Strata building bond and inspections frequently asked questions

General

What does ’part’ of a strata scheme mean? If a strata building is 90% retail and only 10% residential, does the scheme only apply to the residential part?

The Strata building bond and inspections scheme applies to all building work that is part of the strata scheme. For example, a development could include a mix of residential, retail, commercial and hotel (known as mixed-use), but it must include residential.

How does the Strata building bond and inspections scheme run in conjunction with the Home Building Act?

Defects identified in the interim inspection and report of the building inspector are captured under the Strata building bond and inspections scheme. Identified defects should be rectified before the building inspector conducts their final inspection. The final report will identify if the defective building work has been rectified. If not, the owners corporation can make a claim on the building bond.

If any major defects are identified after the bond has been claimed/realised, the statutory warranties in the Home Building Act 1989 apply.

Paying for an inspector

Who pays for the building inspectors?

The developer must pay for all building inspector costs, such as the costs of obtaining an inspection and report, even when the inspector was appointed by the Secretary. The parties to the inspection agreement are the developer and building inspector only.

If specialist consultants are engaged in addition to the building inspector, how are they paid?

The appointed building inspector may engage additional specialists to inspect and report on the areas outside of the building inspector’s competencies. The specialists do not have to be sourced from a strata inspector panel. Any reports produced by an additional specialist is to be included in, and form part of, the interim and final reports. The cost of any specialist is to be included in the building inspector’s costs and should be considered when the developer and building inspector negotiate a costs agreement.

If the Secretary appoints the building inspector, how will you ensure that costs are contained/minimised?

The costs of a building inspector appointed by either a developer or by the Secretary should be the same, irrespective of whether the building inspector is appointed by the Secretary. The building inspector will be performing the same inspection and reporting duties. The parties to the inspection agreement are the developer and building inspector only.

Calculating the bond amount

How is the building bond calculated when the developer and the builder are the same and there is no written contract?

Where the developer and the builder are the same, connected and/or there is no written contract, the contract price is determined by a quantity surveyor. The quantity surveyor must be a member of the Australian Institute of Quantity Surveyors or the Royal Institution of Chartered Surveyors (and is not connected to the builder/developer).

The cost report prepared by the quantity surveyor must include the costs of the following and be accompanied by a certificate by the quantity surveyor that he/she has inspected the as-built drawings and specifications for the strata plan:

  • construction and fit out costs, not including appliance and prime cost items
  • demolition and site preparation
  • excavation
  • car parking
  • costs for the common property that is included in the property plan, including landscaping, pools, fencing and gates
  • professional fees
  • taxes applied in the calculation of the as-built construction.

For this scheme, the contract price for building work is the total price paid under all applicable contracts for that building work as 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 determined at this time.

Is all work captured in a contract included to determine the bond? For example, excavation work?

All work that is conducted in relation to the contract is captured to 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
  • excavation
  • 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.

Lodging and paying the bond

When does the building bond need to be lodged with the Secretary? Is it before or after the occupation certificate is issued?

The developer needs to lodge a building bond equal to 2% of the contract value of the building work with the Secretary. The building bond must be lodged before the occupation certificate is issued. This includes a conditional or interim occupation certificate which allows people to occupy the strata building. A penalty may apply if a developer does not lodge the building bond with the Secretary before the occupation certificate (whether conditional or interim) is issued.

If a project is being built in stages (eg. 4 towers), do I need to lodge a bond for each stage, especially if one stage is completed before another?

Yes, if the development is known to be a staged development, one bond per stage (project) should be lodged. You will need to register each stage as a separate project in the Strata building bond and inspections scheme portal (the portal) and lodge a bond for each one.

Why do I need to upload so many documents through the portal, especially if there are changes to these documents?

The documents that need to be uploaded to the portal are required by law to be lodged at the time the building bond is lodged. At this time, the Secretary may need to determine the contract price for building work, as the contract price determines the building bond amount that must be lodged with the Secretary. If there are multiple versions of the document, the version in existence at the time just prior to application for occupation certificate should be uploaded.

The portal allows documents to be uploaded in various formats. Documents can be uploaded and saved at any time in the portal, but they should reflect the completed building before any occupation certificate is issued (not the start of the build).

Can an entity other than the developer pay the bond?

The developer is responsible for arranging for the building bond to be issued by an approved authorised deposit-taking institution listed on the Register of authorised deposit-taking institutions or from a general insurer authorised to conduct new or renewal insurance business in Australia that is listed on the Register of general insurance, both registers which are maintained by Australian Prudential Regulation Authority.

What happens if the builder passes down their obligation to the subcontractors ie. for organising and arranging the issue of the building bond?

The developer, not the builder, is responsible for arranging the building bond and lodging it with the Secretary. The building bond will be kept by the Secretary for between 2 to 3 years, at which time an owners corporation can claim against if for defective building work that has not been rectified, or it will be released if no claim is made.

Claiming the bond

If the owners corporation is claiming the bond, is this done by resolution at a general meeting of the owners corporation?

Yes, the approval or consent of an owners corporation to claim the bond is to be given by a resolution of the owners corporation at a general meeting. A resolution at a meeting is to be determined by a simple majority. A developer or lessor of a leasehold strata scheme is not entitled to vote, or exercise a proxy vote, on a matter concerning building defects.

Is the building bond handed over to the owners corporation at the first Annual General Meeting (AGM) with all of the other required documents?

No, the original building bond is held by the Secretary for between 2 and 3 years. At the end of the 2 years, an owners corporation can make a claim for an amount payable from the building bond which can be used to pay for any defects that have not been rectified. Any remaining money from the building bond will be returned to the issuer of the building bond for payment back to the developer, or released in full by the issuer back to the developer, if no claim is made.

The only Strata building bond and inspections scheme documents to be handed over to the owners corporation at the first AGM are the interim report and final report (if any) of the building inspector.

Becoming an inspector/ providing an inspector

How do I become a building inspector for the Strata building bond and inspections scheme?

A building inspector is qualified to undertake inspections and produce reports if they are a member of a strata inspector panel. The strata inspector panel (SIP) can only be provided by an authorised professional association as listed in clause 45 of the Strata Schemes Management Regulation 2016. A SIP may be established by any of the following:

  • Housing Industry Australia
  • 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

Each of these associations will have their own processes and membership criteria to determine if a person is competent to perform building inspections and produce reports for the purposes of the Scheme.

This is a co-regulatory approach. Inclusion on a panel qualifies the person to be a building inspector. Any enquiries about becoming a member of a strata inspector panel should be directed to that member organisation.

How are the building inspectors publicised in the various strata inspector panels? Does Fair Trading have the list?

The authorised professional associations listed above are responsible for the management and administration of their strata inspector panels. Each association will maintain a list of their qualified persons on their strata inspector panel, which must be available on their website.

I am a member of a listed organisation that can provide a strata inspector panel. How do I become a building inspector for the Strata building bond and inspections scheme?

If you are already a member of one of the listed organisations that has a strata inspector panel, you should direct your enquiry through your membership contact. They will advise you of their requirements to be a building inspector for the Scheme.

How do I become a building inspector that is appointed by the Secretary to conduct inspections and provide reports for the Strata building bond and inspections scheme?

The Secretary will select a building inspector from one of the strata inspector panels. You must be a member of one of the listed associations’ strata inspector panels.

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