The Strata Building Bond and Inspections Scheme - NSW

The Strata Building Bond and Inspections Scheme (‘the Scheme’) applies where a developer and builder enter into a construction contract. It covers all building work on strata properties that are four storeys or higher and are partially or wholly residential in nature. The Scheme came into effect 1 January 2018.

Developers of these works need to register to use the Scheme’s online portal any time after works have commenced. The online portal issues each project a unique identifier number, and is used for all requirements of the Scheme.

Projects are to be lodged via the NSW Planning Portal

The building bond

Part 1 of the Scheme is a building bond. For any works to which the Scheme applies, developers are required to lodge a building bond with NSW Fair Trading that is 2% of the relevant contract value. That is, the total price as at the time of issuing the occupation certificate, or alternatively, if no contract exists, the contract price determined by a quantity surveyor.

Lodgement and disbursement of the building bond

In addition to paying an administration fee of $1,500, the developer has to upload the following to the Scheme’s online portal.

• The lodgement form;
• The building bond; and
• Supporting documents and information.

Before the occupation certificate is issued the NSW Fair Trading (the Secretary) confirms that the bond that has been lodged. Penalties apply if the occupation certificate is issued before the building bond is lodged.

What is the purpose of the building bond?

The building bond is used to secure funds that may be drawn upon and used to pay for the rectification costs of any defective works identified in a final inspection report. If no defects are identified, the building bond is released in full to the developer. If defects are identified, the following steps apply in relation to disbursement of the building bond:

1. The parties must agree on the amount of costs needed for rectifying the defective works. Once a price has been agreed upon, the Building Bond Secretary will claim this amount from the issuer of the building bond and pay it to the Owners Corporation, or alternatively, the developer may release all or part of the building bond to the Owners Corporation directly.
2. If the parties cannot agree on the costs needed to rectify the defective works the Secretary will appoint a quantity surveyor to determine the amount needed. The costs associated with engaging a quantity surveyor are to be paid equally by the developer and Owners Corporation.

The Secretary facilitates the release of the building bond money. Any money released must be used for the purposes of rectifying defective works identified in the final inspection report, and any money that is leftover is returned to the developer.

The inspection regime

Part 2 of the Scheme is mandatory defect inspection reporting. As detailed above, a building bond will only be released upon a final inspection report provided by a building inspector.

Appointment of a building inspector 

Within 12 months of the occupation certificate being issued, the developer is to source and appoint an independent building inspector. Inspectors are selected from a Strata Inspection Panel (SIP), which will be established for this specific purpose. The developer is to notify the Building Bond Secretary and Owners Corporation of their selection, who will then approve or deny the appointment. In the event that the developer does not source a building inspector, or if the Owners Corporation rejects the proposed building inspector, then it is the Building Bond Secretary who will appoint the building inspector.

Finding a building inspector

Authorised professional associations may establish and maintain a strata inspection panel (SIP). They have the ability to appoint an individual to be a member of the panel if satisfied that the individual is appropriately qualified to inspect works and produce reports per the Scheme requirements.

As at February 2021, the following associations have established (or are establishing) a SIP:

• the Australian Institute of Quantity Surveyors
• the Australian Society of Building Consultants

Inspections and reporting

First inspection: 15 to 18 months after the building work has been completed, the building inspector and Owners Corporation arrange a first inspection of the strata property. The building inspector will issue a report (interim report) identifying any defective works. The report is then uploaded to the online portal and may be accessed by the developer, the Owners Corporation, the Secretary, and the builder responsible for any defective works. If no defects are identified then the building bond may be released, although not for two years from the date of completion.

If defects are identified, then the builder responsible for the defective works must rectify them before a final inspection takes place. If the defective works are not rectified before the final inspection, the building bond can be used to pay the associated costs of rectifying any defective works.

Final inspection: 21 to 24 months after the building work has been completed, the building inspector and Owners Corporation arrange a final inspection of the strata property. If the building inspector who carried out the first inspection is unavailable, then the developer must advise the Building Bond Secretary of this and follow the processes set out above in ‘Appointment of a building inspector’ to find a new building inspector.

During the final inspection, the building inspector will issue a report identifying whether the defects identified in the interim report have been rectified. The report is then uploaded to the online portal and may be accessed by the developer, Owners Corporation, Building Bond Secretary, and builder responsible for any defective works will have access to the report.

All costs associated with a building inspector (for the purposes of the inspection regime) are to be paid for by the developer.

Right of review

If the Owners Corporation or developer disagrees with the amount of building bond released, then the developer can apply to the Secretary for a review. This application for review must be made through the online portal within 14 days after notice is sent that the bond will be released. The developer should advise the Secretary of the original decision, their reasons for review, and provide any other relevant information.

To find out more, contact HIA's Workplace Services team

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