For owners corporation

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. 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.

Strata building bond inspection scheme stages

Summary of the key requirements for owners corporations

The following is a summary of the key requirements for the owners corporation. More detail is explained below.

  • Verification of correct contact person and details for electronic communications,
  • Building inspector approval or refusal as proposed by the developer,
  • Allow access for the building inspector to carry out inspections
  • Allow access to the builder to rectify defective building work (if any)
  • Reach agreement with the developer as to the cost to rectify the defective building work (if any)

Key terms

For more information about the key terms, 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 the strata building bond and inspections portal (the portal), and is used for stage one of the Scheme – Building bond lodgement.

The owners corporation does not need to register in the portal.

The developer must provide the details of the strata scheme in the portal. This includes the owners corporation details, email address and contact details.

The developer and the Secretary will send the owners corporation notifications to the email address provided by the developer in the portal.

The Secretary will approve the developer’s building bond lodgement in the portal. A system generated email will then advise the owners corporation that a building bond has been lodged for their strata scheme/building and they have been nominated as the contact person. This notification provides instruction to the owners corporation how to verify the owners corporation contact and email details with the Secretary.

The portal will be used for stage one only by the developer and Secretary, to:

  • facilitate the building bond lodgement process
  • enter information about the strata development, builder and owners corporation
  • upload a copy of the building bond and other documents
  • pay the lodgement fee
  • for notifications to the developer and owners corporation (using the email addresses provided by the developer), and
  • Secretary’s actions – issue of stage one approvals, requests for further information or documents, and for refused lodgements

Email communication

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

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 the owners corporation. The written notices will be emailed by the Secretary after the bond lodgement has been approved by the Secretary in the portal.

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

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

Owners corporation’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. Building bond lodgement

It is the responsibility of the developer to lodge the building bond with the Secretary and have it approved, before any occupation certificate (OC) which allows people to occupy the building – whether conditional or interim OC, is issued for the development.

If a building bond has not been lodged by the developer, please provide the building address, strata plan and either date you settled your contract of sale and purchase for the strata unit or date you became the representative of the owners corporation for the strata building, to the Secretary on telephone number 13 32 20.

The contract price

The amount to be secured by a building bond is to be 2% of the contract price for building work. It is the total price paid under all the applicable contracts for the building work as at a time just before the Developer makes application for any occupation certificate (OC) which allows people to occupy the building – whether conditional or interim OC.  For example, at practical completion - not the contract price before or at the start of construction - to include all variations, additions and price fluctuations etc.

Refer to key terms on the Strata building bond and inspections scheme page.

Cost report

If there is no written contract for the building work, or the parties to the building contract are connected persons, the contract price for building work is to be the price set out in a cost report prepared by a quantity surveyor.

2. Inspector appointment

A developer must appoint a building inspector to carry out the interim and final inspections and produce the interim and final reports.

Appointing the building inspector: interim inspection

The building inspector must be appointed within 12 months of the issue of any occupation certificate (OC) which allows people to occupy the building – whether conditional or interim OC, if the initial period of an owners corporation of a strata scheme ends within that 12 months.

The initial period ends when the owners corporation changes from being the original owner of the land (ie. the developer) to the actual owners of the lots. Go to the starting the owners corporation page for more information on the initial period.

Note: If the initial period does not end within 12 months of the issue of the occupation certificate, the Secretary will appoint the building inspector.

A building inspector can be nominated and appointed to carry out inspections and produce reports for the Strata building bond and inspections scheme, if they are a member of a strata inspector panel.

Strata inspector panels

The building inspector must be a member of a strata inspector panel.

A strata inspector panel (SIP) can only be provided by authorised professional associations as listed in clause 45 of the Strata Schemes Management Regulation 2016. A strata inspector panel (SIP) may be established by any of the following:

(a)  the Housing Industry Association

(b)  the Master Builders Association of New South Wales

(c)  the Australian Institute of Building

(d)  the Australian Institute of Building Surveyors

(e)  the Australian Institute of Building Consultants

(f)  the Institute of Building Consultants Inc

(g)  Engineers Australia

(h)  the Australian Institute of Architects

(i)  the Association of Accredited Certifiers.

Each of these associations will have their own processes and criteria to determine if a person is competent to perform building inspections and produce reports for the purposes of the Scheme. Specific information should be obtained directly from the above professional associations.

Inclusion on a panel means that the association has determined that the building inspector is suitable to perform building inspections and produce reports on the building work for the purposes of this Scheme.

Each SIP will have a register of members who are qualified to be building inspectors for the purposes of the Strata building bond and inspections scheme. This register will be available on each association’s website and contain the details and experience of each building inspector, including their contact details. The developer must nominate a building inspector from one of these SIP’s.

To access the webpages of the authorised professional associations above, please refer to the Strata inspections panel on the Strata building bond and inspections scheme page.

Proposed building inspector by the developer

To propose the building inspector, the developer will email the owners corporation and provide information about that building inspector. A written notice is available for this requirement.

The developer must include any disclosures or connected person interests (if any) between the developer and the proposed building inspector.

The proposed building inspector will also email the owners corporation and let them know of disclosures and connected person interests (if any) with the developer. A written notice is available for this requirement.

Appointing the building inspector

The developer can only appoint the building inspector if the owners corporation approves the appointment by a resolution at a general meeting.

The owners corporation must call a general meeting of the owners to consider the proposed inspector by the developer and any disclosures from the developer and/or the proposed building inspector.

The owners corporation must pass a resolution to approve or refuse the appointment of the building inspector. The general meeting resolution is determined by a simple majority. A developer or lessor of a leasehold strata scheme cannot vote, or exercise a proxy vote, on a matter concerning building defects.

The owners corporation must provide written notice by email to the developer and the Secretary within 14 days of approving or refusing the appointment of the building inspector. A written notice is available for this requirement.

If the owners corporation rejects the proposed building inspector, the developer has the option to repeat the process until the owners corporation approves an inspector within the 12 month period.

The Secretary has published a guideline regarding the appointment of building inspectors by developers and owners corporations (DOCX, 306.07 KB).

If for any reason, the developer fails to successfully appoint a building inspector within 12 months, they must provide written notice to the Secretary by email within 21 days after the end of the 12 month period. The Secretary will then arrange the appointment of a building inspector and notify the developer and owners corporation.

If the Secretary arranges the building inspector, the owners corporation approval is not required.

The developer must pay all inspector costs, such as the costs of obtaining an inspection and report, even when the inspector is arranged by the Secretary. Additional costs include the Secretary’s service fee to arrange the building inspector.

Objection by an owner of a strata scheme lot

An individual owner of a strata scheme lot may object to the owners corporation approval of a building inspector, for any reason. The individual owner must lodge their objection with the Secretary within 14 days after the owners corporation approves the appointment. A written notice is available for this requirement.

The Secretary will consider the objection and if appropriate in the circumstances arrange the appointment of another building inspector. The Secretary will give written notice of the appointment to the developer and owners corporation. If the decision is to not appoint an alternative building inspector, the Secretary will notify those concerned of the decision, by email.

The Secretary has published a guideline regarding the process to arrange the appointment of building inspectors by the Secretary (DOCX, 328.1 KB).

Appointing the building inspector: final inspection

The developer will arrange for the same building inspector who prepared the interim report to carry out the final inspection and provide the final report. This arrangement must be made within 18 months of the issue of the occupation certificate. This process is explained at stage 5 below.

3. Interim inspection and report

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 identity any defective building work for the strata scheme.

The building inspector will arrange with the owners corporation, a suitable time to attend the property to conduct the interim inspection of the strata scheme.

The building inspector must give at least 14 days’ written notice to the owners corporation and the owner or occupier of any affected lot of their intention to enter any part of the parcel of the strata scheme.

The owners corporation, any person who has exclusive use of common property, a strata managing agent, building manager or manager of the common property, and any owner or occupier of a lot are required to provide reasonable access and assistance and not to obstruct or hinder a building inspector.

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 another 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 (DOCX, 252.53 KB).

The building inspector must give a copy of the interim report to the owners corporation within 14 days after completing the report and before 18 months after the issue of the occupation certificate.

Within 14 days of receiving the report from the building inspector, the owners corporation must let the lot owners of the strata scheme know that the interim report has been received, and how they can get an electronic copy from the owners corporation.

If there is no defective building work identified in the interim report, the developer can apply to the Secretary that a final report is not required.

If the application is approved by the Secretary, the interim report becomes the final report. The building bond can then be returned to the issuer of the building bond (lodged by the developer) - two years after the date of building work completion (not at 18 months when the interim report is provided by the building inspector).

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 – Rectify defective building work.

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 only at a time that is reasonable, 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

The final inspection and report stage covers two points in time after the issue of any occupation certificate (OC) which allows people to occupy the building – whether conditional or interim OC:

  1. within 18 months – appointment of the building inspector, and
  2. between 21 and 24 months – carrying out of the inspection and production of the report.

  1. Within 18 months after the issue of the occupation certificate

    Appointing the building inspector: final inspection

    The developer will arrange for the same building inspector who prepared the interim report to carry out the final inspection and provide the final report. This arrangement must be made within 18 months of the issue of the occupation certificate.

    The developer must give the Secretary only, written notice of the arrangement within 14 days after making the arrangement.

    If the original building inspector is not available, the developer must give the Secretary written notice of this, within 14 days after becoming aware that they are not available.

    The Secretary will appoint the building inspector when:

    • the original building inspector who prepared the interim report is not available
    • the developer applies by email to the Secretary to appoint an inspector, or
    • the Secretary becomes aware that the developer has not complied with the requirement to appoint a building inspector for the final inspection.

    If the Secretary appoints the building inspector, the approval of the owners corporation is not required.

    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 Secretary. This includes the Secretary’s service fee to appoint the building inspector.

    The Secretary has published a guideline regarding the appointment of building inspectors by the Secretary (DOCX, 328.1 KB).

  2. Between 21 and 24 monthsafter the issue of the occupation certificate

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.

The building inspector will arrange with the owners corporation a suitable time to attend the parcel to conduct the final inspection of the strata scheme.

The building inspector must give at least 14 days written notice to the owners corporation and any owner or occupier of any affected lot of their intention to enter any part of the parcel of the strata scheme to conduct the final inspection.

The owners corporation, any person who has exclusive use of common property, a strata managing agent, building manager or manager of the common property, and any owner or occupier of a lot must provide any reasonable access and assistance and not to obstruct or hinder a building inspector.

Final report

The building inspector will also complete their report, known as the 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 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 inspection report of the building inspector (DOCX, 252.53 KB).

The building inspector must give a copy of the final report to the owners corporation no more than 14 days after completing the report and before 24 months after the issue of the occupation certificate.

Within 14 days of receiving the report from the building inspector, the owners corporation must let the lot owners of the strata scheme know that the final report has been received and how they can get an electronic copy from the owners corporation.

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. 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, 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.

The payment of a building bond may be triggered by the following events:

Consent

The whole or part of the amount secured by a building bond may be realised or claimed by the Secretary for payment to the owners corporation, with the consent of the developer, on application to the Secretary by both the owners corporation and the developer, no earlier than two years after the date of completion of building work and before three years.

Interim report – no identified defective building work

A building bond must be claimed or realised, two years after the date of completion of building work or within 60 days after the final report on the building work is given to the Secretary by the building inspector, whichever is the later.

In this instance, if the developer is not required to arrange for the final report, the interim report becomes the final report.

For example, if the interim report becomes the final report 18 months after the completion of the building work, the building bond may be claimed or realised at the earliest two years after the date of completion of building work for which the building bond was given. The building bond will not be paid at 18 months and 60 days of the date of completion of the building work, because two years is the later. The whole of the amount secured by building bond will be returned to the Approved issuer.

Final report – no identified defective building work (rectified)

A building bond must be claimed or realised, within 60 days after the final report on the building work is given to the Secretary by the building inspector. The whole amount secured by the building bond will be returned to the Approved issuer.

Final report – identified defective building work (not rectified)

A building bond must be claimed or realised, within 60 days after the final report on the building work is given to the Secretary by the building inspector.

Stage 6 requires the determination of the cost to rectify defective building work. When agreement is reached (step one), the Secretary will provide requisite notice to the parties of the proposed payment and claim/realise the whole or part of the amount secured building bond.

If agreement is not reached, (step two), once the Secretary receives the report from the appropriately qualified person, the Secretary will provide requisite notice to the parties of the proposed payment and claim/realise the whole or part of the amount secured building by the building bond.

7. 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 developer, the Secretary or the owners corporation can apply to the NSW Civil and Administrative Tribunal for an order specifying the contract price for building work to determine the amount to be secured by a building bond. This may result in the amount of the building bond, provided by the developer, being varied.

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.

Owners corporation obligations

The owners corporation must within a reasonable time, use any money they receive from the building bond to:

  • fix the defective building work identified in the final report of the building inspector, this includes the common property or any other part of the parcel, or
  • for costs related to the rectification.

After the defective building work is rectified, the owners corporation must repay to the developer any amount of a building bond that is not required. The owners corporation must give the developer written notice of the completion of the rectification of the defective building work.

Penalties may apply for failure to comply with this requirement.

This does not prevent the owners corporation from retaining any part of a building bond and using it for any purposes, with the consent of the developer.

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