Opal Tower sparks inquiry: Is NSW’s 2% building defects bond scheme enough?

The recent Opal Tower debacle in Sydney has put Australian strata buildings under the microscope for lax building safety and raises compliance issues. Are state laws doing enough to deal with emergencies from building defects?

The recent Opal Tower incident in Sydney has put Australian strata buildings under the microscope for lax building safety and compliance issues. According to the ‘Building confidence’ report by Professors Peter Shergold AC and Bronwyn Weir, many high rises are built in haste for commercial purposes and compliance may often be sidelined in the interest of profit.

The New South Wales government is looking into the report and ongoing investigations to tighten compliance within the building and construction industry.In this article, we look into some of the legislative measures in place to deal with emergencies from building defects, and discuss their effectiveness:

1. What is it the 2% building defects bond and inspection scheme?
2. Who takes care of what in the building defects bond scheme?
3. Is the building defects bond and inspection scheme enough?

2% building defects bond and inspection scheme – what is it?

According to the New South Wales strata building bond and inspection scheme formalised on 1 January 2018, developers must set aside 2% of the contract price as bond before an occupation certificate is issued for the building work. This applies to all multi-storied buildings that are purely residential or mixed-use residential buildings under strata management.

The owners corporations in strata managed properties can use the building bonds to cover costs for rectifying defects identified in the interim and final reports provided by the developer.

If the building has no defects, the bond can be returned to the developer once the building work has been completed.

Who takes care of what in the building defects bond scheme?

It is the property developer who is responsible for setting aside the bond amount with Fair Trading.

In addition to allocating the money for bond, the developer must also appoint an independent inspector from the strata inspector panel to oversee the inspection and submit reports afterwards.

The inspector must have no conflict of interest with the project and must provide an interim defects report to the owners corporation within a year and a final defects report within 2 years of completing building work.

It is the developer who bears the costs of these reports and ensures their timeliness.

If the reports from these inspections reveal any defects, the owners corporation can cover the costs of correcting these defects from the bond amount. If no defects are found within these reports, the bond amount may be returned to the developer

Is the building defects bond and inspection scheme enough?

It is definitely a start, and a well-intended one from the government. However, the million-dollar question of the hour is whether the 2% defects bond is enough to combat the effects of structural defects and security lapses in buildings or to cover the actual costs from damage to property and life.

• Firstly, this bond may not be enough to cover costs of correcting core defects of a building that are not evident in the interim and final reports. These reports are submitted by the inspector within 2 years of building completion and certain defects may get magnified over time through wear and tear.

• Secondly, with residential and mixed-use high-rise buildings, the scale of damage to life and property is compounded. Sometimes one kind of damage to the building’s exterior may affect the inside of the building or private property of owners, compounding expenses from repairs.

• Thirdly, inconvenience and stress to general life, caused as a result of building defect related emergencies can be another factor worth noting. Residents are evacuated en masse, and without enough notice to take stock of the situation or plan their way around it.

• Fourthly, the bond scheme is associated with the regulations that covers the appointment of inspectors by developers. This is problematic – often the inspectors are not independent professionals who can provide unbiased reports. This highlights a conflict of interest on the part of individuals involved in the building project.

• Finally, the building defects bond scheme does not cover defects in commercial buildings, which appears to be a limitation of the scheme.

While NSW is the only state so far to have a preemptive legal measure such as the 2% bond, there is much scope for fine-tuning the system to ensure compliance and fair practice for all parties concerned.If you’d like to find out more on building compliance for your strata property, download your free Community Living guide. Or for a consultation to review your common property insurance by our CommunitySure insurance team, click here.