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Frequently asked questions 

Strata building bond and inspections scheme 

 

What is the Strata building bond and inspections scheme? 

The Strata building bond and inspections scheme has been introduced as a way to rectify defective building work early in the life of new high-rise strata buildings.

From 1 January 2018, developers must lodge a bond of 2% of a building's contract price with NSW Fair Trading for residential and mixed-use high-rise strata buildings of 4 storeys and over.

The building bond can later be used to pay for the costs of rectifying any defective building work.

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Why was the scheme introduced? 

The scheme ensures there is a clear process to motivate developers and builders to minimise any building issues in new residential high-rise buildings and make sure any defective building work is readily identified so it can be rectified promptly and cost-effectively.

The scheme aims to minimise the impact of defective building work on owners of units in new high-rise strata buildings.

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What happens with the bond when there is defective building work? 

The developer lodges the building bond with NSW Fair Trading (the Building Bond Secretary) before the occupation certificate is issued for the building. The bond is then held until the mandatory inspection process has been completed.

If defective building work is identified and not rectified before the final inspection, the bond can be used to pay the costs of rectifying any defective building work.

If there is no defective building work, the bond is returned to the developer.

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What does a building inspector do? 

A developer must appoint a building inspector to complete the inspection process and produce reports. To appoint the building inspector, the developer must have the approval of the owners corporation. If the owners corporation does not approve the developer's proposed building inspector, the Building Bond Secretary will arrange the building inspector.

The building inspector must be a member of a Strata Inspector Panel, which is provided by authorised bodies. Inclusion on a panel means that these bodies have determined that the building inspector is suitable to perform building inspections and produce reports.

What is the inspection process? 

There is a two-stage inspection process.

The first inspection, known as the interim inspection, takes place between 15 and 18 months after the building work has been completed. An interim report is produced by the building inspector.

The builder is responsible for rectifying any defective building work identified during this inspection that is included in the interim report.

The second inspection, known as the final inspection, takes place between 21 and 24 months after the building work has been completed. This inspection assesses whether the defective building work identified in the interim inspection has been rectified. The final report identifies any unrectified defective building work.

If not rectified, the amount secured by the building bond can then be used to pay the costs of rectifying any defective building work.

If there is no defective building work, the bond is returned to the developer.

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Is the strata building I live in affected? 

No. The scheme only applies to new construction of high-rise strata buildings, 4 storeys or more, where the developer and builder sign a contract from 1 January 2018, or if there is no contract, when building work starts from 1 January 2018.

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What can I do if I live in a strata building that is three storeys or less and there is defective building work? 

The first step is to raise this with your Strata Committee or Strata Managing Agent.

Buildings that are three storeys or less are covered under the Home Building Compensation Fund. You can find out more about the home building compensation cover on the State Insurance Regulatory Authority (SIRA) website.

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I have signed a contract to purchase a strata unit 'off the plan'. Does the scheme affect my unit? 

Firstly, check the height of the building as the scheme only applies to building's that are 4 storeys or higher.

If the construction contract between the developer and the builder was signed before 1 January 2018, the scheme does not affect you.

The scheme will only apply if the construction contract between the developer and builder is signed from 1 January 2018. You can ask your solicitor or conveyancer to check when the construction contract was signed.

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When is building work completed? 

Under this scheme, building work is completed when an occupation certificate is issued.

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Where can I find more information? 

There is detailed information on the Building bond page on the Fair Trading website.

You can also call us on 13 32 20 or email stratabond@finance.nsw.gov.au

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