By Scott Laycock, Partner
New South Wales Fair Trading recently announced that the new Strata Schemes Management Act 2015 (NSW) (Act) will come into effect in November 2016. The Act replaces the existing Strata Schemes Management Act 1996. The Act will apply to construction contracts entered into after the commencement of the Act.
The Act will significantly impact developers as it introduces a building bond scheme (note however that the building bond scheme is not likely to commence until 1 July 2017[i]) and imposes inspection and reporting requirements on developers carrying out residential building work where such work is part of a strata scheme and not subject to insurance requirements under the Home Building Compensation Fund[ii]. This will in turn significantly impact contractors as developers seek to back down these obligations.
The defect rectification and bond scheme[iii] is intended to encourage the early identification and addressing of defective building work in strata schemes (that being work which is in breach of the warranties contained within Part 2C of the Home Building Act 1989 (NSW) or work done in such a way that it would constitute a breach[iv]) thereby providing unit holders with additional statutory protection to ensure the timely and appropriate rectification of defects, a process currently known for its lengthy, costly and significantly unfavourable outcomes for lot owners and developers alike.
Once commenced, the Act will require the developer to comply with a number of conditions around defect inspection and further, require payment of a bond before an occupation certificate is issued.
As you can see, the Act will require significant amendments to contracts for residential building works that form part of the parcel of a strata scheme. Building contracts will need to be drafted so as to ensure that developers, being those directly responsible for compliance with the reformed strata scheme regulations, are adequately protected. Equally, contractors will need to be aware of and price for the additional risk that developers seek to back down.
Key changes to building contracts may include:
You can get in touch with us to discuss the Act in further detail and ensure that your contracts contain the appropriate protections.
[i] Note also that the draft Strata Scheme Management Regulation 2016 which intends to operate in conjunction with the Act has not yet commenced. Part 8 deals with Building Defects.
[ii] s191(1) of the Act states that the Act applies to residential building work (as defined in the Home Building Act (1989)) and work carried out on a building or part of a building, used or proposed to be used for mixed use purposes that include residential purposes.
[iii] Part 11 of the Act.
[iv] s190 of the Act defines defective building work as “(a) residential building work done is such a way that it constitutes a breach of the statutory warranties applicable to the work under Part 2C of the Home Building Act or (b) is building work done in such a way that it would constitute such a breach if the building work were residential building work”.
[v] s54 of the draft Strata Scheme Management Regulation 2016 states that a building bond may be used to “meet the costs of an inspection or a report under Division 2 of Part 11 of the Act, including any fee for the appointment of a building inspector by the Secretary, if the developer of the strata scheme is bankrupt or insolvent and the costs or any fee have not been paid”.
[vi] s194(1) of the Act requires the developer to appoint the inspector, failure to do so must be notified to the Secretary who may then appoint an inspector for the purposes of carrying out the inspection and preparing the interim and final reports.
[vii] The Act defines the ‘initial period’ as commencing on the date an owners corporation is constituted and expiring on the day that there are owners of lots in the strata scheme constituting at least one-third of unit entitlements, other than the original owner (usually the builder or developer).
[viii] s195(1) of the Act.
[ix] s197 of the Act.
[x] s199 of the Act.
[xi] s206(1) of the Act provides that the builder responsible for rectification works includes employees, agents and contractor’s of such person.
[xii] s206 of the Act.
[xiii] s201(1) of the Act.
[xiv] s207 of the Act.
[xv] s209(3) of the Act.
[xvi] s210(1) of the Act.
Scott Laycock | Partner
T: +61 2 8035 7871
Andrew Wallis| Partner
T: +61 2 8289 5810
Peter Meades | Partner
T: +61 2 8289 5889
Ziv Ben-Arie | Partner
T: +61 2 8289 5854
Scott Higgins | Partner
T: +61 2 8035 7872