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NSW strata reforms expected to commence 30 November 2016, Building Defects Bonds Scheme on 1 July 2017

Newsflash 27 July 2016

The Strata Schemes Management Act 2015 (Management Act) and Strata Schemes Development Act 2015 (Development Act) mark the most significant and comprehensive strata reforms since 1973. Two of the most significant changes, amongst many, relate to strata title ownership and living and management under both Acts. Specifically these are changes to the renewal process of strata schemes and the establishment of a Building Defects Bond Scheme. According to the NSW Department of Finance, Services & Innovation (the Department), the majority of these reforms will come into effect on 30 November 2016 with the exception of the proposed Building Defects Bond Scheme which will likely commence on 1 July 2017.

Collective Sale and Renewal

In order to renew or terminate a strata scheme at present, unanimous agreement of lot owners is required. However, the new renewal process under s 154 of the Development Act will only need 75% of support from lot owners. The reform aims to balance both the proprietary interest of individual lot owners whilst simultaneously acknowledging the collective will of a significant majority of lot owners and providing owners corporations with efficient collective decision making capabilities.

Therefore, lot owners should be wary that they will not be able to single-handedly oppose proposals to terminate a strata scheme. However, lot owners will be given a greater opportunity to voice their concerns given that changes under both Acts encourage lot owners to participate in decision making processes. Both Acts also seek to increase the transparency of strata committees and strata management agents.

Building Defects Bond Scheme

In lieu of strata schemes commonly facing issues about the quality, cost and timeliness of building repairs, Part 11 of the Management Act establishes a Building Defects Bond Scheme. The scheme will require developers to pay a bond of 2% of the total cost of the building work to the Secretary of the Department in order to cover any unresolved defects that have been identified by an independent and qualified building inspector.

Section 199 of the Management Act requires the inspector to provide an interim defect report between 15 and 18 months after the completion of the building. Further to this, s 197 of the Act maintains strict conflict of interest provisions disqualifying any individual with a personal or financial interest in the building work from being selected as the inspector. The Commissioner of Fair Trading may also appoint an inspector should the owners corporation and developer be unable to agree on a suitable appointment. However, under s 204 the developer will in all circumstances bear the costs of appointing an inspector.

In the event that no defects are identified in the final report of the building inspector, the developer is entitled to the return of the full bond payment. If defects are identified, whatever portion of the bond is necessary to cover repairs will be given to the owner’s corporation. Any remaining funds that are not used in repairing defects in the inspector’s report can also be claimed by the developer.

It should be noted that according to the latest updates from the Department, the Building Defects Bond Scheme will commence on July 1 2017.


Gary Newton, Partner
Sydney

Martyn Tier, Partner
Sydney

Christopher Conolly, Partner
Sydney

Penny Evans, Partner
Sydney

Khushaal Vyas, Law Clerk
Sydney
 

Newsflash 27 July 2016
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