The New Strata Schemes Management Regulations

September, 2016

By Scott Laycock, Partner, Sarah Sattout, Consultant, and Caitlin Cook, Lawyer.

The NSW Government has now confirmed that the provisions of the new Strata Schemes Management Act 2015 (NSW) (Act) will commence on 30 November 2016. The key exception to the November 2016 commencement date is the new building defect rectification and bond scheme which will start on 1 July 2017.

 The announcement comes with the new Strata Schemes Management Regulations 2016 (Regulations) which have clarified some of the more procedural matters arising out of the Act.

For a detailed overview of the Act, including the specific obligations imposed on developers, please see our prior article here.

The Regulations cover, among other things:

  1. Appointment of building defect inspectors;
  2. Calculation of the contract price for the purposes of bond retention;
  3. Drawdowns on the bond and bond maturity date; and
  4. Review of decisions.

Appointment of the building defect inspectors

To be qualified to act as a building inspector for the purposes of the new regime, building inspectors must effect and maintain a membership with a building inspector panel.[i] Any specific qualifications required to be held by such inspector are not currently specified in the Regulations.

We do know however that, under the Regulations, strata inspection panels may be established by the following organisations:

      a. the Housing Industry Association;
      b. the Master Builders Association of New South Wales;
      c. the Australian Institute of Building;
      d. the Australian Institute of Building Surveyors;
      e. the Australian Institute of Building Consultants;
      f. the Institute of Building Consultants Inc.;
      g. Engineers Australia;
      h. the Australian Institute of Architects; and
      i. the Association of Accredited Certifiers.[ii]

Calculation of ‘contract price’ for the purposes of retaining the bond

The Regulations have now clarified how the ‘contract price’ is calculated and is defined as the total price paid under all applicable contracts[iii] for the building works at the date of issue of the occupation certificate.[iv]

To avoid any conflict where the builder and developer are connected, the Regulations provide that the contract price is to be identified in a cost report prepared by a quantity surveyor[v] who is to consider:

             (a) “construction and fit-out costs, not including appliance and PC items;
             (b) demolition and site preparation;
             (c) excavation;
             (d) car parking;
             (e) cost for the common property that is included in the property plan, including landscaping, pools, fencing and gates;
             (f) professional fees;
             (g) taxes applied in the calculation of the as-built construction”. [vi]

In addition to these considerations, the drafters – seemingly in seeking to reduce the capacity of related parties from misrepresenting costs spent – have required that the quantity surveyor provide a certificate stating that they have inspected the premises, the as-built documents and the specifications.[vii]

Bond Maturity Date and Drawdowns on Bonds

Bonds provided under the scheme are required to have a maturity date of not less than 2 years and no more than 3 years after the date of issue of the relevant occupation certificate.[viii] The building bond must be provided to the Secretary of the Department of Finance, Services and Innovation (Secretary) in the form of a bank guarantee or a bond.[ix]

When providing the Bond, the Regulations require lodgement of a number of other documents which are, among other things, crucial in identifying the builder and the developer. Importantly, the details provided will allow the Secretary to issue any notices required under the Act or the Regulations down the track so it is important for developers to ensure that these details are accurate and kept current.[x]

In our previous article, we discussed the ability of an owners corporation to make a claim against the bond held in order to meet the cost of rectifying defective building work identified in the final report[xi]. The Regulations have now clarified that any drawdown on such bond can be made not later than 14 days prior to the date the bond must be claimed or realised[xii] (that is, either 2 years after date of completion of building work for which it is given, or within 60 days after the final report is provided to the Secretary),[xiii] provided only that the Secretary has given 14 days notice to the owners corporation, the developer and the responsible builder of the decision to pay all or part of the bond.[xiv]

The 14 day notice period will allow a developer and a responsible builder to make an application for a review of the Secretary’s decision[xv] such application having the effect of stopping payment of the bond until the review is determined or withdrawn.[xvi]

Review of Decisions

An application for review of the Secretary’s decision must be made by either the developer or the builder[xvii] before the claim is paid to the owners corporation and in any case, within 14 days of the Secretary’s notification of his decision.[xviii]

The application for review must:

             (a) be in writing;
             (b) set out the grounds on which the application for review is based; and
             (c) contain information not previously provided to the Secretary (provided only that the reasons for withholding such
information must be disclosed).

Applications for review of a Secretary’s decision will be handled by a separate member of the Secretary’s department.[xix] In an effort to ensure that the review is undertaken independently and fairly for all parties, the Act provides that an appointed reviewer must not have been substantially involved in the Secretary’s initial decision making process and must be qualified to deal with the matters raised in the application for review.[xx] The reviewer may then affirm, vary or set aside the Secretary’s initial decision and provide a substantiated statement of reasons for doing so.[xxi]

There is no entitlement to apply for review of a reviewed decision under the Act.[xxii] However, it is important to note that the compliance with the building bond and defect rectification scheme, including the review process, does not prevent a party from commencing any action or pursuing any alternative remedy in respect of the building works under any other law.[xxiii]

If any proceedings are commenced in a Court, Tribunal or alternative setting any payments made or rectification works undertaken in accordance with the building bond and defect scheme may be taken into consideration in resolving the dispute in that forum.

Again, as the 14 day period to apply for review of the Secretary’s decision is a tight time frame within which developers and builders will be required to act, parties need to be cognisant of any potential claims by the owners corporation by keeping abreast of defect rectification works identified in the interim report and subsequently the final report. Nominating a key person for the purposes of giving and receiving notifications under the Act and keeping such contact information up to date will be important in ensuring that all relevant notifications are received in a timely manner. 

You can get in touch with Mills Oakley to discuss the Act and the Regulations in further detail and ensure that your contracts contain the appropriate protections.

Contact Mills Oakley


Scott Laycock | Partner
T: +61 2 8035 7871
E: slaycock@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

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

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

 

[i] r45 of the Regulations.

[ii] r45 of the Regulations requires owners corporations to claim against the bond by notice in writing to the Secretary.

[iii] r50(1) of the Regulations has been implemented to ensure that all building contracts, including those with separate contractors for works in a development, are captured for the proposes of establishing the ‘contract price’ and, as a result, the total amount of bond to be paid by the developer under the scheme.

[iv] r50(1) of the Regulations.

[v] r50(2) of the Regulation indicates that only quantity surveyors that are members of the Australian Institute of Quantity Surveyors or the Royal Institute of Chartered Surveyors are qualified to prepare a cost report for the purposes of calculating the 2% bond under section 207 of the Act.

r r50(3) of the Regulations.

[vii] Ibid.

[viii] r51 of the Regulations.

[ix] s208 of the Act. The Regulations may allow for additional forms of the building bond to be provided at a later date (see s208(3)).

[x] r52 prescribes the documents and information to be lodged with the building bond.

[xi] s209(1) of the Act.

[xii] r53 of the Regulations.

[xiii] s209(3) of the Act

[xiv] r55 of the Regulations.

[xv] r56(1)(g) provides that a decision that the whole or part of a building bond may be claimed or realised for payment is a reviewable decision.

[xvi] r55(2) of the Regulations.

[xvii] r56(4) provides that the builder who carried out building work to which a reviewable decision relates or a builder who is responsible for the defective work is an interested person.

[xviii] r56(3) of the Regulations.

[xix] s213(5) of the Act.

[xx] s213(6) of the Act.

[xxi] s213(11) of the Act.

[xxii] s213(13) of the Act.

[xxiii] s215 of the Act.

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