July 2020 Changes to Strata Schemes – What you Need to Know


Rectification of building defects amendments to the Strata Schemes Management Act, 2015 (NSW) (“SSMA”) commenced on 1st July 2020 pursuant to the Strata Schemes Management Amendment (Building Defects Scheme) Act, 2018 (NSW).  These are welcome new laws which increase the rights of owners corporations to make claims against builders, developers and others to have defects repaired or to receive compensation to cover the cost of rectifying defects.
The amendments are supplementary to the existing building defect laws as set out in Part 11 of the SSMA. Part 11 and the new amendments only apply to building work carried out under a contract that was entered into on or after 1st January 2018 or which commenced without a contract prior to that date.
Part 11, however, has limited application and only covers certain residential buildings, mixed use buildings with residential components, where the building work was carried out for the purposes of the registration of a strata plan and does not apply where the building work is subject to the requirement to obtain insurance under the Home Building Compensation Fund.

New due date for payment of building bond

Previously, a developer has only been required to pay a building bond before an occupation certificate for a building is issued. Now, a developer will need to pay the building bond before an application is made for the occupation certificate.

Failure to provide a building bond

Failure by the developer to provide a building bond (as security for defective building work) now attracts increased maximum penalties. Such penalties have increased from $22,000.00 to $1.1 million and additional daily penalties of up to $22,000 may apply.

False or misleading contract price information

While the amount of the building bond is generally 2% of the contract price for building work, it is now an offence for a developer to knowingly give false or misleading information to the NSW Commissioner for Fair Trading regarding the actual contract price of building work for the purposes of calculating the amount of the bond ie there are now protections to ensure that a developer does not under-quote the actual cost of the building to artificially lessen the amount of the building bond.

Disputes regarding the building bond

Where an owners corporation and developer cannot reach agreement on the proper amount of the building bond, the NSW Commissioner for Fair Trading now has power to determine the amount of the building bond that may be claimed by an owners corporation as identified in the final report of a building inspector.   The NSW Commissioner may further arrange for a suitably qualified person to provide a report in relation to the work required to rectify defects/costs to rectify defects, for the purposes of determining the amount of the bond that should be released to the owners corporation and the costs therefor are generally to be equally shared between the owners corporation and developer.

Building bond for other costs?

The building bond was previously used only for payment to an owners corporation. The amendments now permit the bond to be applied to unpaid costs of a building inspector who has prepared a report or a person who has prepared a report for the Commissioner where the developer has not paid those costs and has died, ceased to exist, cannot be found or is insolvent.

Extending the time to claim the building bond

Previously, an owners corporation had up to 2 years after completion of building work (or 60 days after the building inspector gives the Commissioner a final report concerning the building defects (whichever is later)) to claim against the building bond. The amendments now extend the time within which the bond may be claimed to 90 days after the final report is issued to the NSW Commissioner for Fair Trading

Cancelling the building bond

A building bond may now be cancelled:

  • where a building inspector identifies no defects
  • if the Secretary thinks it appropriate in the circumstances
  • on application by the developer, with the agreement of the owners corporation, if part of the amount secured by the building bond has been claimed or realised by the Secretary, or
  • in any other circumstances specified in the regulations.

Debt recovery for building bond

The Secretary may recover from a developer, as a debt in a court of competent jurisdiction, any amount required to be secured by a building bond given by the developer to the Secretary under the SSMA, if the developer has failed to provide the building bond to the Secretary, or, if the building bond has been given to the Secretary but the amount secured by the building bond is less than the amount required under the SSMA.

New investigative and enforcement powers

Officers appointed by the Commissioner will now be able to investigate, monitor and enforce compliance with the requirements relating to Part 11.

Powers to require owner, occupier or owners corporation to provide assistance
There are new powers of entry, by notice in writing given to the owner or occupier of the premises or to the owners corporation, to require the owner, occupier or owners corporation to provide, within a specified time and in a specified manner, any reasonable assistance and facilities that are specified in the notice.
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