Commencement date of Building Defect Bond Scheme deferred until 2018

Nick Kallipolitis

In an article published in December 2016, I outline some of the key features of the new Building Defect Bond Scheme (the Scheme) introduced under the new Strata Schemes Management Act 2015 (NSW). The Scheme requires (amongst other things) developers to lodge a bond with NSW Fair Trading that is equal to 2% of the contract price for construction of residential and mixed use high rise strata buildings.

The Scheme was to apply to building works carried out on new residential and mixed use high rise strata buildings from 1 July 2017, and in instances where building works are exempt from requiring Home Owners Warranty Insurance.  

However, the Electronic Transactions Legislation Amendment (Government Transactions) Bill 2017 (NSW) introduced into the NSW Legislative Council on 24 May 2017, appears to have deferred the proposed commencement of the Scheme until 1 July, 2018. The explanation provided for the deferment of the commencement date (as contained in the Bill’s second reading) include:  

“This amendment acknowledges that a number of issues have arisen, which mean that it is prudent to delay commencement of the scheme. Since 2016 Standards Australia has been working with a group of industry experts to develop a new national standard known as AS4349.2 – Group titled properties. The standard is important as it will form part of the defect inspection report that is applied by the scheme. Unfortunately, the standard is not complete and unlikely to be finalised by Standards Australia until after July 2017.

Furthermore, over the past five months NSW Fair Trading has been engaging with peak bodies in the legal, strata and building sectors to prepare for the scheme. NSW Fair Trading acknowledges stakeholders' continued support for the scheme but also notes feedback that the July 2017 commencement date would not afford some participants sufficient time to develop their supporting processes and procedures. The amendments will mean that the scheme will only apply to construction contracts signed or work that commences from 1 January 2018.”

Subject to the passing of the Bill and any further deferments, the Scheme will only apply to construction contracts signed (or where there is no contract and building work commences) from 1 January, 2018.

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