Developers of new residential strata buildings that are four storeys and higher are required to pay a building bond to the NSW Fair Trading equal to two percent (2%) of the building contract price. This is a requirement under the Strata Schemes Management Act 2015 (NSW)(Act).
The developer (not the builder) is responsible for obtaining the building bond and lodging it with NSW Fair Trading: section 207 of the Act. There are financial penalties payable for a failing to comply with this provision.
The building bond usually takes the form of an unconditional bank guarantee issued by an Australian bank. The bank guarantee mut contain the project number. The project number is issued by the SBBIS (Strata Building Bond and Inspection Scheme) e-portal once the developer has registered for and logged in to the SBBIS e-portal to create a “new project number” for the strata development.
The building bond must be lodged before an occupation certificate can be issued by council or a private certifier under the Environmental Planning and Assessment Act 1979 (NSW) for any part of the building for which the building work was done.
Within 12 months of the occupation certificate issuing, a building inspector must be appointed by the developer (or the owners corporation if more than one third of the lots in the strata development have been sold). The building inspector must conduct a first inspection of the property and prepare an interim report on any defects. The report must be given to the NSW Fair Trading, the owners corporation, developer and builder.
If no defects are identified in the interim report, then the developer can apply to the NSW Fair Trading for approval that that report become the final report and apply after two years to have the bond returned.
If defects are identified, then the defective work must be corrected otherwise the bond can be used to pay for the rectification work. Any monies remaining will be returned to the developer.