Victoria’s residential development sector is set for major reform. On 1 July 2026, unless proclaimed earlier, the Building Legislation Amendment (Buyer Protections) Act 2025 (Vic) (Act) will introduce significant changes to the state’s building regulatory regime. The reforms mark a decisive shift towards stronger consumer protections and greater accountability for builders and developers.
The developer bond scheme is a central feature of the Act, designed to ensure defects in domestic buildings above three storeys are promptly rectified by requiring developers to provide a 2% developer bond before applying for occupancy permits. Compliance with the new scheme will be overseen by the Victorian Building Authority (now to be known as the Building and Plumbing Commission, BPC), which is given enhanced powers to issue rectification orders for defective or non-compliant building works.
The Act also transfers responsibility for domestic building insurance from the Victorian Managed Insurance Authority (VMIA) to the BPC, whilst strengthening key features of the domestic building insurance scheme.
In this article, we set out the key legislative reforms affecting property developers and consider how they can best position themselves to ensure compliance ahead of the changes.
Key reforms at a glance
- Mandatory developer bond scheme – applies to apartment buildings over three storeys
- Expanded rectification powers – applies to all building work
- First resort insurance scheme – applies to all domestic building work three storeys or less
We explain each of these concepts in further detail, below.
1. Mandatory Developer Bond Scheme – apartment buildings over three storeys
2% developer bond
From 1 July 2026 onwards, developers of residential apartment buildings over three storeys will be subject to a mandatory developer bond scheme. Developers will face increased financial exposure at the completion of projects for up to two years post completion.
The requirement for developer bonds only applies in relation to ‘residential apartment buildings with a rise in storeys of more than 3’, providing protection for domestic building work that is not covered by the new statutory building warranty insurance.
Under this scheme, developers will need to provide a bond equal to 2% of the total build cost to the BPC as a pre-condition to applying for occupancy permit.
The ‘total build cost’ is defined as the estimated total cost of the building work carried out for or in connection with the construction of the residential apartment building. The regulations will provide further detail for determining the total build cost.
The bond serves as a financial safeguard for owners corporations and apartment owners, ensuring that building defects identified after completion are rectified without delay.
Here are some of the key features developers should be aware of:
- Bond Form: the bond must be issued in the form of a bank guarantee, surety bond or another prescribed form of security. Regulations are yet to confirm whether developers can defer responsibility for the bond to the builder or permit it to be provided by someone else.
- Duration: the bond will be held by the BPC for two years after an occupancy permit is issued.
- Notice Requirement: developers must notify the BPC of their intention to apply for an occupancy permit between six to twelve months before applying. The Act includes an obligation to notify the BPC within five business days of the developer becoming aware of a change in circumstances in relation to the anticipated application date for an occupancy permit.
- Penalties: failure to provide the bond or to provide the required notice may attract penalties of up to 2,500 penalty units (approximately $500,000).
Restriction and rescission rights
Timely lodgement of the bond is essential for developers to protect their financial position. Vendors selling lots under off-the-plan contracts cannot allow purchasers to take possession until an occupancy permit is granted.
If a developer obtains an occupancy permit without lodging the bond, purchasers are entitled to rescind their contracts and recover all monies paid, including penalty interest. This is a significant change to other termination rights that purchasers may be entitled to exercise (for example, pursuant to the Sale of Land Act 1962 (Vic), where the Act includes an explicit right for a court to order the payment of penalty interest to an aggrieved purchaser.
Bond release process
Release of the bond is contingent on the appointment of a building assessor, either by the developer or, if they fail to do so, by the BPC, at the developer’s expense. The building assessor must inspect the building and identify any reportable defective building work. What constitutes ‘reportable’ defects is expected to be clarified by regulations.
A preliminary inspection and report must be completed within 15 to 18 months of the occupancy date. If no reportable defects are identified, the bond is to be released as soon as practicable to the developer.
A final inspection must be completed 21 to 24 months after occupancy, confirming defects have been rectified, otherwise entitling the owners corporation to claim against the bond to fund rectification. Any unused portion is to be returned to the developer after the final inspection clears liability.
Transitional implications
Transitional
regulations are yet to be released, leaving a degree of uncertainty as to
whether the developer bond scheme applies to projects already in progress. In the meantime, developers should remain
alert to any regulatory updates that may affect their obligations.
2. Expanded Rectification Powers - applies to all building work
The BPC will have expanded authority to issue rectification orders for defective, incomplete or non-compliant building work for up to 10 years following the issuance of an occupancy permit. Importantly, these powers apply retrospectively, capturing building work completed before the reforms take full effect.
For residential apartment buildings, rectification orders may be issued not only against builders and subcontractors, but also against developers. Where a serious defect is identified, developers may be prevented from applying for an occupancy permit or registering plans of subdivision until the defect is rectified. This can cause significant delay in completing off-the-plan sales.
Developers and other affected parties may seek review of a rectification order by applying to the Victorian Civil and Administrative Tribunal (VCAT). However, the BPC itself may also apply to VCAT for an extension of time beyond the standard 10-year limit, allowing rectification orders to be issued outside the usual window in exceptional circumstances.
3. First resort insurance scheme - applies to all domestic building work of three storeys or less
The domestic building insurance scheme (Scheme) will also be transferred from the VMIA to the BPC, centralising building compliance functions and domestic building insurance under the same authority. This applies in relation to domestic building work for development of up three storeys.
Builders entering into domestic building contracts exceeding $20,000 must pay insurance premiums to the BPC before the work begins. The BPC is responsible for administering the new Scheme.
The viability of the Scheme relies on the BPC’s ability to compel builders to rectify defects, reducing demand for insurance payouts. Non-compliance may attract penalties and potential recovery proceedings if the BPC pays out under the scheme.
A builder who enters into an insurable domestic building contract must pay the relevant insurance premium to the BPC before the first of the following to occur:
- 10 business days after the domestic building contract is entered into; and
- the domestic building work starts.
The Act also has requirements in relation to:
- builders who carry out speculative domestic building work – they must pay the applicable insurance premium for the proposed work to the BPC before the work starts; and
- where a domestic building contract is varied so that it becomes an insurable domestic building contract – builders must pay the applicable insurance premium within 10 business days of a variation.
Again, penalties for non-compliance in relation to each of these matters can be up to 2,500 penalty units (approximately $500,000) per incident.
The Scheme will not be available in certain circumstances, including:
- to the building owner in relation to any speculative domestic building work, where the building owner is the builder or its associate;
- if a building owner has contracted for the construction of 3 or more homes; and
- to a building owner who is a vendor in a residential off-the-plan contract in relation to the domestic building work carried out for the purposes of that contract.
These limitations leave building owners and property developers exposed without access to the Scheme.
What do you need to do?
Developers and builders should begin factoring the new reforms under the Act for development projects, including:
- project funding models in light of increased financial exposure associated with developer bonds;
- appointing and management of assessors under development agreements and construction contracts;
- reviewing the interplay between developer bonds and performance securities commonly required under construction contracts;
- reviewing quality assurance and defect liability regimes under construction contracts, including extended defect liability periods to comply with rectification orders;
- monitoring the BPC’s enforcement and compliance posture; and
- reviewing Regulations and policy settings once they are announced in the lead up to 1 July 2026.
We are here to help
To learn more about the changes and how they may affect your development or building works, please contact Mark McKinley or Kyle Gillan.
This article was prepared by Issy Pilcher (Law Graduate), Mark McKinley (Principal) and Kyle Gillan (Principal).
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