The Building Legislation Amendment (Buyer Protections) Act 2025 (Vic) - A construction perspective for developers and builders

We would like to acknowledge the contribution of Ross Iannello, Associate.

On and from 1 July 2026, Building Legislation Amendment (Buyer Protections) Act 2025 (Act), unless proclaimed on an earlier date, will introduce significant reforms to the Victorian construction industry, specifically for work carried out on multi-storey developments.

This article is the second of a three part series, examining the reforms from a construction perspective and providing an insight into the impact on Victorian developers, builders and subcontractors in their contracts. We will also explore strategies and some approaches that developers may adopt to ensure compliance and alignment with the new bond scheme and extended defects liability requirements.

As set out in our first part of the series, which you can access here, the Act introduces a bond scheme (similar to the scheme in New South Wales) designed to improve consumer protection by mandating a process of inspection and rectification of building defects. The protections are also achieved by securing obligations by way of a bond paid by a developer.

By illustration, in New South Wales, the Strata Building Bond and Inspection Scheme requires that the developer in a strata scheme must provide a building bond in the amount of 2%[1] of the contract price for the building work for the payment (up to the amount secured by the bond) of the costs of rectifying defective building work.[2] The Victorian construction industry reforms align themselves with the New South Wales model.

Transition period

The Act is silent on a transition period, nor does it expressly clarify whether the provisions of the Act will apply to existing projects or contracts entered into prior to the Act’s commencement. This contrasts the approaches adopted by other jurisdictions which provided exemptions to projects where contracts were entered into prior to similar legislation coming into force.

As a result, projects currently underway or those scheduled to commence shortly will likely be subject to the bond requirements when applying to obtain an occupancy permit after 1 July 2026. Developers will be watching closely to see whether this is addressed in the Act’s forthcoming and associated regulations.

In the absence of this clarification, the financial burden is to be borne by the developers themselves, who are unlikely to have incorporated this cost into their current projects, ultimately impacting the project’s margins. The commencement date of the Act therefore will likely act as a catalyst or at the very least a strong incentive for developers and head contractors to expedite a projects’ completion to secure the occupancy permit prior to 1 July 2026 (or earlier date if the Act is proclaimed prior to that date).

Contractual considerations

As the developer bond scheme forms part of a broader suite of reforms introduced under the Act, Developers should undertake a robust review of their existing suite of contracts in consideration of the scheme. This might include incorporating additional definitions and expressly drafting provisions addressing obligations prescribed under the Act.

One effective contractual consideration may be to extend the defects liability period from practical completion to the occupancy date to better align with the statutory assessment periods to reduce any residual risks. Developers may also wish to strengthen their contractual provisions requiring a head contractor/builder to cooperate with building assessors during inspections and to rectify all reportable defects identified in initial and final (if required) inspection reports.

In an attempt to offset the financial obligations and burdens of developers, developers could enhance their security arrangements to safeguard against the costs of rectifying defects, especially in instances of builder or contractor insolvency. For example, an increased initial security amount for contracts could be required, with a portion of the security returned to the builder on practical completion and further portions or the balance to be retained by the developer until such time as the developer bond is returned.

For head contractors, the tightening of developer contracts is likely to cascade down the construction chain. In practice, this may require stricter obligations on subcontractors to return to site in the event of incomplete, non-compliant or defective building work and extensions to the defects liability periods under subcontracts to align with the return of the developer bond.

Future implications for developers, builders and subcontractors

The Act strengthens the powers of the Building and Plumbing Commission (BPC) for issuing rectification orders. These orders may be directed to builders (or those who carried out the work) as well as developers of residential multi-storey apartment buildings compelling the rectification of incomplete, non-compliant or defective building work during the construction phase and up to 10 years after the date of issue of the occupancy permit. Some other examples of these strengthens powers and roles in the building industry include:

• to provide that insurance required by or under that Act in relation to domestic building work must be obtained solely from the BPC
• to prohibit a developer from applying for an occupancy permit for a residential apartment building with a rise in storeys of more than 3 if the developer has not complied with the developer bond scheme or other requirements of that Act, and
• to provide for the transfer of certain property, rights and liabilities from the Victorian Managed Insurance Authority to the BPC.

The reforms introduced by the Act shift greater responsibility on developers to require them to ensure that construction projects and building work completed comply with applicable industry standards and codes.

As part of this shift, developers will be required to reassess their project evaluation criteria to account for feasibility and risk analysis. Inevitably, these additional costs are likely to be factored into their pricing models. In turn, such increases may flow down the construction chain and ultimately be borne by end customers.

Although it is still too early to draw definitive conclusions. It remains to be seen whether Victorian developers will adopt the same approach as their New South Wales counterparts by absorbing the costs of the bonds themselves rather than passing the costs of the bonds directly down the construction chain.

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

[1] Strata Schemes Management Regulation 2016 (NSW) r 54 (for a building bond given before 1 July 2026 - 2% and for a building bond given on or after 1 July 2026 - 3%).

[2] Strata Schemes Management Act 2015 (NSW) s 207.