Strata Building Bond Increase Delayed in NSW

Overview of the BLA Act

On 21 November 2023, Parliament passed the Building Legislation Amendment Act 2023 (BLA Act), which introduces various amendments to construction industry legislation. Key changes include updates to the Strata Schemes Management Act 2015 (NSW) (SSMA), which impact requirements for strata schemes in NSW.

Increase in Strata Building Bond

One significant change in the SSMA is the increase of the strata building bond from 2% of the contract price for the building work to 3%. A building bond acts as a security lodged by developers of residential strata buildings to address potential defects.

Requirements for Lodging the Strata Building Bond

Developers are required to lodge the strata building bond through the NSW Planning Portal before applying for an Occupation Certificate (OC). This bond is typically held for approximately 24 to 26 months post-completion of the works. If defects are identified and remain unaddressed, funds from the bond can be used for necessary repairs, with any remaining balance returned to the developer.

Delay in Bond Increase Implementation

Although developers anticipated the bond increase to take effect on 2 November 2024, implementation has been postponed to 1 July 2025. This delay is due to the limited availability of decennial liability insurance (DLI) products. The NSW Government’s preferred protection for new strata schemes, the DLI is currently offered by only a restricted number of insurers.

Impact on Developers

Developers, particularly those with projects nearing completion, should consider the impact of the bond percentage increase on 1 July 2025. They will need to weigh the feasibility of securing DLI coverage against paying the higher bond amount. It is important to note that the bond must be lodged prior to the OC application while DLI is generally obtained around the time the construction certificate is issued.

For specific details on how these increases might affect your development, please contact one of our people.

Ron Zucker 0410 590 111

Eollyn Cortes 0478 727 395

Sagang Chung 0431 435 333

Julia Zou 0426 670 202