In 2015 the NSW Government announced sweeping changes to strata laws in NSW, including the enactment of the Strata Schemes Management Act 2015 (NSW) (Act) and the Strata Schemes Development Act 2015 (NSW) and regulations.

Relevantly for construction law, these changes mean that the defects liability period (DLP) in construction contracts should, when acting for Principals, be extended from 12 to 24 months.

The Strata Schemes Management Act 2015 (NSW) was assented to on 5 November 2015, but is not yet in force. The Strata Schemes Management Regulation 2016 (NSW) is in draft format and was out for public consultation until 27 May 2016.  The date of commencement for both the Act and the Regulation has been announced by the Department of Fair Trading (who administer the Act) as 30 November 2016, and the defect bond scheme will commence from 1 July 2017.

The new Act requires developers to provide security in the form of a building bond (Bond) and to appoint an independent building inspector (Inspector) from 1 July 2017.  The current Strata Schemes Management Act 1996 (NSW) remains in force and while it allows the owners corporation to recover the cost of structural and other defects, it does not specifically provide security for the rectification of defective building works (Defects).

Key changes

The Act introduces a compulsory security requirement in the form of a Bond which is to be 2% of the contract price.  The Bond must be provided to the Secretary of the Department of Finance, Services and Innovation (Secretary) before an occupation certificate can be issued. It can be a bank guarantee, a bond, or another form of security prescribed in the Regulations (which may include an insurance bond).

An Inspector must be appointed by the developer within 12 months of the completion of building work, with the approval of the owners corporation through a resolution at a general meeting.

The Inspector must provide reports on any defects, with recommendations on rectification and an assessment of the likely costs as follows: 

• an interim report within 15 - 8 months; and
• a final report within 18 -24 months,
  from the completion of building work.

The Act prohibits the Inspector from being associated with the developer and gives the Secretary the power to appoint an Inspector should the developer fail to do so. The current draft of the Regulation states that the Inspector must be taken from the members of a strata inspector panel established from a provided list of approved organisations.

The purpose of the Bond is to secure funding for the payment of the costs of rectifying Defects which are identified in the final report from the Inspector.

The Regulation is due to start on 30 November 2016 at the same time as the Act, however the Regulation has yet to be finalised, so more changes may be coming.