NSW Strata Defect Reporting for Residential Buildings

What it is

NSW residential strata buildings four storeys or more sit under Part 11 of the Strata Schemes Management Act 2015. Part 11 created the Strata Building Bond and Inspections Scheme, known as SBBIS, which came into effect on 1 January 2018. SBBIS replaced home building compensation insurance for buildings four storeys or more because that insurance is not available to developers of high-rise residential strata.

SBBIS works by locking a building bond in trust with NSW Fair Trading. The bond pays for rectification of defects found at a structured inspection between 15 and 18 months after the building reaches completion. If defects are found and not rectified, the bond is drawn down to pay for the work.

The SBBIS process at a glance

The scheme runs in fixed stages and the dates are non-negotiable.

Stage 1: bond lodgement

The developer lodges a building bond with the Secretary of the Department of Customer Service before the occupation certificate is issued. The bond rate is 2 per cent of the contract price. An amendment to the Strata Schemes Management Regulation 2016 deferred the increase from 2 to 3 per cent until 1 July 2026. From that date the bond moves to 3 per cent.

Stage 2: building inspector appointment

The developer appoints a building inspector from the list maintained by NSW Fair Trading. The inspector must be independent of the developer and the builder. The owners corporation can object to the choice within 15 days and force a different inspector if there is a conflict of interest.

Stage 3: interim inspection

Between 15 and 18 months after the building reaches completion the inspector carries out the interim inspection. The report lists every identified defect across common property and lot property. The report goes to the developer, the builder, the owners corporation and NSW Fair Trading. The developer then has a defined window to rectify the listed defects.

Stage 4: final inspection

Between 21 and 24 months after completion the inspector returns for the final inspection. The report confirms which defects have been rectified and which remain. Any remaining defect cost is paid out of the bond.

Stage 5: bond release or claim

If the final report shows no outstanding defects the bond returns to the developer. If defects remain the owners corporation can apply to draw down the bond to cover rectification.

The certifier role

The principal certifying authority on a Class 2 strata build is the linchpin for SBBIS. The certifier signs the interim and final occupation certificates and triggers the SBBIS clock. A premature occupation certificate shortens the bond timetable. From 1 July 2020 certifiers on Class 2 work also operate under the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 which gives Building Commission NSW the power to delay or block the occupation certificate where serious defects are identified.

What counts as a defect

The scheme references defective building work in the Home Building Act 1989 and the statutory warranties in section 18B. The interim inspector looks for the same categories.

• Major defect under the 10-year statutory warranty period
• Other defective building work in the 6-year period
• Waterproofing failures
• Combustible cladding
• Fire safety failures
• Structural defects

The interim report categorises each defect and assigns a priority for rectification.

Where NSW differs from its east-coast siblings

SBBIS is the only scheme of its kind in Australia. Victoria runs Domestic Building Insurance through VMIA for buildings under 4 storeys, but high-rise residential strata in Victoria has no equivalent bond regime. Queensland uses the QBCC home warranty scheme up to 3 storeys plus the developer's own builder warranties on higher buildings. NSW is the only jurisdiction with a mandatory bond locked in trust against the building.

What triggers a Building Commission audit

Building Commission NSW runs its own audit program in parallel with SBBIS. An SBBIS interim report with a high defect count, a poorly drafted building manual, or a complaint from the owners corporation in the first 12 months can all trigger an audit. The Commission can use the RAB Act to issue a rectification order regardless of the SBBIS process.

Rectification cost

Median rectification cost on a defective NSW Class 2 build runs from one to four per cent of contract price, with waterproofing and cladding running higher. A four-storey strata building with a 30 million dollar contract price has a 600 thousand dollar bond at the current 2 per cent rate, and the 3 per cent rate from 1 July 2026 lifts that to 900 thousand.