The Issue

What is this about?

The NSW Government is proposing a small set of changes to Part 11 of the Strata Schemes Management Act 2015 (the Act) which introduced the Strata building bond and inspections scheme (the scheme).

Under the scheme, developers are required to 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 or more storeys. The bond can be used to pay the costs of rectifying any defective building work identified through an inspection process required by the Act.

The proposed amendments seek to enhance the ability of Fair Trading to verify the building contract price (on which the 2% building bond is based), and to clarify the role of the building inspector in the scheme.

Consultation on the proposed Strata Schemes Management Amendment (Building Defects Scheme) Bill 2018 (the Bill) has now closed.

What are the proposed changes?

The proposed amendments contained in the Bill include:

• developers must lodge a building bond before applying for the occupation certificate (rather than at any time before an occupation certificate is issued, as is currently required)
• the owners corporation and the developer must agree on the amount to be released from the bond to meet the costs of fixing identified building defects. If they cannot agree, the Secretary will determine this amount
• new investigative powers for Fair Trading to enable verification of the amount of the contract price or building bond, including new entry to premises and search warrant powers
• an increase in the maximum penalty for a developer failing to lodge the building bond from 200 penalty units ($22,000) to 10,000 penalty units ($1.1 million)
• an offence for developers to provide false or misleading information to the Secretary in relation to the contract price or the building bond
• a new 'good faith' liability protection for building inspectors, and the professional associations that appointed them, which excludes them from liability for anything done (or omitted to be done) in 'good faith' in conducting an inspection.

What’s happened so far?

The scheme is the second component of major changes to strata laws that started on 30 November 2016. The scheme commenced on 1 January 2018 and is designed to ensure there is a clear process to incentivise developers and builders to minimise any building issues in new residential high-rise strata and make sure any defects are readily identified so they can be fixed promptly and cost-effectively.

Providing additional protection for owners in strata schemes, it does not replace an owners corporations', developer's or builder's existing rights to pursue legal action under the Home Building Act 1989 or other laws.

In November and December 2017, Fair Trading consulted on the Building bond guidelines, Strata inspector panel guidelines and the Building inspection and report.

The NSW Government released the Bill for public consultation, and submissions closed on 11 May 2018. All comments on the proposed Bill are being considered.

Proposed Regulation amendments

The NSW Government is also considering a number of changes to Part 8 of the Strata Schemes Management Regulation 2016 (the Regulation). However, a draft amendment Regulation is not yet available for public release. An outline of the proposed changes being considered to the Regulation was provided as part of the consultation process.

Comments received during public consultation will help inform the draft amendment Regulation. Once the Regulation has been finalised, a copy will be available on the Fair Trading website and further consultation will be undertaken separately.

More information is available in:

• Exposure draft of Strata Schemes Management Amendment (Building Defects Scheme) Bill 2018 (PDF, 277.58 KB)
• Proposed Act amendments table (PDF, 144.52 KB) that details the proposed amendments in the Bill, together with the rationale for each proposed change. If read along with the Bill and current Part 11 of the Act, this table will assist you in identifying the proposed changes and their impact
• Proposed Regulation amendments table (PDF, 218.13 KB) that outlines the proposed changes to Part 8 of the Strata Schemes Management Regulation 2016. While the NSW Government is currently reviewing the Regulation, a draft amendment Regulation is not yet available. This table assists your review of the Bill where there are related provisions, and helps with understanding the overall package of the proposed reforms.

Next steps

Fair Trading is considering all submissions, and comments may result in further amendments to the Bill where appropriate. If required, Fair Trading may conduct further targeted consultation on any key issues identified. If you submitted comments, you will be notified when the Bill is finalised.

Submissions and comments received on the proposed Regulation amendments will be further considered during the finalisation of the draft amendment Regulation. Once finalised, a copy will be made available on the Fair Trading website for consultation.

If you submitted comments on the Bill or Regulation, a copy will be provided to you directly.