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The Building Defect Bond Scheme – Not for the Bulk of this Construction Cycle

Posted 27 June 2017

Category: Residential Building Works, Construction

New strata laws will commence on 30 November 2016. As a part of the change to the strata laws, a building defect bond scheme is due to commence on 1 January 2018.

Under this scheme, developers will be required to lodge a 2% bond with the Secretary of the Department of Finance, Services and Innovation for the final contract price of the building.

The purpose of the bond is to act as security in the event that it becomes necessary to rectify defects to the building work once the building is completed.

How does this affect Builders and Developers now?

Builders and developers should note that the scheme only applies to:

  1. Buildings which are not eligible for home warranty insurance i.e. buildings over three stories high;
  2. Contracts for residential building work which are entered into after 1 January 2018; and
  3. If there is no contract or where the builder and developer are the same entity, where works commenced after 1 January 2018.

Accordingly the scheme will not apply to the majority of the current construction cycle.

Further Advice

If and when you need advice regarding the building defect bond scheme and how it affects you, we can assist. For example we can assist with the following issues which will arise after 1 January 2018:

  1. Amount of the bondĀ ā€“ how to calculate the 2%;
  2. Voting rightsĀ ā€“ developers will be excluded from voting at meetings on various matters concerning building defects;
  3. Expert reportsĀ ā€“ appointment and payment of experts to draft defect reports; and
  4. Release of the bondĀ ā€“ a comprehensive process to undertake rectification of defects and secure release of the bond.

***The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.


Bannermans Lawyers

Updated 27 June 2017

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