BOND, Strata-Bond…

January, 2018

Author, Ziv Ben-Arie, Partner

When will it apply?

The deferred enactment of the amendments to the Strata Schemes Management Act, relevantly in relation to bond payment, will start to apply from 1 January 2018 in respect of contracts entered into between developers and builders on or after that date and will apply to 4 storey (or higher) residential, as well as mixed use buildings. From our previous publications, you may recall that part of these changes now requires the developer to pay a bond of 2% of the original contract sum to NSW Fair Trading. The impacts of this are likely to be far reaching, not only to the pricing of contracts, but margins, defect rectification and claims by owners corporations.

How it will work?

Between 15 and 18 months after the date of practical completion (PC)the developer is required to engage an independent building inspector to carry out an interim inspection and prepare a report of any defects (First Report). The bond will only be released (2 years after PC) if no defects are discovered. Where there are defects, the builder will be required to rectify them in accordance with their contractual obligations.

After 21 to 24 months after PC a final inspection is conducted and a final report provided to the Owner Corporation, and the builder and developer which will set out whether the defects identified in the First Report have been rectified. If they have not, the Owners Corporation can apply to have the bond used to off-set the cost of rectification of any outstanding defects.

Implications

This may have broad ranging implications to the industry and the way in which developers pass on the additional cost to the builder, profit margins that builders may derive or how owner’s corporations seek to call upon and use the bond. There will also be issues regarding the selection of appropriate inspectors. These implications and risks can be managed in various ways depending upon the way in which the contracts used are drafted and how the risk is allocated between the builder and developer. Owners corporations should also be aware of their rights in relation to their ability to call upon the bond, in due course.

Contact Mills Oakley

If you have any questions regarding the issues raised in this article or any other strata, building or contract matters, please do not hesitate to contact the author.


Ziv Ben-Arie| Partner
T: +61 2 8289 5854
E: zbenarie@millsoakley.com.au

Andrew Wallis| Partner
T: +61 2 8289 5810
E: awallis@millsoakley.com.au

Peter Meades | Partner
T: +61 2 8289 5889
E: pmeades@millsoakley.com.au

Scott Laycock | Partner
T: +61 2 8035 7871
E: slaycock@millsoakley.com.au

Scott Higgins | Partner
T: +61 2 8035 7872
E: snhiggins@millsoakley.com.au

 

  • Strata

  • Privacy Policy | Terms of Use