On 1 July 2017, the new Part 11 of the Strata Schemes Management Act 2015 (the Act) and Part 8 of the Strata Schemes Management Regulation 2016 (the Regulation) will take effect.

This introduces a new building bond and defect rectification regime which will apply to all building contracts entered into after 1 July 2017 for those multi-storey residential or mixed-use strata developments where it is not mandatory to have a policy of insurance under the Home Building Compensation Fund.

The two key elements of the regime fall require the developer to:

  1. lodge a building bond equivalent to 2 per cent of the contract price; and

  2. appoint a building inspector (at the developer’s cost) to prepare an interim report within 15-18 months from completion and a final report within 21-24 months from completion.

The rectification of any defects not rectified between the interim and final reports can be funded from the building bond. You can read more about the new regime here, here and here.

Adapting to the new regime

Developers would be well advised, when entering into building contracts after 1 July 2017, to ensure that the defects liability period extends to the expiry of the period within which the building bond under the new regime can be accessed by the owners’ corporation to be established for the building.

Developers should also consider requiring builders to provide back to back security to mirror the 2 per cent building bond.

Main contractors should equally consider passing risk down the chain.

The impacts on end users and those advising them, including the building inspectors appointed under the inspection regime, will not be felt for another 2-3 years, given that the regime will only apply to building contracts entered into after 1 July 2017. Strata managers could well use this time to consider establishing a communication regime to inform owners of key dates including managing the interaction and overlap with enforcing rights under the s.18B statutory warranties.