What is the Strata Building Bond and Inspections Scheme?
The Strata Building Bond and Inspections Scheme came into effect on 1 July 2018. Those affected are developers of new residential strata building that are 4 storeys or higher, whom are now required to pay a building bond to NSW Fair Trading equal to 2% of the building contract price. After 2 years, this bond may be used to pay for any rectification work if the developer has failed to do so.
There are many different stages for the developer to undertake in order to comply with the scheme. NSW Fair Trading offer a general process summary in 8 stages as follows:
- The developer registers their project in the NSW Planning Portal. The building bond is lodged with Fair Trading before an application is made for the occupation certificate (building bond lodgement)
- Within 12 months after building work is finished, the developer must appoint a building inspector (Inspector appointment).
- Between 15 to 18 months after the building work is finished, this building inspector will conduct a first inspection of the strata property, prepare an interim report on any defects and provide the report to relevant people (Interim inspection and report).
- Between 18 to 21 months after building work is finished the developer needs to rectify any identified defects (rectify defective building work).
- Between 21 to 24 months after finishing the building work the final inspection is done and final report provided (final inspection and report).
- If any defects are identified (remain not rectified), the cost to rectify the defective building work must be determined (determining the cost to rectify defective building work).
- Once the cost is determined, the building bond will be used to help pay for the rectification work. However, if the final report doesn’t identify any defects, the building bond will be returned to the developer (paying the building bond).
- Any money left over will then be returned to the developer. The process should be completed between 2 to 3 years after the building work was initially finished (Completion).
For more information: https://www.fairtrading.nsw.gov.au/housing-and-property/strata-building-bond-and-inspections-scheme/strata-building-bond-and-inspections-scheme
How is the Building Bond Determined?
The building bond is based on the contract price. Where there is no written contract or the developer and builder are connected, Fair Trading require that the project be assessed as-built by a registered quantity surveyor.
Based on their assessment, a package for submission to Fair Trading is prepared for the developer by the quantity surveyor and the bond amount is determined as 2% of the assessed contract price based on as-built documentation. This forms part of the requirements for obtaining the Occupation Certificate.
What Are the 4 Stages of Reporting?
Stage 1: Strata Building Bond Report
Prior to receiving the occupation certificate, the developer must obtain a Strata Building Bond Report which is then lodged with Fair Trading via the NSW Planning Portal. Our reports are in line with the requirements of NSW Fair Trading and include the following:
- Schedule of As-Built Documents
- Elemental Summary of Cost
- Contract Price Summary and Building Bond Amount
- Quantity Surveyors Certificate
- Completed Draft Bank Guarantee
All the developer has to do is submit our report and this requirement is ticked off the list to help them along with receiving their occupation certificate.
Stage 2: Inspector’s Defects Interim Report
Within 12 months after building work has finished and Occupation Certificate obtained, the developer must appoint a building inspector. A building inspector can only carry out inspections and produce reports if they are a member of a strata inspector panel.
Our Samuel Star is a member of the AIQS Strata Defect Rectification Costs Panel and the AIQS Building Inspection Panel, and has carried out defect identification and cost to rectify work over the course of his three decades in practice. Hence, between 15 to 18 months after the building work finished, the building inspector will conduct a first inspection of the strata property and prepare an Inspector’s Defects Interim Report.
This report involves a visual non-intrusive inspection of the common and private property (where access is provided) in order to identify any outstanding defects that require rectification by the developer within 18 to 21 months following completion of building work.
Our reports provide an easy-to-follow defects register which itemise each defect, including a description and location of each.
Stage 3: Inspector’s Defects Final Report
Between 21 to 24 months after finishing the building work a final inspection is required to be carried out to:
- Any defective building work identified in the interim report that has not been rectified,
- Identify any defective building work arising from the rectification work identified in the interim report, and
- Specify how any outstanding defective building work should be rectified.
The building inspector will then issue an Inspector’s Final Report. If defective work is not identified, then the building bond is released in full to the developer.
If defective work is identified, then the cost to rectify must be determined. If the developer and owners corporation cannot come to an agreement as to the cost to rectify, then a quantity surveyor, who is a member of the AIQS Strata Defect Rectification Costs Panel, must be commissioned to determine such costs.
The cost for arranging this person will be shared equally by the developer and the owners corporation.
Stage 4: Cost Rectification Report
Once the cost is determined via a Cost Rectification Report, the building bond will be used to pay for the rectification work. After the defective building work is completed, the owners corporation must return the remaining funds that were not used to the developer. The entire process is time limited to within 3 years from the date of the occupation certificate.
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