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The increase of the building bond percentage rate to 3% will apply to all new applications from 2 November 2024.
On 21 November 2023 Parliament passed the Building Legislation Amendment Act 2023 (NSW). This Act brought about amendments to various NSW legislation, including the Strata Schemes Management Act 2015 (SSMA) and Strata Schemes Management Regulation 2016.
The SSMA was amended so that the strata building bond was increased from 2% to 3% of the total cost of the building contract. This increase has been deferred to 2 November 2024 and will apply to new applications made from that date.
But what is a building bond and why is it required?
Developers of new strata buildings that are exempt from obtaining home building compensation insurance under Home Building Act 1989 (NSW), are required to provide a building bond.
A building bond is a type of security the SSMA requires developers of a strata scheme to pay to Fair Trading before the developer can make an application for an occupation certificate under the Environmental Planning and Assessment Act 1979 for building work described in the SSMA: s.207(1) of the SSMA.
As provided for in section 207(3) of the SSMA, the purpose behind a building bond is to secure funds to pay (up to the amount secured) building defects identified after construction in the final inspection report of the works required under the SSMA.
Once the cost of any defective work is paid to the owners corporation, any amount remaining is returned to the developer. If no defective work is identified, then the entire amount of the building bond is returned to the developer.
If you would like advice on how these changes affect your situation or advice on building bonds in general, contact our NSW office.
Author: Sinem Mutlu , Associate in our NSW Office
© Bugden Allen Group Legal Pty Ltd. All information contained in this article is of a general nature only and you should obtain specific legal advice in relation to any property-related affairs on any of the topics mentioned.
