New legislation, expected to come into force on 1 July 2026, requires a mandatory developer bond of 2%.
- The bond will apply to residential apartment buildings of four storeys or more.
- Importantly, lodging the bond will be a prerequisite to obtaining an occupancy permit.
This article, the first in a series, examines the Building (Developer Bonds) Regulations 2025 (Vic). In particular, we examine how the new regulations provide clarity regarding the operation of the new Developer Bond Scheme.
Timing
The draft regulations introduce transitional arrangements under which the Developer Bond Scheme will commence on 1 July 2026.
However, the Developer Bond Scheme will not apply to residential apartment projects where the building permit is issued before 1 July 2027 (regulation 8).
Developers ought to consider this timing as they plan upcoming projects.
Method of calculating 'total build cost'
Under the new regulations, developers must provide a bond equal to 2% of the ‘total build cost’ to the newly formed Building and Plumbing Commission (BPC) as a pre-condition to applying for an occupancy permit.
- The ‘total build cost’ is the estimated total cost of the building work carried out for or in connection with the construction of the residential apartment building.
- The ‘total build cost’ will be the total cost of building work reported by the relevant building surveyor for determining the building permit levy payable (regulation 7).
- To allow for some flexibility, the draft regulations permit certain deductions in accordance with guidance materials that will be published by the BPC.
- Developers will need to notify the BPC within 7 days after a bond has been issued. As part of this notice, the developer must provide a copy of any documents relevant to the determination of the ‘total build cost’ of the residential apartment building.
What defective work is covered under the scheme?
Following the issue of the bond and the occupancy permit for the development, the appointed building assessor will carry out inspections of the building to identify any ‘reportable defective building work’.
The definition of ‘reportable defective building work’ in the draft regulations is broad sweeping (regulation 6).
- All defective building work in common property and private residential lots of a residential apartment building is captured.
- It includes breaches of the implied warranties listed in section 8 of the Domestic Building Contracts Act 1995 (Vic), as well as failures to maintain a standard or quality of building work specified under the contract of the work.
The scheme will also extend to mixed-use developments, recognising that defective work in non-residential areas (such as ground floor shops or cafes) can impact on residential lots and common property within the mixed-use development. However, in this context it will only extend to serious defects, as defined in the Building Legislation Amendment (Buyer Protections) Act 2025 (Vic) (Act).
Maximum period for which the bond is available
The Act ensures that bonds are released as soon as practicable provided that no reportable defects are identified in the preliminary inspection of the development. That preliminary inspection must be carried out within 15 to 18 months after the issue of the occupancy permit.
If the preliminary inspection identifies reportable defects, a secondary inspection must be carried out within 21 to 24 months after the issue of the occupancy permit. If the secondary report identifies reportable defects, the owner’s corporation can then make a claim on the bond.
For clarity, the draft regulations impose a maximum bond timeframe of 12 months after the building assessor provides their final report to the BPC (regulation 15). Although, this period can be extended if an application is made for a decision to reviewed.
Other
The draft regulations also prescribe:
- the qualifications that the building assessor must hold;
- what information must be provided to the BPC and what information must be provided to the building assessor;
- how the building assessor conducts their inspections and prepares reports;
- the exemption of certain developments from the scheme;
- administrative fees.
Developers should plan for the implementation of this regime. Please get in touch with Mark McKinley, Brandon Dewar or a member of our Property & Development team if you have any queries.
Please note that this article analyses the draft regulations based on the exposure drafts, which remain subject to change. Russell Kennedy will continue to monitor the draft regulations.
Please also refer our earlier eAlert, which examined the buyer protection reforms introduced by the Act.
This article is the first in a series that examine the three separate draft regulations related to the Act which were released for public consultation on 18 December 2025 and recently closed on 1 February 2026. These regulations will give practical effect to the Act when it is expected to come into force on 1 July 2026.
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