The strata building bond and inspections scheme
The strata building bond and inspections scheme began on 1 January 2018. It applies to building contracts executed from this date – or where there is no written contract – building work that commences from this date, to construct residential or partially-residential strata properties that are four or more storeys. Buildings that are three storeys or under are covered under the Home Building Compensation Fund.
This scheme includes a building bond by the developer and mandatory defect inspections and reports on the development by an independent building inspector. It provides a structured, proactive process that resolves building issues quickly and cost effectively, early in the life of the building.
Developers must arrange for and lodge a building bond with NSW Fair Trading equal to 2 percent of the contract price for the building work. The building bond must be lodged before the occupation certificate is issued. The building bond secures funds (up to the amount of the bond) to be used to pay for any defective building work that’s identified in a final inspection report.
Who is affected?
Key participants involved in the building bond process include:
- Owners corporation (owners in a strata scheme)
- Strata inspector panel – made up of nominated bodies in the Strata Schemes Management Regulation 2016 (the Regulation), through which a building inspector can be sourced
- Building inspector - a member of the strata inspector panel
- Builder (contracted by the developer, or is the developer performing the building work)
The following organisations enable and authorise key stages in the process:
- NSW Fair Trading, on behalf of the Secretary of Department of Finance, Services and Innovation (the Building Bond Secretary),
- NSW Civil Administrative Tribunal
Strata building bond and inspections online portal
The Strata building bond and inspections scheme is administered by an online portal. Developers can register to use the portal at any time before the occupation certificate is issued. Project details can be entered and documents uploaded at any time, as they become available. These documents should reflect the completed building just before any occupation certificate is issued (not the start of the build).
The mobile friendly portal will:
- Facilitate user registration
- Be the method to initially lodge the building bond
- Accept administration fee and service payments
- Support building inspectors to complete and lodge their reports through the platform
- Provide notifications to key users (including representatives of the owners corporation)
- Enable approvals to be issued through the system
- Allow users to view documents relevant to them
- Ensure privacy and security of data.
All written notices required under legislation must be completed in the portal. Users are able to complete actions online and the portal will auto-generate alerts and emails to relevant parties.
General overview of the critical stages in the Scheme
1. Building bond lodgement (including developer preparation)
Building bond - preparation
Once a builder and developer enter into a building contract to construct a strata scheme of four or more storeys, the developer should get the building bond equal to 2 percent of the contract price of the work. The time to get the building bond by the approved issuers may vary, this process should start as early as possible.
The developer (not the builder) is responsible for arranging the lodgement of the building bond with the Building Bond Secretary before the occupation certificate is issued for the project. A penalty may apply if a developer does not lodge the building bond with the Building Bond Secretary before the occupation certificate is issued.
Building bond - lodgement
Lodgement of the building bond goes through the Strata building bond and inspections scheme online portal. Once registered, the developer is required to login and upload the following information, documents and payment to the portal before the Building Bond Secretary can approve the bond:
- complete the lodgement form (the ‘Project’ screens within the portal is the lodgement form and all fields must be completed)
- a scanned copy of the building bond (ie. a bank guarantee or a ‘bond’)
- supporting documents and information (for a detailed list refer to the developer further information below), and
- pay the administration fee of $1,500.
The developer must also give the original building bond to the Building Bond Secretary, who verifies and approves it before an occupation certificate is issued. View the approved methods to deliver the original building bond in the Building bond guidelines and schedule (DOCX, 213.41 KB).
2. Inspector appointment
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 or the developer fails to organise one, 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. The building inspector and developer must be independent of each other. Failure to disclose a connection can result in penalties.
The developer must pay for all building inspector costs, such as the costs of obtaining an inspection and report, even when the inspector is appointed by the Building Bond Secretary.
3. Interim inspection and report
The building inspector conducts their first inspection of the strata property and completes a report identifying any defective building work. This happens between 15 and 18 months after the building work has been completed (the issue of the occupation certificate).
The Secretary, owners corporation, developer and builder responsible for any defective work receive access to the report.
If there is no defective building work identified in the interim report, the developer can apply through the portal to the Building Bond Secretary that a final inspection/report is not required. In this case, the interim report becomes the final report. The bond can then be released to the issuer of the building bond (lodged by the developer) - two years after the date of completion (not at 18 months when the interim report is provided by the building inspector).
4. Rectify defective building work
After the interim report is lodged, any defective building work must be rectified, normally between 18 and 21 months after the occupation certificate for the project is issued and before the final inspection starts.
The developer is responsible for arranging with their builder, any building work. If the original builder is not available, the developer will need to arrange for another builder to do the rectification work.
5. Final inspection and report
The developer will arrange for the building inspector who conducted the interim inspection and report to conduct the final inspection, before 18 months after the occupation certificate is issued. If the original building inspector is not available, the developer needs to notify the Building Bond Secretary, through the portal, who will arrange for a new building inspector to conduct the final inspection and report.
The building inspector arranges with the owners corporation to conduct a final inspection of the property. This happens between 21 and 24 months after the building work has been completed. This inspection is to make sure the defective building work identified in the interim report has been rectified.
The building inspector provides a final report to the developer, the owners corporation, builder and the Building Bond Secretary. The final report identifies any unrectified defective building work. If not rectified, the amount secured by the building bond can be used by the owners corporation to pay the costs of that unrectified defective building work.
6. Paying the building bond
If there are no defects, the bond is released in full to the issuer of the building bond (as lodged by the developer).
If there are defects, to determine the cost to rectify the defective building work
Step 1: Both parties must agree to the cost to rectify defective building work:
- both parties reach an agreement on the cost to rectify the defects, or
- the owners corporation may apply and the developer consents to release part or all of the bond money to the owners corporation.
The Building Bond Secretary will then claim that amount from the issuer of the building bond for payment to the owners corporation
Step 2: Building Bond Secretary appoints a suitable person to determine the cost to rectify defective building work:
- if an agreement is not reached between the developer and owners corporation, the Building Bond Secretary will appoint a suitable person to determine the costs based on the identified defective building work in the final report.
7. Completing the process
The Building Bond Secretary will release the bond money if steps 1 or 2 above are completed. The owners corporation must use any money they receive to fix the defects identified. After the defects are fixed, any money left over must be returned to the issuer of the building bond (as lodged by the developer). There is an alternative review process if the owners corporation or developer disagrees with how much bond money, if any, is returned to the developer or paid to the owners corporation.
Building Bond Secretary
- the Commissioner for Fair Trading, Department of Finance, Services and Innovation, or
- if there is no person employed as Commissioner for Fair Trading—the Secretary of the Department of Finance, Services and Innovation.
From 1 January 2018, when a developer enters into a contract with a builder for building work on a residential (including mixed use) strata scheme of four or more storeys (strata building), they need to lodge a building bond equal to 2 percent of the contract value of the work.
All work that is conducted in relation to the contract will determine the bond amount. This includes, but is not limited to:
- construction and fit out costs (not including appliance and prime cost items)
- demolition and site preparation
- car parking
- costs for the common property that is included in the property plan, including landscaping, pools, fencing and gates
- professional fees, and
- taxes applied in the calculation of the as-built construction.
The contract price for building work is the total price paid for that building work at the date just prior to the issue of any occupation certificate (not the contract price before construction commences). The amount secured by the building bond is worked out during this time.
Where there is no written contract for the building work, or the parties to the building contract are connected, the contract price is worked out by a quantity surveyor. For example, there may be no written contract if the developer is also the builder. A quantity surveyor (who is a member of the Australian Institute of Quantity Surveyors or the Royal Institute of Chartered Surveyors) cannot be connected to the developer or the builder. A cost report prepared by a quantity surveyor must include the costs and have a certificate by the quantity surveyor that they have inspected the as-built drawings and specifications for the strata plan.
An owners corporation can apply to the NSW Civil and Administrative Tribunal to ask for an amount to determine the building bond. If there are other incidental proceedings being dealt with by a Court, then the application must be made by the Supreme Court of NSW.
The developer (not the builder) is responsible for arranging the issue and lodgement of the building bond with the Building Bond Secretary. The building bond can be a bank guarantee or bond and must contain the unique identifier number issued by the online portal. The building bond must be lodged before the occupation certificate is issued for any part of a building affected by the work. A penalty may apply if a developer does not lodge the building bond with the Building Bond Secretary before the occupation certificate is issued. The Building Bond Secretary has guidelines (DOCX, 213.41 KB) to help with this process.
A developer can apply for a building bond from an approved Authorised Deposit-taking Institution or a general insurer authorised to conduct new or renewal insurance business in Australia. It must be listed on the
- Register of ADIs or
- Register of General Insurance which is maintained by the Australian Prudential Regulation Authority (APRA).
The building cannot be occupied before an occupation certificate is issued.
Strata inspector panel (SIP)
The building inspector must be a member of a strata inspector panel established by any of the following:
- Housing Industry Association
- Master Builders Association of New South Wales
- Australian Institute of Building
- Australian Institute of Building Surveyors
- Australian Institute of Building Consultants
- Institute of Building Consultants Inc
- Engineers Australia
- Australian Institute of Architects
- Association of Accredited Certifiers
Applications for review of a decision
An application for review must be made within 14 days after notice of the decision has been given. The application must be made through the portal, in writing and signed by the applicant. It must specify the decision to be reviewed and the reasons for the application. Applicants should provide any extra information and the reason why that information was not previously provided, and an email address that the decision will be sent to.
Review a decision to not require a final inspection and report
A developer, owners corporation, owner of a lot in a strata scheme or the builder can apply to the Building Bond Secretary to review the decision that a final inspection/report is or is not required.
Tribunal orders - contract price and access to a strata scheme
The NSW Civil and Administrative Tribunal may make an order requiring the occupier of a lot in a strata scheme or any other person to allow access for the purpose of or in connection with an inspection or rectifying defective building work.
An application may be made by an owners corporation, the developer, a building inspector or a person entitled to enter any part of a parcel of a strata scheme to perform an inspection or rectify defective building work.
The NSW Civil and Administrative Tribunal (Tribunal) may, make an order specifying the amount of the contract price of building work - to determine the amount of a building bond. If there are other incidental proceedings being dealt with by a Court, then the application must be made by the Supreme Court of NSW.
An application may be made by an owners corporation, the developer, or Building Bond Secretary. A determination under this section of the amount of the contract price of building work does not bind a court or tribunal in any other proceedings.