A Building " Defect Bond " !

Sydney has the highest home and unit prices in Australia and ownership is eventually the greatest asset the average person can expect to accumulate.  Sadly, protection from shonky builders and developers cutting corners to increase profits has been lacking.

In particular, defects in high rise units is causing concern.  It is hard to get redress for faults and in many cases it is the owners who are stuck with repairs that can run to millions of dollars, and now the government is planning to clean up it's act and deliver justice.

A new law will require a " Defect Bond " at two percent of the contract price for the building to be withheld in trust as security against defective work on all new buildings which exceed three stories of height.   In addition, the developer will be required to pay for an independent quality inspection timed in the twelve to eighteen month period after completion.

Many people will hope for more protection.   Basically, this defect bond should ensure that a new building meets standards, but it gives no protection against long term faults that appear later in the buildings normally expected lifetime.   It seems that buildings and their warranties are very similar to the car industry.   When bought new the driver is offered a factory warranty period, and when that expires - they are on their own with repair costs.

Builders in the house industry are required to carry a form of insurance to cover defects but in practice it is hard to force repairs.   In many cases a claim leads to protracted time in the courts and obscure definitions on exactly what is covered by the insurance leads to frustration.  So many things boil down to a matter of interpretation - and sometimes items such as hot water services come with their own individual period of warranty. Determining exactly who is responsible for what - can be time consuming.

At least this is a step in the right direction.  We are seeing instances where new buildings  fail to meet fire regulations.   Owners have every right to expect that to be fixed - at the cost to either the developer or the builder.  It also raises the troubling question of how this building could possibly be signed off by the council inspectors who must certify that a new building meets standards before it can be occupied.

A lot will depend on the small print when it comes to that " independent inspection " a year after the buildings completion.   Hopefully, the choice of the inspection firm will rest with the owners and obviously there will be conflict between owners and builders when it comes to standards that apply - and eventually determinations will need to be settled by either an adjudicator or a court.   The government will need to make sure that this regimen is squeaky clean !

Buying a house or unit is like all other financial transactions - subject to caution.   The buyer would be wise to check the financial status of whoever did the building work.  Should a builder have declared bankruptcy and the work been taken over by another, extreme caution would be advised.  A builder desperately short of money may have taken disastrous short cuts and these may reappear later in the buildings lifetime.   A " Defect Bond " is really only assurance that a building is up to standard at it's time of completion !