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When will you need to engage a quantity surveyor in your strata scheme?

Under the building bond and inspection scheme (the Scheme) developers need to lodge a building bond that is equal to 2% of the contract price for any residential development that is greater than 4 storeys high. The bond will need to be lodged with the Department of Finance, Services and Innovation (the Secretary).

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

Under the Scheme, there are circumstances where an independent quantity surveyor will need to be appointed. These include;

  1. where there is no written contract; or
  2. where parties to the contract are connected; or
  3. where the cost of defect rectification cannot be agreed between the parties.

Where there is no written contract

Under the Strata Scheme and Management Act 2015 NSW (the Act) the contract price for building works is determined by calculating the total price paid for the works under all applicable contracts) at the date just prior to the issue of the any occupation certificate.[1] If the building works only make up part of the works under the contract then the 2% building bond will only be calculated for the works that apply under the Scheme.[2]

The contract price is calculated by taking into consideration all work that is conducted in relation to the contract to determine the bond amount. This includes, but is not limited to:

  • construction and fit out costs (not including appliance and prime cost items)
  • demolition and site preparation
  • excavation
  • car parking
  • costs for the common property that is included in the property plan, including landscaping, pools, fencing and gates
  • professional fees
  • taxes applied in the calculation of the as-built construction.[3]

In the event there is no written contract, the cost of the building works will need to be assessed by an independent quantity surveyor.[4]  The quantity surveyor will also need to be a member of the Australian Institute of Quantity Surveyors or the Royal Institute of Chartered Surveyors.

The quantity surveyor will need to be engaged to prepare a cost report for the building works and assess the cost of the building works. The cost report must include the costs and have a certificate by the quantity surveyor that they have inspected the as-built drawings and specifications for the strata plan.

For more information on the contract price under the Scheme, view our article here.

Where parties to the contract are connected persons

The Act and the Strata Scheme Management Regulation 2016 (NSW) defines a ‘connected person.’[5]

The principal person is connected with another person if:

  • they are a relative or is a relative of a person who holds an executive position in a corporation if the principal person is a corporation;
  • they are employed or engaged by the principal person, or is a business partner of the principal person;
  • the principal person is a corporation and the person holds an executive position in the corporation;
  • they are the employer of the principal person;
  • they are employed or engaged by, or holds an executive position in a corporation that also employs or engages the principal person;
  • they are a related body corporate or associated entity;
  • they hold an executive position in a related body corporate or an associated entity; or
  • they hold or will hold financial interest in the principal person, or will be entitled to exercise power in the business of the principal person or have significant influence over the management or operation of the principal person.

A person who is a member of an owners corporation or a strata committee will not be connected to the principal person merely because of any dealing, contract or arrangement with the principal person in their capacity as a member of the strata committee or owners corporation.

If parties to a contract are connected, a quantity surveyor will need to be appointed and a cost report will need to be prepared for the building works and to assess the cost of the building works. [6]

Where the cost of rectification cannot be agreed between the parties

If defects are identified in the final inspection and report, the developer and the owners corporation will need to agree to an amount for the cost of rectifying the outstanding defects.

If the owners corporation and the developer cannot agree on an amount, the Secretary will nominate and appoint a suitable person to determine the reasonable costs of the works. A quantity surveyor may be appointed to assess the cost of rectification.

The costs for the appointment of the suitable person will be paid equally by the owners corporation and the developer.

Key takeaway – Developers should be aware that if they engage a related party or connected person to undertake the works, they will be required to engage and pay for a third party quantity surveyor to value the whole of the works.

If you have any questions regarding your obligations under the Act or whether you would need a quantity surveyor to assist, please do not hesitate to contact Morrissey Law + Advisory.

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.

 

[1] Strata Schemes Management Regulation NSW 2016 s 50(1).

[2] Strata Schemes Management Act NSW 2015 s207 (4).

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

[4] Strata Schemes Management Regulation NSW 2016 s50(2).

[5] Strata Schemes Management Act NSW 2015 s7; Strata Schemes Management Regulation NSW 2016 s62.

[6] Strata Schemes Management Regulation NSW 2016 s50(2).

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.