Developers Beware – Building Defect Bond Scheme commence from 1 January 2018

Key Points
  • Developers entering into building contracts to construct a (wholly or partially) residential strata scheme of 4 or more storeys after 1 January 2018 will be required to lodge a building defect bond.
  • The bond must represent 2% of the final contracted construction cost of the building and be lodged with Fair Trading.
  • Confirmation of lodgement of the building defect bond will be a prerequisite for the issuance of an occupation certificate by the local council or private certifier.


The new Strata Scheme Management Act 2015 and Strata Scheme Development Act 2015 commenced on 30 November 2016.

Two of the key reforms which will have significant and lasting effect on developers are contained in the newly introduced Part 11 of the Strata Scheme Management Act 2015 which provides for mandatory defect inspection reports and a building defect bond for developers. These reforms will take effect from 1 January 2018.

  1. Mandatory Defect Inspection Reports

Developers will be required to engage an independent building inspector (agreed to by the owners corporation) at its cost to provide a defect inspection report between 15 and 18 months after completion of the building works (interim report) and if any defects are identified in the interim report, a final report must be prepared between 21 and 24 months after building work is completed to assess whether the defects identified in the interim report have been rectified.

The owners corporation must agree to the appointment of the building inspector and if there is no agreement, Fair Trading will arrange for an inspector to be appointed.

Developers will also need to prepare a maintenance schedule, to be tabled at the first annual general meeting to inform owners about their maintenance obligations.

  1. Building Defect Bond

Developers for high rise strata buildings (over 3 storeys) will be required to lodge a bond with the Commissioner for Fair Trading for 2% of the final contracted construction cost of the building. The bond will be held as security for the costs of rectifying any defective building work identified in the interim and final inspection report above.

If there are no defects to be rectified in the interim report, or if defects are rectified on or prior to the time of the final report, the bond will be returned to the developer.

If the defects identified in the interim report are not rectified by the time of the final report, Fair Trading will release the building bond to the owners corporation to carry out the repairs. The owners corporation must use any bond money received to fix the defects identified. After the defects are rectified, any remaining monies shall be returned to the developer.

Confirmation of bond lodgement with Fair Trading is a prerequisite for the issuance of an occupation certificate by the local council or private certifier. As such, developers who enters into a building contract with a builder to contract a strata scheme of 4 or more storeys after 1 January 2018 should ensure the correct and timely lodgement of the bond before completion of the project to avoid unnecessary delays.

Post by Cindy Chen

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