Going Up: Buying High Rise Strata Just Got Better, or Did It?

The Opal Tower failure in Homebush Bay has heightened fears about high rise residential building defects. 

Only last year the combustible cladding drama resulted in new laws and from 22 February 2019 all residential apartment owners must have checked for external combustible cladding and if affected, registered with the NSW Government

Now, post-Opal, the big question is: if my strata building fails, who pays?

This is an excellent question, because in NSW, building work on new multi-story buildings of four stories or more does not require home building compensation insurance. 

The government has reached a compromise with developers and consumers by introducing the strata bond scheme.

Asked about the new scheme, Peter McNamara of Clark McNamara Lawyers said: 

“The long and short of it is that if you are buying a new strata lot, you won’t have a building compensation scheme, as you would in a low rise building.  However, you will have access to the strata bond, through your owners corporation, and may be able to have the developer pursued for misleading conduct or failure to lodge sufficient bond.”

From January 2018 developers have been required to put 2% of the contract price into a strata bond to get an occupation certificate.  The owners corporation can access a strata bond to make good defects as follows:

The key aspects of the bond scheme are:

  • Developers lodge a building bond before applying for the occupation certificate;
  • The developer appoints an inspector, who provides:
    • an interim defects report within 1 year and
    • a final defects report within 2 years. 
  • The owners corporation and the developer agree on amounts to be released from the bond to meet the costs of fixing identified defects, and if they cannot, the Building Bond Secretary decides;
  • Fair Trading can verify the contract price and bond amount, and can enter premises and execute search warrants to check the bond amount and the inspector;
  • Developers that provide false and misleading information to the Secretary about the contract price or the building bond can be liable for offences. 
  • The maximum penalty for not lodging a bond increases from $22,000 to $1.1 million;

The problem is that the fund might not be enough, and you have to go through your owners corporation to access it, which means you are negotiating with everyone else in your strata and those on your strata committee.

If you are really keen to know more, there is a good summary here:

https://www.fairtrading.nsw.gov.au/housing-and-property/strata-building-bond-and-inspections-scheme

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Source: Written by Peter McNamara, Partner at Clark McNamara Lawyers, Sydney, February 2019

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