Separable Parts in Staged Development

The Strata Building Bond Scheme, which was introduced by the Strata Management Act 2015 (the Act), provides that in situations where the Act applies (See New strata law and building bond regime are set to commence), the developer must give a security (“building bond”) to the Secretary of the Department of Finance, Services and Innovation prior to obtaining an occupation certificate (whether interim or final) relating to the building work.

 

The question is: how much security is required for developments that are staged or in separable parts?

Section 207(2) of the Act, sets out the criteria for establishing the amount of a building bond for building work, stating: ‘the amount secured by a building bond is to be 2% of the contract price for the building work’.

the amount secured by a building bond is to be 2% of the contract price for the building work

The definition of “contract price” is given in reg 50 of the Strata Scheme Management Regulations 2016 (the Regulations), which states that:

It is important to emphasise that the Regulations specifically use the word “paid” and not the word “payable”, as at the date of issue of the occupation certificate. This means that in situations where a portion of contract price is yet to be paid, the quantum of a building bond is only determined by what has already been paid as at the date of the issue of the occupation certificate and does not include consideration of any future payments that are yet to be made.

‘For the purposes of the definition of contract price … the contract price for building work is the total price paid under all the applicable contracts for the building work as at the date of issue of the occupation certificate.’

For example, in situations where building work is comprised of the construction of several buildings to be built consecutively, and the contract price is to be paid in parts, subsequent to the construction of each building, in order to obtain an occupation certificate for the first building, the amount of the bond to be lodged is 2% of the contract price paid at the date of the issue of this occupation certificate for this building.

It is worth mentioning that section 211(3) of the Act provides the NSW Civil and Administrative Tribunal with the power to make an order determining the contract price of building work for the purposes of determining the amount of a building bond. Section 211(4) of the Act provides the Supreme Court with the same power if the matter is incidental to other proceedings being dealt with by the Court.