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Developers defect bonds for strata buildings?

NSW Government to increase penalties for developers failing to comply with the developer defect bond obligations

Developer defect bonds have only been required for 7 months, however, already changes to the law and strengthening their penalties is being discussed.

The NSW Government introduced the Strata Schemes Management Amendment (Building Defect Schemes) Bill 2018 (NSW) on 15 August 2018. The bill is currently before the parliament for debate.

If the bill is passed, it would see an increase in the penalties for non-compliance with the developer defect bonds scheme and increase the powers of the Secretary of Department of Finance, Services and Innovation (the Secretary).

For more information on the defect bond scheme, view our article here.

Presently, the developer defect bond needs to be lodged with the Secretary before the Occupational Certificate (OC) is issued, however, it is proposed to change the timing to have the developer defect bond lodged before an application for the OC is made.

If the Bill is passed, it would see that penalties for non-compliance with Part 11 of the Act would significantly increase. The proposed amendments would see developers facing a maximum penalty of $1.1 million for failing to lodge the developer defect bond with the Secretary prior to lodging the occupation certificate application plus an on-going penalty of $22,000.00 per each day that the offence continues.

Who should be alert to these changes?

Both developers and builders should be aware of the proposed changes to the Act. If the amendments are passed, developers will need to be aware of the increase risks posed if the security is not lodged prior to the application for an occupation certificate for the Property.

This raises considerable additional obligations for any developer of a property that may have staged occupation certificates, as the developer will be required to lodge the bond upon the application for the OC for any part of the building, notwithstanding that that part or lot is not the residential part or lot of the building.

The onus is on the developer to lodge the security and in the event that the security is not lodged prior to the lodgement of the OC application, the developer will breach the Act and be liable for fines up to $1.1 million that continue to accrue at $22,000.00 per day.

To combat this, the developer must, for all contracts for which the Act applies, create an obligation on the builder to notify them of any impending OC application and only submit an OC upon approval of the developer.

If you have any questions regarding your obligations under the Act, or how to ensure you comply with your requirements, please do not hesitate to contact Morrissey Law + Advisory.

This article was prepared by Hamish Geddes and Mary Ann Wen.

Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.

 

 

 

Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.