The Building Legislation Amendment Act 2023 (NSW) (Act), passed by Parliament on 21 November 2023, introduced several amendments to pieces of legislation regulating the construction industry in New South Wales.
One significant amendment was the increase to the ‘building bond’ required under the Strata Schemes Management Act 2015 (NSW) (SSMA) from 2% to 3% of the contract price for building work. This increase was set to commence on 1 July 2024, however on 21 June 2024 the Building, Development and Strata Legislation Amendment Regulation 2024 (NSW) was passed which delayed the commencement to 2 November 2024.
Why the delay?
The increase of the building bond aligns with the NSW Government’s objective to promote the adoption of Decennial Liability Insurance (DLI) as a preferred alternative to building bonds. DLI is insurance that provides ten years of cover for serious building defects. It is taken out by the developer or builder of a class 2 building and allows building owners to make a claim at any point in the first 10 years post occupation – even if the developer or builder are no longer trading.
DLI was introduced in November 2022 as a voluntary alternative option to the building bond scheme under the SSMA. Relevantly, section 211AA of the SSMA provides that a developer obtaining DLI is exempt from the obligation to secure a building bond.
What does this mean for Developers?
Developers with residential developments nearing completion should consider whether they can procure a building bond prior to 2 November 2024 to ensure that they are not affected by the increase. A building bond can be lodged at any time prior to the application for an occupation certificate.
Developers may also wish to consider obtaining DLI over a building bond if this is a more feasible outcome. However, DLI is generally obtained at the time the construction certificate.