Major reforms to Victoria's domestic building regulatory and dispute resolution framework introduced

The Building Legislation Amendment (Buyer Protections) Act 2025 (Act) received assent on 3 June 2025 and introduces major reforms to Victoria’s domestic building regulatory and dispute resolution framework. These changes will take effect from 1 July 2026 or an earlier proclaimed date (Effective Date).

A key feature of the Act is the introduction of a statutory developer bond scheme, marking a significant shift in managing development risk in Victoria.  The scheme is designed to improve consumer protection by mandating a process of rectification of building defects, with obligations secured by a bond paid by a developer. This article, the first of a three part series, summarises key points of the bond scheme as it applies to developers and outlines its key implications for developers operating within Victoria.

What is the purpose of this scheme?

The scheme functions as a financial safety net for defective building work after completion of a project. It serves as a temporary contribution made by a developer, essentially standing behind its project for the required period of time. During this time, eligible third parties may apply to access the bond if needed.

Who is impacted by this scheme?

Developers of residential apartment buildings that are above three storeys (a Required Developer) must lodge a financial bond with the Building and Plumbing Commission (BPC), the consolidated regulatory body in Victoria.

What is the amount of the bond required under the scheme?

A Required Developer must provide a bond equal to 2% of the total build price, at the Effective Date. This amount may increase over time by regulation; for example in NSW where a similar scheme is in place, there is a proposal increase the threshold from 2% to 3%. The total build price refers to the estimated cost associated with the construction of the building and is intended to capture the complete cost of construction including finishes, services, and external works.

What can be provided as a bond?

The accepted forms of bonds include a bank guarantee, a bond issued by an approved insurer, or other forms prescribed by regulations.

When must a Required Developer lodge a bond?

The bond must be lodged with the BPC prior to applying for an occupancy permit.

What is the impact of non-compliance?

Failure to lodge the bond will result in the following consequences on the Required Developer:

• Prohibition on the Required Developer from applying for an occupancy permit.
• Significant penalties – of up to 500 penalty units for individuals and up to 2,500 penalty units for corporations (or just over $500,000 in fines at current rates) – if a Required Developer applies for an occupancy permit regardless.

Can a bond be provided in stages?

The legislation does not specify whether a Required Developer can provide bonds based on the total build cost of a particular stage of a project, prior to applying for an occupancy permit for that specific stage, rather than a single bond for the entire project. Therefore, a Required Developer pursuing a staged project should determine whether each stage may attract a separate bond obligation.

How long must the bond be held for?

Generally, the bond will be held until defects inspection and rectification processes required under the Act, are completed. The Act introduces an inspection regime that accompanies the bond scheme.

Once an occupancy permit is issued for a project, a building assessor must be appointed by the Required Developer to inspect the works after completion and produce two reports:

1. Initial report – undertaken between 15 to 18 months after the issuance of an occupancy permit. At this stage, the developer is given an opportunity to rectify any defects found in the initial inspection.
2. Final report, if required – undertaken between 21 to 24 months after the issuance of an occupancy permit and details the results of the rectification works.

If a developer fails to comply with these requirements, the BPC may appoint an assessor.

The bond will be released if there are no defects noted in the initial report, once the defect works have been finalised, on application by the Required Developer with the owners’ corporations consent, or as future regulations provide.

Who can access the bond and what can it be used for?

If defects are identified and not rectified, eligible parties may make a claim from the bond. These parties include owners’ corporations, building assessors, or persons performing the statutory functions for the BPC under the Act.

The BPC is empowered to assess and determine these claims, and if there is a disagreement, they may appoint an independent expert to make a determination.

Generally claims will relate to building defects. Once a claim is approved, the owners’ corporation will have access to the bond and must use it for the purposes approved by the BPC. However, with the Required Developer’s consent, the funds may be applied for other uses. Any unused portion of the bond must be returned to the Required Developer once all works are completed and paid.

What remedies do purchasers under off-the-plan contracts have if a Required Developer does not comply?

The Act introduces amendments to the Sale of Land Act 1962 (Vic) as follows:

• A Required Developer must not require or permit purchasers to take possession of a lot until an occupancy permit has been obtained.
• If an occupancy permit is issued but the Required Developer has not lodged the bond, purchasers are granted a statutory right to rescind their contracts and obtain a refund on all monies paid, together with penalty interest as determined under the Penalty Interest Rates Act 1983 (Vic).

What is the impact on Required Developers?

The Act reshapes how settlement and defects risk is managed and allocated in apartment developments. Rather than resolving disputes post-handover through private enforcement or insurance claims, the Act introduces a front-end compliance mechanism that mandates a Required Developer to rectify any issues identified, with funds held as a security for non-compliance.

We have identified the following potential impacts on Required Developers including:

1. Development financing and capital requirements – Required Developers must set aside additional funds or pay for an insurance product to meet its obligations under the bond scheme. This will have an impact on a Required Developer’s development finance and cash flow.
2. Availability of insurance products – where a Required Developer opts to obtain a bond issued by an insurer, they may find limited providers in the market. Experiences from NSW indicate that only a few insurers offer similar products.
3. Additional compliance – Required Developers are now subject to significant conditions precedent prior to making an application for an occupancy permit.  They must also comply with a mandatory defects liability regime after the issue of an occupancy permit.
4. Limited ability to mitigate defects risk – Required Developers now has limited opportunities to achieve a negotiated outcome or limit its liability between itself, its builder and the owners corporation as it must comply with a mandatory defects liability regime.
5. Risk flow down – Required Developers should review their existing building contracts and contracts with consultants to ensure proper risk allocation.
6. Penalties for non-compliance – Required Developers face substantial penalties for failing to comply with the Act.
7. Rescission risk – a Required Developer may face delayed settlements and/or mass contract rescissions if it fails to comply with the Act, including the obligation to refund purchasers’ deposits with interest calculated under the statutory penalty rate.

Next steps for Required Developers

Required Developers involved in active projects should familiarise themselves with these legislative updates and procure the necessary funds required to meet its bond scheme obligations. They should also review their builders’ contracts and consultant agreements incorporate additional responsibilities regarding defect inspection and rectification.

Where Required Developers are considering entering into a project, it is critical to consider the implications of the Act for project structuring, strategy, and documentation.

Please do not hesitate to contact a member of our team to discuss any of the issues raised in this article.  Our second article in the series will explore the impacts on builders and contractors and our third will explore the impacts on the insurance industry.