The NSW Government modelled three options to increase protections for owners of apartments in new residential apartment buildings. These are outlined in detail in the Regulatory Impact Statement (RIS). The modelling indicates mandatory decennial liability insurance (DLI) has the greatest cost benefit ratio and provides the most benefits for industry, apartment owners and Government.

We are seeking your feedback on the proposed options:

1. Recommended: Decennial liability insurance is mandatory for new apartment buildings, replacing the current scheme SBBIS after a transitional period.
2. Decennial liability insurance is available as an alternative to the current scheme SBBIS. Changes would be made to improve SBBIS during a transitional period.
3. No change to the current approach. Developers can choose between decennial liability insurance or SBBIS. No changes would be made to improve the current SBBIS scheme.

Mandatory decennial liability insurance (recommended)

Under the recommended option to introduce mandatory DLI for all new Class 2 buildings and buildings with a Class 2 component, DLI would remain optional during a transitional period of approximately five years to allow the building and insurance industries time to adapt to the mandatory DLI framework.

During the transitional period, SBBIS would remain available until 2028 with year-on-year changes. After the transitional period, DLI would be mandatory for new developments and SBBIS would not be available.

Proposed changes to SBBIS during the transitional period for mandatory DLI, will include:

• gradually increasing the strata building bond contribution from 2% up to 5% of the contract price of the development
• gradually increasing the period for which the bond is held from two years up to a maximum of five years
• changes to the process for building defect inspections under SBBIS to reflect the extended timeframe.

Under the option for mandatory DLI, after the transitional period, developers will not have the option of the strata building bond. Developers of new Class 2 buildings would need to purchase an approved DLI policy during the early stage of construction. The policy commences once the building work is complete, protecting successive building owners for 10 years against serious defects of the critical building elements in the common area of the building. These include the structure, fire safety, building enclosure, waterproofing and key building services.

Voluntary decennial liability insurance

Under this proposed option developers would be able to choose between DLI or SBBIS. Changes to SBBIS would be introduced during a transitional period to encourage developers to voluntarily choose DLI and to enhance consumer protections under that option. The changes to SBBIS during the transitional period for voluntary DLI will include:

• gradually increasing the strata building bond contribution from 2% up to 5% of the contract price of the development
• gradually increasing the period for which the bond is held from two years up to a maximum of six years
• changes to the process for building defect inspections under SBBIS to reflect the extended timeframe.

It is expected that towards the end of the five-year transitional period the changes to SBBIS will present too many barriers for developers, resulting in more developers opting-in for DLI instead.

No change to the current approach (current scheme continues and decennial liability insurance remains optional)

Under this option SBBIS would continue to operate without any changes and DLI would be available as an alternative to SBBIS. This option does not address the limitations of the SBBIS and does not incentivise developers to choose DLI. Under this option, developers are likely to continue to use SBBIS which does not have the upfront risk assessment offered by DLI. As a result, the building regulator will be required to increase efforts to identify and reduce defective works. Consumer confidence in apartment buildings will not be restored under this model.