The strata building bond is one of the last statutory obligations a NSW developer deals with before a new strata building is occupied, and one of the easiest to underestimate. Under the Strata Schemes Management Act 2015, developers of certain residential strata buildings must lodge a bond of 2 per cent of the contract price for the building work before an occupation certificate can be obtained. Because the bond sits directly on the path to occupation, getting the amount right, and substantiating it properly, matters. This article explains how the strata building bond and inspections scheme works, how the bond amount is calculated, and where a quantity surveyor’s contract price report fits in.
What the strata building bond is
The strata building bond and inspections scheme, often shortened to SBBIS, was introduced to protect owners corporations from the cost of defective building work. It generally applies to residential and mixed-use strata buildings of four or more storeys, which sit outside the home building compensation cover that applies to lower-rise work. For buildings within the scheme, the developer lodges a bond equal to 2 per cent of the contract price of the building work, which is held and administered through the NSW Government.
The bond is not a fee. If the building performs, the money comes back. Independent inspections during the first two years after completion identify any defective work, the builder is given the opportunity to rectify it, and the bond is available to fund rectification only where defects remain unresolved. Whatever is not used is returned to the developer.
How the 2 per cent is calculated
The bond is calculated on the contract price of the building work. Where there is a genuine arm’s length construction contract, that figure is usually straightforward. It becomes less straightforward in two common situations. The first is where there is no single contract price, for example where the developer engaged trades directly or the work was done under multiple contracts. The second is where the developer and the builder are connected parties, in which case the stated contract price cannot simply be taken at face value.
In these situations the contract price generally needs to be determined independently, and in practice this is done through a report from a quantity surveyor. The QS assesses the cost of the building work as if it had been procured at market prices, and that assessed figure becomes the basis for the 2 per cent bond. An understated figure risks the bond being rejected or challenged; an overstated one ties up more of the developer’s capital than necessary for up to several years.
Key milestones in the scheme
The scheme runs to a statutory timetable that starts at the occupation certificate. The table below summarises the main milestones as they generally apply.
| Milestone | Indicative timing |
| Bond lodged | Before the occupation certificate is issued |
| Building inspector appointed | Within 12 months of the occupation certificate |
| Interim inspection and report | Between 15 and 18 months after the occupation certificate |
| Final inspection and report | Between 21 months and 2 years after the occupation certificate |
| Bond released or applied to defects | Generally between 2 and 3 years after the occupation certificate |
For a developer, two of these dates matter most. The lodgement date sits on the critical path to occupation: a bond that is not lodged, or whose amount cannot be substantiated, delays the occupation certificate and with it settlements. And the release window at the end of the scheme is when capital comes back, which is worth modelling in the project cashflow from the start rather than treating as a distant afterthought.
Common pitfalls
Leaving the bond until the end
The bond is often addressed in the final weeks before completion, at the same time as every other close-out task. If the contract price then turns out to need independent determination, the QS report becomes an unplanned item on the critical path. Identifying early whether the project will need a contract price report removes that risk.
Related-party contracts priced below market
Where the builder and developer are connected, a contract price set below market value does not reduce the bond obligation; it invites scrutiny. An independent assessment prepared on market pricing is the cleaner path, and it stands up if the figure is ever questioned.
Poor cost records on directly procured work
Developers who procure trades directly sometimes reach completion without a consolidated record of what the building work cost. Reconstructing that figure late is slower and less certain than having a quantity surveyor establish it from the documentation while the project records are current.
How to prepare
Treat the bond as a line item from the feasibility stage: 2 per cent of the construction cost, held for roughly two to three years after completion. Confirm early whether your contract structure will support the bond calculation on its face, or whether an independent contract price report will be required. Where a report is needed, commissioning it ahead of the occupation certificate application keeps the bond off the critical path and the settlement timetable intact.
This is general information and not legal or financial advice. The strata building bond scheme is governed by the Strata Schemes Management Act 2015 (NSW) and its regulations, and requirements should be confirmed for each project with the administering NSW Government agency and appropriate advisers.
Need a contract price report for your strata building bond? Section 94 can help.
Frequently asked questions / People Also Ask
Which buildings need a strata building bond in NSW?
Generally, new residential or mixed-use strata buildings of four or more storeys, where the building work is not covered by home building compensation insurance. Lower-rise strata buildings are typically covered by that insurance instead and sit outside the bond scheme.
How much is the strata building bond?
2 per cent of the contract price of the building work. For a building with a $20 million construction contract, that is a $400,000 bond held for roughly two to three years after the occupation certificate.
When does the bond have to be lodged?
Before the occupation certificate is issued. Because settlements usually follow the occupation certificate, a late or unsubstantiated bond can delay the entire completion sequence.
Why would a quantity surveyor be involved in the bond?
Where there is no clear arm’s length contract price, such as directly procured work or a related-party builder, the contract price generally needs to be determined independently. A quantity surveyor’s report assesses the cost of the building work at market pricing and provides the substantiated figure the 2 per cent is calculated on.
Does the developer get the bond back?
Yes, to the extent it is not applied to rectifying defective work identified through the inspection process. If the final inspection finds no unresolved defects, the bond is returned, generally within the two to three year window after the occupation certificate.