Building Products (Safety) Bill 2017

The NSW Government has introduced the Building Products (Safety) Bill 2017 (Bill) to address safety risks arising from the use of non-conforming building products in the state. The Bill:

  • enables the Fair Trading Commissioner to ban the use of unsafe building products and to issue affected building notices
  • permits enforcement authorities to make building product rectification orders
  • confers a raft of investigatory powers on authorities to support the identification and elimination of unsafe building products.

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Coming, ready or not? Strata building bond and defect inspection scheme to come into effect in NSW on 1 January 2018

We are rapidly approaching 1 January 2018, the commencement of the long-awaited (and twice deferred) strata building bond and defect inspection scheme, which will complete the NSW Government’s most significant overhaul of strata law in decades.

This aspect of the reforms is intended to incentivise developers to address building defects early and quickly to avoid litigation.

The scheme requires developers to pay a building bond equivalent to 2% of the contract price for the building work to the Secretary of the Department of Finance, in order to secure funding for the rectification of any building defects. The bond is held by the Department for a period of two years. A building inspector (who must be completely independent from the developer) is appointed at the cost of the developer to conduct inspections within that period. The interim inspection takes place at 15-18 months after the completion of the work. If defects are identified in the interim report and remain unrectified at the final inspection at 21-24 months, the owners corporation may access the bond for the purpose of rectifying those defects.

Subject to any further commencement delay, building contracts entered into from 1 January 2018 for new residential or mixed strata properties of four storeys in height or above will be subject to the new scheme.

Industry participants should consider the impact of the changes. Developers would be well advised, when entering into building contracts from 1 January 2018, 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 future owners’ corporation. 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.

We have speculated previously about the potential for a rush of contracts being signed in the lead up to the commencement date, however with the commencement date twice deferred already, it may now have little impact in terms of generating avoidance behaviour.

The impacts on end users and those advising them, including the building inspectors appointed under the inspection regime, will not be felt for another two to three years. Strata managers could well use this time to consider establishing a communication regime to inform owners of key dates and to consider how to effectively manage the interaction and overlap with enforcing rights under the s.18B Home Building Act statutory warranties.