For builders

Strata building bond and inspections scheme

The Strata building bond and inspections scheme (The Scheme) commenced on 1 January 2018.

It applies to building work for building contracts entered into from 1 January 2018, or if there is no contract, it applies to building work commenced from this date.

Developers are required to lodge a building bond that is 2% of the contract price for the building work, with NSW Fair Trading (the Secretary). The building bond secures funds (up to the amount of the bond) to pay for the costs of rectifying defective building work.

Building work means, building work that is carried out on a residential or partly residential (mixed-use) strata building, that is four or more storeys. The building work must also be carried out for the purposes of, or contemporaneously with, the registration of a strata plan or a strata plan of subdivision of a development lot.

Mixed use purpose could be, for example, a development that includes a combination of residential, retail, commercial, hotel, but it must include residential.

The Scheme does not apply to building work if the work is subject to the requirements to obtain insurance under Part 6 of the Home Building Act 1989 (Home building compensation cover). For example, the building is three storeys or less.

Stages of The Scheme

Summary of the key requirements for builders

The following is a summary of the key requirements for the building inspector. More detail is explained below.

  • Build in accordance with the Home Building Act 1989
  • Early rectification of defective building work (if any)
  • Rectification of identified defective building work in the interim report (if any)
  • Provide written notice of their intention to enter the building to rectify the defective building work, to people such as owners, occupiers, strata managers

Key terms

For more information about the key terms in bold, please refer to the Key Terms section on the Strata building bond and inspections scheme page.

How will the Scheme be administered?

The Strata building bond and inspections scheme is administered by an online portal and is used for stage one of the Scheme – Building bond lodgement.

The developer must provide details of the project relating to the strata scheme in the online portal. This includes the builder’s details, email address and contact details.

The builder is not required to register in the portal.

Email communication

The Strata building bond and inspections scheme is administered by electronic communications. All correspondence required for the scheme will be via email.

For the builder, their email address will be collected by the developer or the Secretary when the developer has lodged the building bond.

Written notices suite

For stages 2 to 8 of the Scheme, the Secretary will provide a package of all written notices required under legislation to key participants when they are required to come into the Scheme.

The written notices suite may be prepopulated for the builder, using the information provided by the developer when the building bond lodgement process is commenced in the online portal. These written notices can be used by the builder to complete their obligations under the Scheme.

The Scheme process

The following is a general overview of what is required within each stage of the Strata building bond and inspections scheme.

Builder’s guide to comply with legislative obligations

Important:

The guideline below has been simplified and for full obligations and mandatory requirements, reference should be made to legislation and Secretary’s guidelines.

1. Bond lodgement

Developers are required to lodge a building bond that is 2% of the contract price for the building work, with NSW Fair Trading (the Secretary). The building bond secures funds (up to the amount of the bond) to pay for the costs of rectifying defective building work.

Stage one does not directly affect the builder. For further details, refer to the Strata building bond and inspections scheme page.

2. Inspector appointment

Stage two does not directly affect the builder. For further details, refer to the Strata building bond and inspections scheme page.

3. Interim inspection and report

Interim inspection

The building inspector conducts their first inspection - the interim inspection, between 15 and 18 months after the issue of the occupation certificate. The building inspector must attend the site and perform the interim inspection.

The interim inspection is carried out to identify any defective building work for the strata scheme.

Interim report

The building inspector will also complete a report, known as the interim report, between 15 and 18 months after the occupation certificate is issued.

The interim report records the identified defective building work (if any), and if reasonably practicable, identify the cause of that defective building work. The building inspections do not provide a level of compliance, but do identify defective building work, to which Part 11 Strata Schemes Management Act 2015 applies.

Defective building work is to be identified at the time the interim inspection is performed. The final report must not contain matters that relate to defective building work not identified in the interim report, other than arising from rectification of defective building work identified in the interim report.

Destructive and/or invasive testing is not required for the purpose of this Scheme.

Defective building work is to be identified by visual inspection and use of equipment/techniques that do not involve destructive testing. The inspection is to include the removal of any object designed to be moved/opened whether or not it requires a specialist to remove/open any object. It includes any test whereby the object or assembly can be returned to its prior state without the replacement by a new component.

A secondary inspector should perform inspections outside of the appointed building inspector’s skillset. Any additional specialist/expert reports, must be included as part of the interim report.

The building inspector must produce the interim report in the form approved by the Secretary. The Secretary has published a guideline and a combined interim and final inspection report of the building inspector.

View the combined interim and final inspection report of the building inspector

The building inspector must give a copy of the interim report to the builder (responsible for defective building work identified in the report) no more than 14 days after completing the report and before 18 months after the issue of the occupation certificate.

If defective building work was identified in the interim report, the developer should arrange with the builder responsible for the defective building work, to rectify it before the final inspection is carried out – see stage 4 below.

4. Rectify defective building work

Rectification of defective building work may occur at any time after the completion of building work. However, if the interim report has identified defective building work, the rectification period is likely to be between 18 and 21 months after the issue of the occupation certificate, but before the final inspection starts.

The developer is responsible for arranging with their builder for the rectification of the identified defective building work recorded in the interim report of the building inspector.

If the original builder is not available, the developer is required to arrange for another builder to do the rectification work.

The builder must give at least 14 days’ written notice to the owners corporation, the developer and the owner and any occupier of any affected lot, that they need to enter the lot, for or in connection with rectifying defective building work.

After providing the required notice, the builder may enter the lot at a time that is reasonable time, or at a time agreed with the owner or occupier of the lot. A person cannot unreasonably refuse a builder access to any part of the strata scheme if the builder has given required notice.

5. Final inspection and report

Final inspection

The final inspection must be conducted between 21 and 24 months after the occupation certificate is issued. The building inspector must attend the site and perform the final inspection.

This inspection is to inspect whether the defective building work identified in the interim report has been rectified.

Final report

The building inspector will also complete their final report between 21 and 24 months after the issue of the occupation certificate.

The final report will record:

  • any defective building work identified in the interim inspection report that has not been rectified
  • identify any defective building work arising from the rectification of defective building work previously identified in the interim report, and
  • specify how the defective building work identified in the report should be rectified.

The final report must not contain matters that relate to defective building work not identified in the interim report.

The building inspector must produce the final report in the form approved by the Secretary.

The Secretary has published a guideline and a combined interim and final report of the building inspector.

View the combined interim and final inspection report of the building inspector

The building inspector must give a copy of the final report to the builder (responsible for the defective building work identified in the report) no more than 14 days after completing the report and before 24 months after the issue of the occupation certificate.

If there is no defective building work identified in the final report, the bond is released in full to the issuer of the building bond (as lodged by the developer). See stage 7 below - Paying the building bond.

If defective building work is identified in the final report, the cost to rectify those defects must be determined. See stage 6 below – Determining the cost to rectify defective building work.

6. Determining the cost to rectify defective building work

Stage six does not directly affect the builder. For further details, refer to the Strata building bond and inspections scheme page.

7. Paying the building bond 

The whole or part of the amount secured by the building bond may be claimed or realised by the Secretary between two and three years after the date of completion of the building work.

If the cost to rectify the defective building work is less than the amount secured by the building bond, that amount is paid to the owners corporation. If the cost to rectify the defective building work is more than the amount secured by the building bond, the whole amount of the building bond is paid to the owners corporation.

The developer must take any necessary steps to enable the Secretary to claim or realise an amount of building bond given by the developer and required to be paid.

The Secretary may refuse to claim or realise an amount, or reduce the amount payable, if the Secretary is satisfied that the developer or the builder responsible for defective building work was unreasonably refused access to the strata parcel for the purpose of rectifying that work.

The Secretary will provide the owners corporation, the developer and the builder 14 days written notice of any proposed payment from the building bond.

8. Completing the process

The process should complete not more than 3 years after the date of issue of any occupation certificate (OC) which allows people to occupy the building – whether conditional or interim OC for the building to which it applies.

Variation of time requests

The developer, owners corporation or building inspector, may have made application to the Secretary to vary the times for reports and other matters. This may result in the length of the Scheme being extended.

Reviewable decisions

Certain decisions of the Secretary are reviewable decisions. This may result in the length of the Scheme being extended. Reviewable decisions are included under key terms.

Tribunal orders (NCAT)

A builder can apply to the NSW Civil and Administrative Tribunal for a Tribunal order requiring the occupier of a lot in a strata scheme or any other person to allow access to the lot or any other part of the parcel for the purpose of or in connection with rectifying defective building work.

Feedback

During any stage or at the completion of the process, the contact person for each participant in the Scheme may provide feedback by email to stratabond@finance.nsw.gov.au.

Closing the process

Once the administration of the Scheme is complete, the information and documents relating the building bond will be stored in accordance with NSW Government record keeping policy.

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