Delay to increase to building bond: slight reprieve for developers and builders
15 August 2024
The NSW Government introduced and passed a variety of changes affecting developers under the Building Legislation Amendment Act 2023. Part of those changes implemented an increase to the strata scheme building bond required to be paid by developers upon completion of new strata buildings under the Strata Schemes Management Act 2015 from the current 2% of the contract building price up to 3%.
Whilst the initial intent was to implement the increase from 1 July 2024, the NSW Government passed the Building, Development and Strata Legislation Amendment Regulation 2024, which delayed the commencement to a new start date of 2 November 2024.
Given such costs are normally pushed onto builders as part of a retention regime under building contracts, this is a particularly welcome reprieve for builders also who have been struggling with cashflow difficulties, lack of tradesman availability and increased materials costs since the COVID-19 pandemic. The significant number of builders going into liquidation as a result of cashflow problems has not gone unnoticed and there remains concern about the impact of this increased levy on the market as a whole.
The key driver behind the increase is the push by Government and the Building Commissioner towards promoting Decennial Liability Insurance as the available alternative, also referred to as Latent Defects Insurance (LDI).
At present, only a small number of insurers offer this type of LDI scheme in Australia; however, it is a growing market with many new operators looking at different policy regimes to entice developers. Whilst the Government and the Building Commissioner have expressed their preference for LDI schemes to be taken out by developers, there has been push back from developers for a variety of reasons, particularly in the space of larger developers with long standing branding expertise in the residential development space due to the significant costs of the policies, which only add to higher prices for off the plan buyers.
