SUBSTANTIAL CHANGES TO VICTORIAN RESIDENTIAL BUILDING LEGISLATION

EXECUTIVE SUMMARY

The Building Legislation Amendment (Buyer Protections) Bill 2025 introduces far reaching reforms of benefit to home and apartment owners in Victoria, but which significantly impact residential builders and developers.

Domestic building insurance (DBI) will become insurance of ‘first resort’ and developers will be required to lodge a bond with the Victorian Building Authority (VBA) for 3 per cent of the total build cost.

The VBA, the Victorian Managed Insurance Authority (VMIA), and the Domestic Building Dispute Resolution Victoria (DBDRV) will be consolidated and a new streamlined regulator, the Building & Plumbing Commission, will emerge with enhanced powers against builders and developers. The Bill provides for checks and balances, including rights of review and recourse to VCAT, but they will come at a cost.

KEY REFORMS

On 4 March 2025, the Premier of Victoria, Hon. Jacinta Allan, announced the Building Legislation Amendment (Buyer Protections) Bill 2025 (Bill).
The key reforms are as follows:

1. For residential buildings of up to three storeys, DBI will become insurance of ‘first resort’. Currently, DBI only responds if the builder dies, becomes insolvent, disappears, or ignores a court or Victorian Civil and Administrative Tribunal (VCAT) order.¹
2. For residential buildings of more than three storeys, developers will be required to lodge a bond as security for building defects to be held by the VBA for approximately 2 years after occupancy and set at 3 per cent of the total build cost.²
3. The VBA, to be later renamed the ‘Building & Plumbing Commission’, will take over the administration of DBI from the VMIA and dispute resolution from the DBDRV. It will have powers that significantly surpass those currently available to it, including the ability to issue rectification orders against builders and developers during the build and for up to 10 years. In the case of serious defects, the VBA can effectively block the sale of apartments.³
4. In addition to obtaining DBI, builders will be required to meet minimum financial requirements to be prescribed at a later stage.

The Bill takes effect on 1 July 2026 unless proclaimed earlier. The requirement for developer bonds and the enhanced powers of the VBA are scheduled to commence by the end of 2025.⁴

The legislation is unlikely to have retrospective effect on contracts entered into prior to the date on which it comes into effect.⁵ None of the reforms impact the rights of any party to commence proceedings in court or in VCAT.

BACKGROUND

The changes are part of a suite of recommendations made in 2023 by an expert panel commissioned by Victoria’s State Government to review and improve the building legislation and regulatory framework in Victoria (Expert Panel); see Paper One and Two by the Expert Panel on Building Reform here and here.

The overarching objectives of the Expert Panel were to consider ways of strengthening regulatory oversight and to restore confidence in the Victorian residential building sector shaken by major failures, including unsafe building materials, poor construction practices, and the collapse of major home builders.⁶ The Bill is the ‘first cab off the rank’, with further legislation foreshadowed in 2026.

Some, but not all, of the reforms in the Bill are discussed below.

DOMESTIC BUILDING INSURANCE

Under the current scheme, homeowners or owners of apartments in buildings up to three storeys in height only have access to DBI in the limited circumstances described above. These are significant impediments for a scheme that also provides relatively limited cover of $300,000 inclusive of legal costs.

While there is no indication that the monetary limits and three storey restrictions will change, the new proposed scheme gives homeowners access to DBI in the form of ‘assistance’ as soon they suffer loss arising from incomplete, defective, or non-compliant domestic building work.⁷ This is in addition to the existing triggers for cover. Assistance will involve rectification or completion of the works on behalf of the VBA or payment of compensation.

Other features are as follows:

1. Builders, including those engaged in speculative domestic building work,⁸ are required to take out DBI where the consideration payable to the builder, including variations, is more than $20,000 (an increase from $16,000).
2. DBI will not be available to developers and builders, including those engaged in speculative domestic building work.
3. Cover applies whether or not the premium has been paid, or a notice of cover has been issued. This protects consumers from practices that came to light following the collapse of Porter Davis. The VBA may recover any unpaid premium from the builder.
4. To incentivise builders to rectify work when ordered to do so and to reduce the demand for insurance payouts, the VBA will have the power to order builders to rectify defects, take disciplinary action against them, and recover amounts paid under DBI by way of subrogation against the builder and or any other responsible person.⁹ This will be critical for the scheme’s financial viability.¹⁰
5. The VBA will be responsible for setting premiums and will have a monopoly on the issuing of policies. A single regulator is best placed to do so as it can, through its enforcement, disciplinary and cost recovery powers, manage the risk of insurance payouts.
6. Regulations will be promulgated for other limits, exclusions, notification periods, and conditions of cover.¹¹ It is unclear to what extent these will mirror the conditions under the current Ministerial Order dated 27 February 2024.

DEVELOPER BONDS

Homeowners in apartment buildings of more than three storeys do not, and will not under the reforms, have access to DBI. A gap clearly exists leaving apartment owners exposed. Longer term, the Government aims to introduce a decennial (10 year) insurance liability scheme to cover apartment owners. Until then, the developer bond scheme modelled on the Strata Building Bond and Inspections Scheme in NSW is proposed.

The scheme will require developers of residential apartment buildings¹² to lodge an insurance bond or bank guarantee with the VBA before applying for an occupancy permit. It will be set at 3 per cent of the total build cost as security for defect rectification works.¹³ There is a strong incentive for developers to comply as the VBA may withhold an occupancy permit if no bond is lodged or if it is insufficient.¹⁴

The total build cost is the estimated total cost of the building work prior to the date on which an application is made for an occupancy permit. It will therefore capture variations. It is unclear how build costs will be apportioned for mixed use buildings but this and other disputes concerning the build costs can be referred to the Building Appeals Board.

As a further incentive to developers to lodge a bond, purchasers of off-the-plan residential apartment will have a right to rescind an off-the-plan contract and claim penalty interest on any amount paid as a deposit if the bond is not paid or it is less than the total build cost.

Recourse against, or release of, the bond will be subject to:

1. the appointment of an independent assessor, either jointly or by the VBA if there is no agreement shortly after the first owners’ corporation meeting;
2. a preliminary inspection report prepared by an independent assessor within 18 months of the occupancy date (Preliminary Report);¹⁵
3. a final inspection report if the Preliminary Report lists defects (Final Report), to be prepared within 24 months of the occupancy date on whether the defects were rectified to the satisfaction of the assessor;
4. a “bond claim” to be made thereafter by the owner’s corporation or developer with the VBA for recourse against, or release of the bond, depending on whether or not the Preliminary or Final Report finds that the defects have been rectified; and
5. a determination by the VBA of the bond claim.

While it is possible that the bond could be released either 18 or 24 months after occupation, contested claims could see the bond tied up for much longer.

No time periods are prescribed for making a ‘bond claim’ or the VBA’s determination. This may need to be fleshed out in the regulations to ensure the process is not open ended.

In making its determination, the VBA can commission its own independent report or invite further information from either party. There is also an internal VBA review process of the first VBA determination which is also subject to review by VCAT.

Curiously, in determining whether to approve a bond claim in subparagraph (d) above, the VBA must not have regard to whether a statutory warranty applies to the defective building work.¹⁶

Time will tell whether the process is cheaper and quicker than commencing proceedings in VCAT.

ENHANCED POWERS OF VBA

As the Expert Panel on Building Reform identified in Paper Two, building regulation in Victoria is currently poorly coordinated across multiple entities, primarily the VBA, the Municipal Building Surveyor, and the Relevant Building Surveyor (RBS). The RBS can issue directions to fix (DTF) but has no enforcement powers. The VBA is said to only take such steps in exceptional circumstances, although that may not be the experience of all builders. Critically, DTFs cannot be issued after issue of the occupancy permit and there are no enforcement mechanisms available against developers after a building is sold. Effectively, there is no ongoing oversight of defects manifesting after occupation.

Under the Bill, the VBA will have the ability to issue building rectification orders (ROs) on builders and developers both before the issue of the occupancy permit and for 10 years thereafter.

An RO issued by the VBA can require the builder or developer to complete building work, rectify non-compliant or defective building work, or to rectify any damage caused in carrying out the building work or by the non-compliant or defective building work. The VBA may carry out investigations before issuing an RO and may monitor and order any actions specified in the RO. The cost of these investigations may be recovered from the builder or the developer.

It will be an offence to contravene an RO and a builder who does so risks disciplinary action and suspension of its registration.

If a developer fails to comply with an RO for ‘serious defects’:¹⁷

1. the VBA may refuse to issue an occupancy permit, thereby preventing an owner from occupying the premises;
2. the RO can be recorded on the land title; and
3. for residential apartment buildings more than 3 storeys – a developer may be unable to register a plan of subdivision.

Effectively, a developer may be unable to sell affected apartments.

CONCLUSION

While not a complete panacea, the above reforms put home and apartment owners in a stronger position than they have been in to date. On the other hand, developers and builders will now be more exposed than ever under the new powers afforded to the regulator.

Developer bonds are intended to incentivise developers to remain involved and registered after completion of the works. They may reduce instances of SPV developers going into members’ voluntary administration post-completion of building work without attending to defects.¹⁸ The same can be said of an RO issued to a developer for serious defects which prevent the developer from selling apartments.

Both are part of a trend towards greater liability for developers. In contrast to the position in NSW, developers and vendors of off-the-plan residential apartments in Victoria have had little exposure for defective building work beyond the relatively short defect liability periods in contracts of sale. The Victorian Government is now considering extending the warranties under section 8 of the Domestic Building Contracts Act 1995 to developers and introducing similar legislation to the Design and Building Practitioners Act 2020 (NSW), which will impose a duty of care in favour of owners on developers supervising, coordinating, project managing or otherwise having substantive control over the carrying out of any work.¹⁹

Residential developers and builders will need to navigate the new requirements in the Bill and any further reforms with care.

Please contact our Construction and Infrastructure team should you wish to discuss any aspect of this new regime or require any assistance with respect to a construction or infrastructure related matter.

This article was written by Brian Rom, Partner, and Jashrin Whitehead, Associate.

¹ Victorian Managed Insurance Authority, Domestic Building Insurance (Policy, 1 July 2017).

² Note that while s 137ZP(3)(a) of the Building Legislation Amendment (Buyer Protections) Bill 2025 (Bill) refers to 3%, the Premier’s announcement on 4 March 2025 states that it will be 2%.

³ Premier of Victoria, Jacinta Allan, ‘New Building Watchdog For Buyer Peace of Mind’ (Media Release, 4 March 2025).

⁴ Department of Transport and Planning, Building Statement: Strengthening Victoria’s Building System (2025 Statement).

⁵ There is a strong presumption against retrospectivity, unless the contrary is clearly stated. Transitional regulations addressing this are provided for in s 320 of the Bill.

⁶ 2025 Statement (n 4)

⁷ Bill 2025 (n2) s 137K(1).

⁸ A builder who constructs a home (or other domestic building work) on land they own, with the intention of selling the completed property.

⁹ Victoria, Parliamentary Debates, Legislative Assembly, 5 March 2025 (Nick Staikos, Minister for Consumer Affairs and Local Government)

¹⁰ Ibid.

¹¹ Bill (n 2) s 137ZL.

¹² Class 2 buildings under the BCA or part of such building.

¹³ Under the NSW scheme, the percentage is 2% and is set to rise to 3% on 1 July 2025

¹⁴ It is also an offence to apply for an occupancy permit without lodging the bond: Bill (n 2) s 137ZR.

¹⁵ The bond may be released to the developer as soon as practicable after receipt of a preliminary report, if the preliminary report does not specify any reportable defective building work: Bill (n 2) s 137ZZR.

¹⁶ Bill (n 2) s 137ZZT. This is not the position under the NSW scheme

¹⁷ Defective design, building work, or material that causes or is likely to cause the building to be uninhabitable, in whole or in part destroyed or to be under threat of collapse, the use of an unsafe product or as otherwise prescribed.

¹⁸ Victoria Government, Expert Panel on Building Reform (Paper No 2, November 2023), [4.3.2].

¹⁹ Pafburn Pty Limited v The Owners – Strata Plan No 84674 [2024] HCA 49.