Defects in Strata Building

There have been many reports of defects in new apartments in the Sydney region. To address these issues, the Strata Schemes Management Act 2015 Part 11 provides new obligations that property developers must follow. Under the new law, property developers are required to pay NSW Fair Trading a deposit, equal to 2% of the value of the contract exchanged with the Construction Company. Until the deposit is paid, the developer will not be able to obtain the Occupation Certificate for the apartment which is required during settlement with the purchaser.

Additionally, 15-18 months after completing the construction of the building, there is a mandatory obligation to inspect the building by an independent building inspector who has no affiliation with the developer. Should a defect be found, the Construction Company that built the building must repair any damages and the cost of such repair is covered by the bond.

The new scheme will only apply in the following circumstances:

1. Apartments with four floors or more;
2. Residential or mixed residential/commercial buildings; and
3. Construction contracts signed on or after 1 January 2018.

(Apartments with fewer than four floors are covered by the Home Building Composition Fund.)

The obligations imposed on property developers under this new scheme aims to detect and repair any defects early on, and to avoid situations whereby buyers and owners are forced to repair long-term defects which may be costly.