Building Defects Bonds

Effective on new construction contracts signed after 1 January 2018, developers of Strata Titled new buildings above 3 stories and within New South Wales, need to lodge a 2% bond with the NSW Department of Fair Trading to cover ‘building defects’.

The bond:

• is 2% of the total contract amount payable to the developer
• must be provided to the Department of Fair Trading prior to the Occupational Certificate being issued
• and is held for 26 months, unless there are calls made on the bond sooner

The bond can either be in the form of a bank guarantee; a bond; or another form of security prescribed by the regulation.

It’s unlikely that cash will be an option and, as with bank guarantees, both tie up working capital.

We suspect that Insurance Bonds will be the ‘preferred’ choice.

The Developer must appoint an Independent Building Inspector (from a list of accredited inspectors) to prepare an interim report between 15–18 months after the building works are completed, as well as a final report 21–24 months.

The Building Inspector must be independent of the Builder / Developer. If the Developer does not appoint a Building Inspector, one will be appointed by the NSW Department of Fair Trading.

If any defects are identified in the report, and are not rectified by the time the second (and final) report is prepared, the Owners Corporation may make a claim to the NSW Department of Fair Trading for the release of all or part of the Bond to pay for the rectification works at any time, up to 2 years after the Occupational Certificate is issued, or 60 days after the final report is given, whichever is later.

As specialists in Insurance Bonding, we are ideally positioned to assist developers secure a Defects Bond.

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We also specialise in Deposit Bonds across the range, particularly ‘Off The Plan’. www.aussiedepositbonds.com.au