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Residential Focus: New rules for building bonds

07 February 2024

#Property, Planning & Development

Published by:

Brandon Thai, Caitlyn Trussell

Residential Focus: New rules for building bonds

On 19 January 2024, the Strata Schemes Management Amendment Regulation 2024 (Regulation) commenced. The Regulation made three changes to the Strata Building Bond & Inspections Scheme, more colloquially known as the building bond scheme. We set out a brief outline of these changes below.

Build-to-rent housing

The Regulation inserts a new Clause 44A to the Strata Schemes Management Regulation 2016 (NSW) (SSMR).

This clause exempts certain build-to-rent projects from the building bond scheme. To qualify, the project must be:

Notably, to qualify for this exemption from the building bond scheme, the project requires a significant portion of the labour force carrying out the works to be drawn from disadvantaged classes of workers. These classes of workers include apprentices, long-term unemployed workers, workers with barriers to employment such as disability and Aboriginal jobseekers (see section 9E(2)(c) of the LTMA).

Clause 44A aims to make low-income housing projects more attractive to developers, with an additional policy focus of supporting workforce entry and labour force depth in the construction industry.

Change in cutover date for the increase in the building bond

The Regulation also amends the cutover date for the building bond increase from 2 per cent to 3 per cent from 1 February 2024 to 1 July 2024.

The amended clause 54 of the SSMR now reads:

54   Amount of building bond

For the Act, section 207(2) and (4), the prescribed percentage is as follows –

(a)  for a building bond given before 1 July 2024 – 2%,

(b)  for a building bond given on or after 1 July 2024 – 3%.”

Cancellation of the building bond

Finally, the Regulation introduces clause 55AA to the SSMR, which covers situations where the Secretary may release the building bond back to a developer.

The three situations where this can occur is where the:

  • final inspection report does not identify any defective building work
  • report only identifies defects that fall outside of the qualifications under section 209 of the Strata Schemes Management Act 2016 (SSMA)
  • secretary is satisfied that it is appropriate to cancel the building bond.

It is somewhat unclear which defects would fall outside of section 209 of the SSMA, as defects that constitute a breach of statutory warranty under Part 2C of the Home Building Act 1989 are already captured.

Context

By deferring the percentage increase in the building bond, developers are given breathing room during tricky market conditions, whilst the drive towards decennial liability insurance is maintained. The exemption for build-to-rent is long term play to support broader policy goals to address the housing crisis and create employment opportunities for disadvantaged workers.

If you have any questions regarding this article, please get in touch with a member of our team below.

Authors: Christine Jones & Brandon Thai

In the media

Housing prices rose in January 2024 and are anticipated to keep going up if rates come down
House prices are on track to continue rising across the country, propelled by renters and migrants wanting to buy their own homes and buyers trying to get in ahead of interest rate cuts expected later this year. Data from CoreLogic shows that house prices rose nationally, up 0.4 per cent in the month of January (compared to 0.3 per cent in December), and 8.7 per cent across the year (1 February 2024).  Read more here.

Australian construction company St Hilliers goes into administration
Major construction company St Hilliers has been placed into voluntary administration, halting work on 21 multimillion-dollar development projects around Australia. WLP Restructuring was appointed as voluntary administrator of seven entities within the Sydney-based St Hilliers group of companies on Sunday (5 February 2024).  Read more here.

Councils turn to artificial intelligence to tackle 'frustrating' development approval wait times
Councils grappling with construction delays are hoping artificial intelligence will be a silver bullet in the fight against ballooning development backlogs. The NSW government has received "keen interest" in a new program that involves giving town planners access to advanced AI tools, with the NSW Department of Planning claiming its $5.6 million AI program has the potential to revolutionise the development process and dramatically reduce time frames (5 February 2024).  Read more here.

Homes NSW will rebuild the social and affordable housing system in NSW
Homes NSW has officially been launched, a key election commitment to tackle the state’s housing crisis by brining together housing and homelessness services of the NSW Department of Communities and Justice (DCJ) with NSW Land and Housing Corporation (LAHC), the NSW Aboriginal Housing Office (AHO). Homes NSW is tasked with turbocharging the construction, maintenance and repair of social and affordable homes across the state (2 February 2024).  Read more here.

Owners fear more damage to homes over bulldozing fix at 'sinking' Western Sydney suburb
Eighteen houses in the defect-plagued and often-dubbed "sinking suburb" in Western Sydney, will be bulldozed for not meeting the developer's "quality standards". Lendlease was first made aware that parts of the Jordan Springs East estate, near Penrith, were sinking in 2018, causing major cracks and defects in some of their constructions. Since starting a compensation scheme in 2020, the developer has bought back more than 50 homes (29 January 2024).  Read more here.

NSW Building Commissioner says Macquarie Park development is ‘not at risk of failure’ despite defects being found
The NSW Building commissioner says a Sydney apartment and retail development is "not at risk of failure" despite a building work rectification order (BWRO) issued to the developer this week saying it was "at threat of collapse". In its BWRO, Building Commission NSW said parts of the basement and ground floor at 23 Halifax were found to have “serious damage” due to “defective workmanship”. The BWRO published January 2024 called the developer to “remediate the serious and/or potential serious defects” identified (18 January 2024).  Read more here

NSW Premier says the State will not meet its housing target, but is doing its best to boost supply
The NSW Premier Chris Minns said the government would fall short of the goal set by the federal government in August 2023: an average of 75,000 new dwellings a year over the next five years. This is part of a broader plan to build 1.2 million homes across Australia during that period. However, the government says it is currently “working through a series of reforms” to boost supply (18 January 2024).  Read more here.

Owners Corporation Network proposes new e-bike, e-scooter rules to reduce fire risk in apartments
The Owners Corporation Network (OCN), an independent body representing apartment owners, has drafted a model by-law on the management of e-bikes and e-scooters after a series of fires sparked by lithium-ion batteries. If adopted by strata schemes, the by-law would also ban residents from storing cheaper imported models, modified, or damaged e-bikes on the property (10 January 2024).  Read more here.

Why did land values go backwards in NSW while property prices boomed?
A new report shows NSW land values fell in 2023 despite house prices rising throughout the year. The NSW valuer general, who sets land values for rating and taxing, found an overall decrease of 1.6 per cent in the year to July. The NSW valuer general, who sets land values for rating and taxing, found an overall decrease of 1.6 per cent in the year to July (10 January 2024).  Read more here.

Mascot Towers apartment owner-occupiers offered sale to third party consortium
A potential settlement for owner-occupiers at Mascot Towers in Sydney has been offered, more than four years after they were forced to evacuate the defect-ridden apartment building. Under the proposal, individual owner-occupiers would be able to sell their apartments to a third party consortium, as opposed to having to sell as a collective. However, 75 per cent of those who own apartments in the building must agree to the proposal for it to go ahead (6 January 2024).  Read more here.

Home buyers turn to fixer-uppers as property listings plummet
Real Estate Institute of Australia president Hayden Groves said more home owners were undertaking renovations in the wake of the COVID-19 pandemic. In 2021, Australians poured a record of more than $12.3 billion into home renovations, according to data from the Australian Bureau of Statistics. Between January and August this year, home owners have already spent $8 billion on renovations nationally (6 January 2024).  Read more here.

Australian property values rose 8.1 per cent in 2023. Here's what the market has been doing in your area
Australia's property prices rose 8.1 per cent nationally over 2023, an unlikely upswing in the face of rising rates. With only two states and territories recording an annual drop in house values — Hobart (0.8 per cent), and Darwin (0.1 per cent) — the largest uplifts were seen in Perth (15.2 per cent), Brisbane (13.1 per cent), and Sydney (11.1 per cent). Values across regional markets were up 4.4 per cent in 2023. Despite the mixed bag of results, national dwelling values remained 31.3 per cent above where they were before the COVID-19 pandemic (3 January 2024).  Read more here.

Publications

New Bradfield City Centre master plan revealed in major step for Western Sydney Aerotropolis
The NSW Government has released the Bradfield City Centre Master Plan (the Plan) which is considered “one of the biggest economic development projects undertaken in Australia” and is now open for community feedback. The Plan sets out a framework for future development within the new 114-hectare city, five times the size of Barangaroo, at the heart of the Western Sydney Aerotropolis. The draft Plan is on exhibition and open for feedback until Monday, 4 March 2024 (5 February 2024). Read more here. View the Plan here.

New Apartment Energy Efficiency Handbook released – National Construction Code
The new Apartment Energy Efficiency Handbook (the Handbook) provides guidance on the energy efficiency requirements for Class 2 apartment buildings. It also complements the Housing Energy Efficiency Handbook released earlier in 2023 (20 December 2023). Read the Handbook here.

Cases

Unique Building and Construction Services Pty Ltd v Gray [2024] NSWCATAP 16
APPEALS – Australian Consumer Law – no question of principle.
Civil and Administrative Tribunal Act 2013 (NSW), ss 27, 80, cl 12 of Sch 4; Retail Leases Act 1994 (NSW).

The Owners – Strata Plan No 53865 v JPG Investments Pty Ltd [2024] NSWCATAP 12
LAND LAW – Strata title – Consent of owners corporation to the lodging of a development application to works affecting common property – s 232(6) Strata Schemes Management Act 2015 – Mandatory considerations –Relevant considerations – Applicable principles.
Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Environmental Planning and Assessment Act 1979 (NSW); Strata Schemes Management Act 2015 (NSW).

Singh v Building Commission NSW [2024] NSWCATOD 7
REVIEW OF DECISION BY EXTERNAL DECISION-MAKER – decision to cancel registration as a certifiers pursuant to section 48 of the Building Professionals Certifiers Act 2018 (NSW).
PRACTICE AND PROCEDURE – INTERLOCUTORY ORDER – application for stay – factors relevant to exercise of the power to stay decision under section 60 of the Administrative Decisions Review Act 1997 (NSW).
Administrative Decisions Review Act 1997; Building and Development Certifiers Act 2018; Building Professionals Act 2005.

The Owners – Strata Plan NO. 64807 v Sunaust properties Pty Ltd [2024] NSWCATCD 2
PRACTICE AND PROCEDURE – Transfer of proceedings from Consumer and Commercial Division of NCAT to a court – Sch 4 cl 6 of the Civil and Administrative Tribunal Act 2013 – effect of Sch 4 cl 5 (jurisdiction to determine issues) on power of transfer – relevant considerations in determining whether to transfer proceedings.
Civil and Administrative Tribunal Act 2013 (NSW); Residential Tenancies Act 2010 (NSW); Strata Schemes Management Act 1996 (NSW) (repealed); Strata Schemes Management Act 2015 (NSW)

Mourad v Commissioner for Fair Trading [2024] NSWCATOD 5
ADMINISTRATIVE REVIEW – Registration under the Design and Building Practitioners Act 2020 (NSW) – Cancellation of deemed registration – whether the Applicant is a suitable person.
Administrative Decisions Review Act 1997 (NSW); Civil and Administrative Tribunal Act 2013 (NSW); Design and Building Practitioners Act 2020 (NSW); Design and Building Practitioners Regulation 2021 (NSW).

The Owners – Strata Plan NO 4393 v Roberts (No 2) [2024] NSWCATCD 1
LAND LAW – Strata title – civil penalty – contravention of Tribunal orders – s 247A Strata Schemes Management Act 2015 – multiple breaches of orders – amount of penalty – when maximum penalty might be imposed – whether penalty should be paid to applicant owners corporation.
Civil and Administrative Tribunal Act 2013 (NSW); Civil and Administrative Tribunal Rules 2014 (NSW); Strata Schemes Management Act 2015 (NSW).

Orfali v Commissioner for Fair Trading [2024] NSWCATOD 4
ADMINISTRATIVE REVIEW – Registered certifier – Whether disciplinary grounds established – Whether decisions to cancel applicant’s registration and disqualify him from registration for 10 years are the correct and preferable decisions.
Administrative Decisions Review Act 1997 (NSW); Building Professionals Act 2005 (NSW) (repealed); Building and Development Certifiers Act 2018 (NSW); Building and Development Certifiers Regulation 2020 (NSW); Building Professionals Regulation 2007 (NSW) (repealed); Environmental Planning and Assessment Act 1979 (NSW); Environmental Planning and Assessment Regulation 2000 (NSW) (repealed); Environmental Planning and Assessment Regulation 2021 (NSW); Standard Instrument—Principal Local Environmental Plan (2006 EPI 155a) (NSW); State Environmental Planning Policy (Affordable Rental Housing) 2009 (NSW) (repealed); State Environmental Planning Policy (Housing) 2021 (NSW); Strata Schemes Development Act 2015 (NSW); Swimming Pools Act 1992 (NSW).

TCM Construction Group Pty Ltd v Neich [2024] NSWCATAP 4
APPEAL – appeal from orders requiring the appellant to remedy defective work-whether a question of law arises – whether there is a ground for leave to appeal to be granted-conflicting evidence of expert witnesses.
Civil & Administrative Tribunal Act 2013 (NSW); Home Building Act 1989 (NSW).

TPG Telecom Limited v Inner West Council [2023] NSWLEC 1778
APPEAL – development application – telecommunications facility – monopole with headframe – proposed on the site of an existing substation adjacent to heritage listed Callan Park – impact on setting and views to heritage item – visual impact – compatibility with character of the area – issues of site selection.
Callan Park (Special Provisions) Act 2002; Environmental Planning and Assessment Act 1979, ss 4.15, 4.16, 8.7; Inner West Local Environmental Plan 2022 cl 1.8A; Interpretation Act 1987, s 30A; Leichhardt Local Environmental Plan 2013, cll 1.2, 5.10, 6.1, 6.2; State Environmental Planning Policy (Biodiversity and Conservation) 2021, Pt 6.3, s 6.65, Ch 10; State Environmental Planning Policy (Resilience and Hazards) 2021, s 4.6; State Environmental Planning Policy (Transport and Infrastructure) 2021, s 2.143; Sydney Regional Environmental Plan (Sydney Harbour Catchment) 2005; Uniform Civil Procedure Rules 2005, r 31.27.

Legislation

Regulations
Strata Schemes Management Amendment Regulation 2024 (2024-9) – LW 19 January 2024

Environmental Planning Instruments
Bathurst Regional Local Environmental Plan 2014 (Amendment No 23) (2024 EPI 17) – LW 2 February 2024
Queanbeyan-Palerang Regional Local Environmental Plan 2022 (Amendment 4) (2024 EPI 3) – LW 12 January 2024

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Brandon Thai, Caitlyn Trussell

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