04.05
2021
Dilapidation report

Strata building bonds: could this be the end of shoddy workmanship and dodgy developers?

As a potential home buyer, if headlines about Sydney’s Mascot Towers debacle or the disastrous Opal Towers sends shivers down your spine, take heart from what you are about to read. A promising scheme devised to weed out unscrupulous builders and put a stop to fly-by-night developers is giving home buyers some welcome protection.

Defect bond: a new plan to make developers accountable

Building defects are unavoidable. Every build is impacted by either minor imperfections or major failings. Interestingly though, it seems NSW apartment blocks have a higher proportion of defects according to a survey by UNSW.

In a bid to protect high-rise home owners and to ensure defective building works are rectified, the NSW Government has introduced the Strata Building Bond and Inspections Scheme (SBBIS). The scheme forces developers of four or more storey strata buildings to pay 2 per cent of the contract cost in the form of a bond that is held in trust for two years. The bond would be used to remedy defects identified by an independent assessor at an interim inspection (at between 15 and 18 months) and a final inspection (carried out between 21 and 24 months after completion). In the event no defects are reported, the bond is returned.

The scheme aims to put an end to builders and developers failing to rectify defective work and then closing up shop, leaving devastated home owners significantly out of pocket.


Is this the silver bullet the strata industry needs?

The scheme has its supporters and detractors. Some rightly claim the bond scheme will provide peace of mind and that any defective building work will be identified earlier in the process.

Others are concerned 2 per cent would not be enough to cover the cost of fixing defects and that developers will pass the value of the bond on to consumers in the form of higher apartment prices.

At SJN Building Consultants, we believe the scheme has great merit and that’s not just because our principal consultant, Steven Nakhla, has been selected on the strata inspector panel. We expect the scheme will curb illegal phoenixing – when company directors wind up their companies to avoid paying their dues only to set up a new company without the old debt. And with a greater burden on the developer, the scheme also motivates them to engage reputable builders.


Has the bond scheme worked?

 

The scheme came into effect in January 2018 and, since bonds are not released until final inspections are carried out up to two years after construction is completed, it’s too early to make a call on the scheme’s competencies.

The whole process is expected to take up to three years from the date an occupation certificate is issued so time will tell.

For now, the scheme should be lauded for increasing protection for strata owners and hopefully improving the quality of high-rise buildings.