Research by the University of NSW suggests 85 per cent of new strata apartment buildings in NSW contain defective or incomplete work. Credit:Jonathan Carroll "There will be an interim inspection between 15 and 18 months after building work has been completed, and final inspection will take place between 21 and 24 months," Mr Kean said. "The bond will only be released if there are nil defects at the final inspection." Adrian Mueller, a partner at JS Mueller & Co Strata Lawyers, said a 2 per cent bond to cover the cost of repairing defective work was inadequate. "Two per cent will not come close to covering the typical cost to repair defective and incomplete work in a new apartment building," he said. "Anecdotal evidence indicates that a bond of 5 per cent is closer to the mark." Mr Mueller also said the bond would not cover the cost of fixing defects that are not immediately discovered.

Building defects expert Sahil Bhasin inspects an apartment building that won design awards but now has major problems. Credit:Wayne Taylor "The bond paid by the developer primarily only covers defects that are revealed by an interim inspection report that is done about 15 months after the building has been competed," he said. "Often many defects, particularly structural defects, are not discovered until at least two years after the building is finished." Karen Stiles, the executive officer of the Owners Corporation Network, said early consultations on the scheme had resulted in agreement that independently appointed experts should provide a costed scope of works that would lead to a speedy resolution of defects. "Yet the government has delivered a system doomed to result in more cost and litigation," she said. Norman Sarraf, the managing director of Sarraf Strata, said the legislation only applied to buildings that a developer intended to become strata buildings at the time of completion – a loophole confirmed by a number of lawyers including Mr Mueller.

Mr Mueller said the law could also be improved by deferring completion of the final building defects inspection report and permitting defects that are not detected in the interim building defects report to be included in that final report. "The solution to the problem is to ensure there is greater supervision of construction of strata buildings by architects and engineers whilst work is in progress," he said. "This will increase construction costs but help eliminate many defects that are so commonplace. "Further, developers should not be permitted to wind up their companies until at least a two-year period has elapsed after they have completed construction of a strata building and any defects for which they are responsible have been repaired within that period." Mr Kean said the defect bond scheme was the result of extensive industry consultation to make it easier to rectify defects quickly and avoid legal action. "It's important to remember that in addition to this scheme there are existing consumer protections that remain in place including statutory warranties under the Home Building Act 1989, which include a maximum warranty period for major defects of six years," he said.

Labor's acting better regulation spokesman Peter Primrose said the opposition supported the idea of a bond scheme but claimed the government put the interests of developers before the community. "This same bill effectively forced owners to sell if the majority of owners in a block of units wanted to do so, now this bond scheme means owners will be forced to sort out the problem and chase developers with deep pockets who won't want to pay up," Mr Primrose said. "As always the devil will be in the detail and it will be owners who will have to go on the front foot. This is a very imperfect scheme." The cost of defects Research by the University of NSW suggests 85 per cent of new strata apartment buildings in NSW contain defective or incomplete work.

Mr Mueller said home buyers were saddled with paying the cost of fixing the defective or incomplete work themselves out of their own pocket, or suing the builder and developer to force them to fix their defective work at their cost. Loading "The problem for strata owners suing the builder and developer is that there is no guaranteed pot of gold at the end of the rainbow as often builders and developers become insolvent and put their companies into liquidation leaving owners with a large legal bill to pay at the end of a legal case with no reward," he said. "It is difficult to accurately quantify the cost to strata owners across NSW of fixing defective and incomplete work but it is certainly in the hundreds of millions of dollars each year. Rectifying defective work is notoriously much more expensive than building anew."