Developers in NSW may soon be expected to place two percent of the contract price into a building bond, to cover the cost of any defects in new unit blocks more than three storeys high. A deposit for the building bond will be required before MBC can issue an occupation certificate for the building.
The proposed changes are part of a wider reform of strata laws, the first since the Strata Titles Act was created in 1973. They will aim to protect strata owners against financial loss caused by building defects and create a modern framework for residents, who contribute to 75,000 strata schemes worth $450 billion in assets. Currently, there is no protection in place for NSW residents who experience defects in new buildings, other than the court system.
A study by University of NSW found that 85 percent of high-rise apartment buildings constructed since 2000 have defects, including water leaks, wall cracks, shifting foundations and faulty tiles. The draft bill proposes that an independent building inspector assess the development within 18 months of completion, then again no later than two years after completion. The cost of the inspection reports are to be covered by the developer.
If the inspection report finds any defects in the building, then the building bond will be available to the owners corporation to rectify these faults. The bond, or balance of the bond following any works to rectify faults to the building, will be available either two years after completion of the development or 60 days after the final inspection report is provided to the developer.
The draft bill will be introduced to NSW parliament in October and is expected to come into effect from 2016. MBC welcomes this move and believes our clients will not be significantly impacted by these changes, as it merely formalises a business model that is already in place. The reforms simply provide a more formalised process and provide an assurance of quality for developers, owners corporations and residents in NSW.
Contact us if you’d like to discuss how your development may be impacted by these changes, or read the Draft Strata Schemes Development Bill 2015 for more information on the reforms.