As an expert in construction law matters and building disputes, New South Lawyers’ Litigation & Dispute Resolution Law Associate Ariel Dai breaks down the Strata Building Bond & Inspection Scheme.

What is the Strata Building Bond & Inspection Scheme?

If you are a builder or developer you may have heard of the Strata Building Bond & Inspection Scheme. Also referred to as the SBBIS, under the Strata Building Bond & Inspection Scheme, developers of new apartment buildings four storeys or higher must lodge a building bond to NSW Fair Trading (The Secretary) equivalent to 2% of the contract price paid for the building work.Introduced on 1 January 2018, the aim of the SBBIS was to address defect rectification issues in new developments. With the purpose of the building bond to secure funds to pay for the costs of rectifying the defective work identified during SBBIS inspections. The bond is returned to the developer, if not required.

How much does it cost to lodge the Strata Building Bond & Inspection Scheme (and who pays it?)

In addition to the 2% of the contract price paid for the building work, developers must also pay an administration fee of $1,500. Furthermore, they must file, a lodgement form, a building bond, and various supporting documents and information.

When does the Strata Building Bond & Inspection Scheme apply?

The Scheme applies to Building Work provided under building contracts entered from 1 January 2018; or (in the absence of a contact) for Building Work commenced from 1 January 2018.In order for the Strata Building Bond & Inspection Scheme to apply, Building Work needs to satisfy the following requirements:1) It is carried out on a residential or partly residential strata building;2) The strata building has four or more storeys3) It is carried out for the purpose of registering a strata plan or strata plan of subdivision of a development lot; and4) It is not subject to obtaining insurance under part 6 of the Home Building Act 1989 (NSW).

What are the stages of the Strata Building Bond & Inspection Scheme?

There are eight stages in the Scheme and this article will address each stage below.  Stage 1: Building bond lodgementThe building bond is 2% of the contract price for the building work.The contract price will be calculated at a time just before the developer makes an application for any occupation certificate (OC) ehether with conditions or interim OC. The contract price should also include all variations, additions, price fluctuations, and GST. Stage 2: Inspector appointmentThe developer then needs to appoint a building inspector to carry out inspections and produce reports.The building inspector must be appointed within 12 months of the issue of any OC. Failing which, the Secretary will arrange a building inspector.To appoint a building expert, the developer needs to obtain approval from the owners corporation. The owners corporation is to hold a general meeting. And pass a resolution by a simple majority to approve the appointment.The developer must inform the Secretary when both the developer and owners corporation approve a building inspector.If the Secretary selects the building inspector, the owners corporation's approval is not necessary.The development is responsible for paying the inspector's fees, whether the developer or the Secretary selects the inspector  Stage 3: Interim inspection and reportThe first inspection (interim inspection) will be carried out between 15 to 18 months after the issue of OC.The inspector must attend the site to conduct the interim inspection to identify any defective work.Within 15 to 18 months after issuing the OC, the inspector will complete an interim report. It will set out:1) the item of defective work identified at the interim inspection; and2) if reasonably practicable, the causes of each item of defective work.The inspector is to provide a copy of the interim report to the owners corporation. Within 14 days after completing the report and before the expiration of 18 months after the issue of the OC.  Stage 4: Rectify defective building workThe builder must address the items of defective work identified in the interim report. And it is the responsibility of the developer to ensure this. However, if the original builder is not available, the developer needs to arrange for another builder to carry out the rectification work.For the items of defective work identified in the interim report, the builder should rectify them between 18 to 21 months after the issue of the OC, but before the final inspection.  Stage 5: Final inspection and reportWithin 18 months after the issue of the OC, the developer must arrange for the same inspector. This person must conduct the interim inspection and prepares the interim report, to conduct the final inspection and prepare the final report.If the original inspection is unavailable, the developer must notify the Secretary in writing within 14 days of being aware of the situation. The Secretary will arrange a building inspector.The  development will cover the inspector's fees, regardless of whether the Secretary or the developer selects the inspector. An inspector must conduct the final inspection on-site between 21 to 24 months after issuing the OC. Within 21 to 24 months of the OC issuance, the inspector will finalise a report that outlines:1) Firstly, items of defective work identified in the interim report have not been rectified;2) Secondly, items of defective work arising from the rectification of items identified in the interim report; and3) Thirdly, method of rectification to address the defective work identified in the report.The final report cannot contain items of defective work not identified in the interim report.Ultimately, the inspector is to provide a copy of the final report to the owners corporation within 14 days after completing the report and before the expiration of 24 months after the issue of the OC.  Stage 6: Determine costs of rectificationThere are two ways to determine the costs to rectify the items of defective work identified in the final report:1) By agreement: the developer and the owners corporation can reach an agreement with respect to the costs of rectifying the defective work. Then they can make an application to the Secretary to release the agreed amount from the bond by providing a Deed of Agreement within 30 days after receipt of the final report.2) By determination: if the developer and the owners corporation cannot reach an agreement on the costs issue, then the Secretary will appoint a qualified person to determine the costs (such as a quantity surveyor). The developer and owners corporation will share the costs of the qualified person equally.The bond will be released based on the determined costs.  Stage 7: Paying the building bondThe Secretary can claim or collect the bond between 2 to 3 years after the completion date of the building work.The party responsible for fixing defective building work will pay the amount to the owner's corporation if it is less than the building bond.The owner's corporation will receive the entire bond if the cost to fix defective building work exceeds the bond amount.  Stage 8: Completing the processThe whole process should be complete between 2 to 3 years after the completion of the building work.

New South Lawyers’ communications are intended to provide commentary and general information. To that end, people should not rely on this communication as legal advice. Accordingly, they should seek formal legal advice for matters of interest arising from this communication.

To find out more, chat with a member of New South Lawyers' Litigation Law or Building & Construction Law Teams today.