Strata building bond and inspections scheme. All states should follow suit!

This article about the strata building bond and inspections scheme has been supplied by Sahil Bhasin, Roscon.

The strata building bond and inspections scheme, introduced under the NSW Strata Schemes Management Act 2015 (Part 11), will apply to all contracts for residential (or part residential) works entered into after 1 January 2018, if the development is not covered under the Home Building Compensation Fund.

The building defect bond scheme will require developers to lodge a bond of 2% of the contract price with NSW Fair Trading prior to the issue of occupation certificates. This bond will cover the costs of defect rectification works that are identified in the final inspection report to be procured under the new scheme. Roscon’s recommendation is that similar models be implemented nationally.

The regime applies to developers engaged in residential building work associated with the creation of a strata scheme and includes a defects inspection procedure that provides a trigger either for the ability of the strata scheme to call on that bond or for the return of the bond to the developer.

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Roscon has been lobbying heavily for consumer protection in buildings subject to strata schemes. Roscon was the only building expert witness who was invited to provide expert advice and recommendations to the Senate Committee for Building Defects (Federal Senate Enquiry). At the Federal Senate Enquiry, we noted that consumers purchasing a dwelling in a building over three storeys high are worse off than those purchasing in a single or double storey building as builders are not required to obtain builder’s warranty insurance for buildings over three storey’s high. Source – Page 57, Senate Enquiry Hansard Record

The NSW strata building bond and inspections scheme (the Scheme) works towards addressing this issue.

As part of the inspection procedure under the Scheme, developers must source a building inspector through the Strata inspector panel. The building inspector must be independent of the developer. The developer can be penalised for failing to disclose any connection with the building inspector. Likewise, the building inspector can be penalised for failing to disclose any connection with the developer.

The developer must notify the Building Bond Secretary and the Owners Corporation of the proposed appointment of the building inspector. The Owners Corporation then approves or rejects the building inspector appointment. Where the developer fails to organise for one to be appointed (this includes if the Owners Corporation rejects the building inspector that the developer seeks to appoint) the Building Bond Secretary will appoint an independent building inspector.

The building inspector then arranges a date with the Owners Corporation to inspect the strata property. At all stages where a building inspector is used in the process, the developer pays for their work.

Roscon is a member of the NSW ‘Strata inspector panel’ as per the requirements of the NSW Strata Schemes Management Regulation 2016, Part 8 – Clause 45 and Section 193 – NSW Strata Schemes Management Act 2015 and can assist your Owners Corporation with the Forensic Building Defects Report required. We strongly believe a similar scheme should be implemented in Victoria.

The Inspections Scheme for Victoria

96% of building permits in Victoria were non-compliant according to the 2011 Auditor General’s Report. The privatization of building surveyors has resulted in ‘alternative solutions’ being noted on most building permits, resulting in a lack of amenity or total noncompliance with the National Construction Code. 85% of apartments in NSW had defects as exposed by the University of NSW research funded by the Federal Government.

1.6 million Victorians call apartments and units home, however, anyone residing in a building over 3 storeys does not have adequate consumer protection, as buildings over 3 storeys are exempt from Building Warranty Insurance. Even consumers with single dwellings can only claim under the Building Warranty Insurance if the Builder is Dead, has Disappeared or is Insolvent (DDI).

Currently for Owners Corporations in Victoria to commence legal proceedings to rectify building defects it is a timely and costly process. Quite often we find owners helpless, due to a ‘special resolution’ being required at a committee meeting to commence legal proceedings, which essentially requires 75% approval of all lot owners, which in most cases is impossible to achieve with overseas investors due to the outdated voting requirements required under legislation.

Owners Corporations who are successful in obtaining the ‘special resolution’ in most instances then require a ‘special levy’ to be raised between $40K – $100K, to cover the costs associated in bringing forward a building defect claims. These costs include legal fees, expert witnesses and court fees.

In the last 5 years, we have found property developers are becoming a ‘one stop shop’ whereby they develop the land, operate the owner’s corporation and manage the leasing of development, this should be outlawed as the conflict of interest results in Owners Corporations committees been weighted by the developer’s staff or lot owners connected to the developer. Fundamentally, building defects aren’t even on the agenda for discussion at most new developments. Hopefully, this is resolved by the current review of the Owners Corporations Act 2006 being undertaken by Consumer Affairs Victoria, which should be released in 2018.

A National Scheme

As a nation, we need to improve our urban planning laws and processes for the longevity of the building stock being produced. We could be observing at a systemic problem due to lightweight construction. Lightweight construction such as polystyrene finished with a slither of render was originally used for the top storey construction of double-storey dwellings to reduce the costs on engineering, footings and foundations. Lately, lightweight construction is now being used for the entire dwelling, with consumers being led to believe they have purchased a solid brick home which has been rendered, only to discover they have purchased a polystyrene esky. The currently planning laws focus heavily on dwelling densities, amenity impacts, car parking provisions, permeability and site coverage.

However, the process doesn’t take into consideration the products and materials which will be used for construction, subsequently, once a planning permit is approved, developers work with builders and building surveyors to find ‘alternative solutions’.

We have witnessed apartments construction using only lightweight materials above the underground basement carpark levels. The housing stock currently being produced through this construction methodology will need to be demolished within the next 30 – 40 years, with the water ingress problems associated with this form of construction being widespread and documented throughout the media.

We need to be mindful that the construction industry is the second largest industry accounting for 8.1% of GDP in 2015/16 and therefore should be allocated a minister to oversee regulations in all jurisdictions.

For more details that can be found on the NSW Fair Trading, please click here: The strata building bond and inspections scheme.

Paul Cummaudo
Roscon Group
E: [email protected]
P: 1800 767 266

This post appears in Strata News #174.

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