The Strata Building Bond & Inspections Scheme

Effective from 1 January 2018, the strata building bond & inspections scheme (SBBIS) was introduced to secure funds that can be used to rectify defects on new apartment buildings four storeys or higher.

Developers must now pay a bond equal to two per cent of the total price paid or payable of all contracts for the building to NSW Fair Trading. The bond can be used to fix any defects that are identified during inspections. If there aren’t any defects found, then the bond is returned to the developer.

NSW Fair Trading have set out eight stages for the SBBIS.

For Stage 1, the developer must lodge the building bond with the NSW Fair Trading Secretary and must obtain the reference number issued by the NSW Planning portal. The Secretary is required to approve the building bond. Within 12 months of the occupation certificate being issued, the developer must appoint a building inspector – this is Stage 2. The selected building inspector must be approved by the owners corporation.

Stage 3 focuses on the interim report. Between 15 and 18 months after the occupation certificate is issued, the building inspector carries out their first inspection and identifies defective building work in their interim report.

The developer is then required as Stage 4 to correct the defective work identified in the interim report. For Stage 5 within 21 to 24 months after the occupation certificate is issued, the building inspector completes the final inspection to ensure that all defective work identified in the interim report has been rectified.

The final report is compiled by the building inspector and must:

• “Record any defective building work identified in the interim report that has not been rectified”
• “Identify any defective building work arising from the rectification work identified in the interim report”
• “Specify how any outstanding defective building work should be rectified.”

If the final report doesn’t contain any defective work, then Fair Trading will return the building bond.

If defective work is identified, then Stage 6 kicks in to determine the cost for rectification. The developer and owners corporation are required to reach an agreement regarding the cost and issue a “deed of agreement”. If an agreement can’t be reached then Fair Trading will intervene.

Stage 7 resolves around paying the building bond.

According to the Fair Trading website, the payment of the building bond can happen in these circumstances:

“With consent of the developer and owners corporation at any time 2 years after the date of building completion, if there is no final report.

• If no defects were found in the interim report and the developer successfully applied to waive the requirement of a final report, the interim report becomes the final report and the building bond will be returned within 90 days of the final report. The building bond will be returned to the approved issuer.
• If no defects are found in the final report, the building bond will be released within 90 days after the final report is provided to the Secretary (i.e. Fair Trading) by the building inspector. The building bond will be returned to the approved issuer.
• Defective building work is identified in the final report (as per stage 5) and will be paid for from the building bond. This happens between 2 to 3 years after the date of occupation certificate being issued. If the cost to rectify the defective building work is more than the building bond, the whole amount is paid to the owners corporation.”

Completing the process is covered by Stage 8. Essentially the owners corporation is required to use the money in the building bond to rectify the defective building work identified in the final report, notify the developer that all work has been completed and return any remaining building bond.

If you have any questions about the building bond process, please contact your Strata Manager at Netstrata.