07 Sep 2016

CU LAB: Developers and the NSW defects regime

The new defects regime won't start until 2017, but Eugene Tan says developers should be thinking about it now.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.


As many of you will be aware, a new building defects regime is to come into effect which will require developers to provide a 2% bond on construction works in a residential environment. 

This is to protect owners against defects which go unrectified due to inadequate funding after developers have done work, particularly in a strata environment. 

While these reforms were initially intended to come into effect at the same time as the other strata reforms which are starting this year, the Office of Fair Trading in the New South Wales Government has postponed the commencement of the building defects regime until next year in order to give developers a bit more time to get their arrangements sorted out and to contemplate how this will impact on pricing of their product. 

So if you are a developer and you are currently in a marketing campaign or preparing contracts, what this means is that you may not want to take into account the pricing adjustments to fund those bonds this year, but you will need to be thinking about it early next year when those regimes are anticipated to come into effect.