Introduction

The NSW Strata Law just got a makeover with some big updates under the Building, Development, and Strata Legislation Amendment Regulation 2024. Now, the way strata properties and developments get managed changes a lot. The rules about building bonds and professional indemnity policies are shifting, all to boost safety and follow the rules better. The NSW Government aims to make the building industry safer and more compliant. Developers need to pay close attention as these changes shake things up. The future of strata living in New South Wales is set to look quite different, sparking curiosity about what’s on the horizon. Dive in to learn how these updates might reshape the landscape.

Amendments Introduced by the Building, Development and Strata Legislation Amendment Regulation 2024

Building and Development Certifiers Regulation 2020 (BDC Reg)

i. Exclusions in Professional Indemnity Policies

• The BDC Reg allows for certain exclusions to be made in professional indemnity policies, particularly regarding cladding. Indemnity may not be provided for cladding that fails to meet the requirements of the Building Code of Australia, Australian Standards, or other Commonwealth laws. Additionally, indemnity may not be provided if the cladding does not comply with the manufacturer’s conditions of use.

ii. Limitation on Policy Duration

• Previously, this exclusion was limited to policies providing indemnity for a period not exceeding 12 months and commencing on or before 30 June 2024.

iii. Extension of Policy Duration

• The Building, Development and Strata Legislation Amendment Regulation 2024 (BDSA Reg) has extended this period by another year. It now applies to policies commencing on or before 30 June 2025. This extension represents a continued deferral of the full impact of insurance reforms in the building industry, allowing more time for the market to adapt.

Strata Schemes Management Regulation 2016 (SSMR)

i. Building Bond Requirements

• Under the Strata Schemes Management Act 2015 (SSMA) and the SSMR, developers of residential strata schemes are required to provide a ‘building bond’ for the building work involved in the strata development. The bond must be equal to:
  1. 2 per cent of the contract price for bonds given before 1 July 2024.
  2. 3 per cent of the contract price for bonds given after 1 July 2024.

ii. Extension of Bond Increase Deadline

• The BDSA Reg has extended the deadline for the bond increase from 1 July 2024 to 2 November 2024.

These amendments reflect the ongoing adjustments in the building and strata sectors, aiming to balance regulatory requirements with market realities while continuing to prioritise safety and compliance.

Impact of the Recent Changes to Strata Laws on Builders in NSW

The recent amendment increasing the prescribed building bond amount is part of the NSW Government’s broader strategy to promote the adoption of Decennial Liability Insurance (DLI) over the traditional building bond scheme. DLI, introduced in November 2022 as a voluntary alternative, offers insurance to Owners Corporations against serious structural defects in strata buildings, providing protection for up to 10 years. In theory, DLI is a more advantageous option compared to the building bond, as it offers extended coverage and is not merely an insurance of last resort.

Availability and Impact of DLI on Building Bonds

According to Section 211AA of the Strata Schemes Management Act (SSMA), developers who obtain DLI are exempt from the requirement to provide a building bond. However, the availability of DLI in the market remains limited, with Resilience Insurance being the first provider to offer coverage in a form accepted by the NSW Government earlier this year.

The NSW Government, in its Decennial Liability Insurance Ministerial Advisory Panel Advice to NSW Government discussion paper from August 2022, indicated its intention to gradually increase the building bond to encourage the industry to adopt DLI. The plan was to delay the increase in the building bond until the market had reached a certain level of maturity, specifically until two years after the introduction of the first DLI product. Furthermore, it was anticipated that at least two DLI products would need to be available in the market before any increase in the building bond.

As of now, only one DLI product is available in the market, leading the NSW Government to extend the deadline for increasing the building bond. This extension is seen by the industry as an acknowledgement that the market is not yet mature enough for a significant shift towards DLI.

Challenges and Opportunities for Developers

For developers, this amendment brings both challenges and opportunities. Developers with projects nearing completion should consider securing a building bond before 2 November 2024 to avoid being affected by the increased bond requirement. It is important for developers not to rely on the possibility of further extensions from the NSW Government.

If obtaining a building bond before the deadline is not feasible, developers will need to carefully assess the financial impact of the increased bond on their projects. As part of this analysis, it may be prudent for developers to explore whether obtaining DLI could be a more viable option for their developments. This decision will require a thorough examination of the costs, benefits, and availability of DLI in the current market.

Key Takeaway: Living in Strata is Safer Than Ever

The latest amendments to NSW Strata Law mark a significant step forward in ensuring the safety and integrity of strata properties. While these changes present new challenges for developers, they also offer opportunities to explore alternatives like Decennial Liability Insurance.

Staying informed and proactive in response to these updates is crucial for navigating the evolving landscape of strata management. If you have questions or need guidance on how these changes affect your property or development, reach out to us today.