Assisted by Kristina Tato
In an effort to address defects in new high rise strata buildings, the ‘Strata Defects Regime’ commenced on 1 January 2018.  The regime now makes the following mandatory:

• An interim and final inspection, as well as an interim and final report is to be conducted by an independent building inspector appointed by the developer; and
• A 2% building bond is payable by the developer in relation to any potential defects.

Who does this apply to?

• Strata complexes which hold 4 or more buildings.
• This applies to residential building work only (or on mixed schemes that include residential use).

The regime is not applicable to building work where a building contract was entered into before 1 January 2018.

Building inspection reports

If applicable to the development, a building inspector must be appointed by the developer to carry out inspections and provide interim and final reports of the building work.  The inspection and interim report (a report to identify any defects in the building work) must be provided no earlier than 15 months, and no later than 18 months after building work is complete.  A final inspection and report must then be carried out no earlier than 21 months, and no later than 2 years after building work has been completed.

A final inspection and report will not be required where the interim report by a building inspector is arranged by Fair Trading and there are no building work defects reported.  The final inspection will also not be required where Fair Trading determines that it is not needed and there is no detection of defective work.  In these circumstances, the interim report would then be taken as the final report.

Building bonds

Where the regime applies, the developer must lodge with Fair Trading a bond the equivalent of 2% of the property’s purchase price.  This bond is a means of providing security for payments of costs linked to rectifying any defects and can be in the form of a bank guarantee, bond or through other means that provide the same level of security – subject to the strata legislation.  It must be valid for no less than 2 years but no more than 3.  Where the final report identifies any defects, or where the developer and owners corporation make an application to Fair Trading, the bond may be released to the owner’s corporation – and must be used to rectify these building work defects.

Implications

• There is now more responsibility on the developer to inform of any defects in properties, and to provide payment to rectify said defects if any are found. 
• There is a greater le vel of transparency for both developers and buyers with regard to defects in building work.
• Buyers will have greater security knowing that any defects in new high-rise strata buildings will have been rectified.

If you have any questions regarding the Strata Defects Regime and how this affects you – or would like to speak with a lawyer in Coleman Greig’s Commercial Property Law team, please don’t hesitate to contact us today.