building if the initial period of the owners corporation of a strata scheme ends within that 12 months.
However, if the developer fails to appoint a building inspector, the Secretary will be in charge.
As a member of the strata inspector panel, Effective Building & Consultancy can carry out inspections and produce reports for the Strata Bond Scheme Inspection.
Once the developer has selected their building inspector, they must be approved by the owners corporation.
Stage 3. Interim Strata Bond Scheme Inspection and Report (15-18 Months)
Between 15-18 months of completion of building work, the builder inspector should be able to carry the interim inspection (first inspection) after the issue of the occupation certificate. The building inspector should attend the site to perform the strata bond scheme inspection and identify any defective building work.
However, before entering the premises, the building inspector should give at least 14 days written notice to the owners corporation and any owner of any affected lot.
Stage 4. Rectify Defective Building Work (18-21 Months)
It is the responsibility of the developer to correct any defective work identified in the interim report of the strata bond scheme inspection. If the original builder isn’t available, the developer must arrange for another builder to do it.
Rectifying defective work can occur any time after the building work is completed. However, if the defective work was found in the interim report, it should be rectified between 18 and 21 months after the occupation certificate was issued and before the final inspection.
Stage 5. Final Inspection and Report (21-24 Months)
The developer must arrange for the same building inspector who did the interim report to do the final inspection and provide the final report of the strata bond scheme inspection. They must advise the secretary within 14 days.
The final strata bond scheme inspection must be done between 21 and 24 months after the OC is issued. The final inspection is critical to determine whether the defective building work noted in the interim report has been rectified.
If there’s no defective work identified in the final report, the secretary releases the entire building bond (Stage 7). But, if there’s still defective work in the final report, the cost to rectify it will be determined which will be explained in the next stage.
Stage 6. Determine Cost of Rectification (After 24 Months & Before 2 Years & 90 Days)
If there’s defective building work noted in the final report, the cost to rectify that work must be determined. These are the two steps to follow:
Step 1: Deed of Agreement
The developer and the owners corporation reach an agreement regarding the cost to rectify the defective building work. They both provide a deed of agreement and make an application to the secretary to release the agreed amount from the building bond, within 30 days of receiving the final report of the strata bond scheme inspection.
If the deed of agreement is not received in 30 days, the Secretary will move to the next step
Step 2: Arrange Another Qualified Person
If the developer and the owners corporation fail to reach an agreement regarding the cost to rectify the defective building work, the Secretary will arrange for another qualified person to determine the cost to rectify the defective building work.
The cost for doing this will be shared equally between the developer and owners corporation.
Moreover, once the amount is settled, it will be released from the building bond to pay for the cost to rectify the defective building work.
Stage 7. Paying the Building Bond (2-3 Years After the Building Completion)
The release of building bond can happen in these circumstances:
- With the consent of the developer and owners corporation at any time between two and three years after the date of building completion.
- If there are no defects found in the interim report and the developer applied to waive the final report, the interim report becomes the final report. The building bond will be returned within 90 days of the final report to the approved issuer.
- If no defects found in the final report, the building bond will be released within 90 days after the final report is provided to the secretary by the building inspector. The building bond will be returned to the approved issuer.
- If the defective building work is noted in the final report, it will be paid for from the building bond. This occurs between two and three years after the date of building completion. If the cost to rectify the defective building work is more than the building bond, the whole amount is paid to owners corporation.
However, the secretary may refuse to release the building bond to the owners corporation if he is satisfied that the developer or builder was unreasonably refused access to the building to rectify the defective building work.
Stage 8. Completing the Process (Within 3 Years)
The owners corporation must use any money it receives from the building bond to rectify the defective building work identified in the final report of the strata bond scheme inspection within a reasonable time.
The owners corporation must give the developer written notice of the completion of the rectification of the defective building work.
After completing the defective work, the owners corporation must return the developer the remaining building bond.
How Do Effective Building & Consultancy Do the Strata Bond Scheme Inspection?
For Owners Corporations
Effective Building & Consultancy specialists offer a full suite of building defect inspection and reporting services to the strata, property management, and construction industries. Our team specialise in strata bond scheme inspection and work closely with strata managers and owners corporations in carrying out defect inspections and preparing reports.
When we carry out a defect inspection of common property, our professional team liaise with owners to lessen inconvenience when doing inspections. We prepare and issue a comprehensive report which notes each defect with a photograph and suggests a recommended work to repair the defect.
We ensure that our reports are understandable by the owners corporation. However, our team is also available to explain the report for any complex issues found during the strata bond scheme inspection. Our reports are formatted for lodgement with the Courts should an unresolved matter escalate into legal action.
Effective Building & Consultancy will provide a fee proposal to carry out strata bond scheme inspection of the building. After the inspection, we will give you a detailed report and a brief scope of rectification work.
For Builders and Developers
Effective Building & Consultancy offers a full suite strata bond scheme inspection to the construction industry. Our independent consultant offers a high-level evaluation program and provide an hour meeting in our offices to discuss the most appropriate strategy.
Our expertise on strata bond scheme inspection can help to provide a mediation process to try and prevent the matter from escalating into the legal system which could incur huge costs for our clients.
Effective Building & Consultancy offers a defect inspection for builders at the time of completion before occupancy. The report for the strata bond scheme inspection is affordable but very helpful and time-saving for builders to identify the defects.
2% of the contract price is the amount to be secured for a building bond. It is the sum-up of the price paid under all applicable contracts for the building work at a time just before the developer applies for the occupational certificate. This is calculated on the price at practical completion (not the price before or start of the work and includes all the variations).
Within 12 months of OC issuance, Effective Building & Consultancy independent building inspector can be hired to inspect the building at the developer’s expense.
It is important to note that any person connected with the developer in the last 2 years cannot be appointed as a building inspector. We need to avoid anyone with a biased interest in strata bond scheme inspection or in any aspect of the building work.
Effective Building & Consultancy ensures to generate an interim defects report within 15-18 months. If there are no defects found, the bond is released to the developer after 2 years of the completion of construction.
However, any defects found in the report should be the responsibility of the developer to rectify.
Meanwhile, within 21 to 24 months, Effective Building & Consultancy independent building inspector should generate a final report to confirm that all defects are repaired. If there are no defects, the bond will be released to the developer.
However, if the defects still persist, the bond will be released to the owners corporation for the rectification of defects identified in the report. After fixing all the defects, the remaining money should be returned to the developer.
For more information about our building inspection services, visit our Help Centre.