Building Legislation Amendment (Buyer Protections) Bill 2025: Major domestic building reform coming to Victoria

1. Building and Plumbing Commission will be ‘one-stop-shop’

The Bill proposes an integrated regulatory model where the VBA administers dispute resolution functions under the Domestic Building Contracts Act 1995 (Vic) and provides domestic building insurance, in addition to its current functions. The policy goal is for the VBA (which will be re-named the Building and Plumbing Commission) to become a “one-stop-shop” for regulating domestic building work, reducing consumer confusion and delays.

2. First resort statutory insurance scheme for low rise residential buildings

A new statutory insurance scheme (SIS) for low rise residential buildings (3storeys or less) will be introduced in 2 stages.

Stage 1 will only make changes to the current “last resort” domestic building insurance scheme, including transferring domestic building insurance functions from the Victorian Managed Insurance Authority (VMIA) to the VBA. There will be further stakeholder consultation before moving to stage 2.

In stage 2, the Victorian Government will establish the SIS, to protect building owners by delivering quick rectification of incomplete, defective and non-compliant domestic building work. Owners will be able to claim directly on the SIS on a “first resort” basis, and will not need to participate in a dispute resolution process. This is a major change from the current scheme; the builder will no longer need to be dead, insolvent or to have disappeared before the owner can access insurance. The assistance available under the SIS may include the VBA rectifying or completing work or paying compensation. The VBA may then pursue builders and others at fault to recover payments made.

Some building work will be excluded from the SIS, including “residential apartment buildings” with more than 3 storeys. The new developer bond scheme outlined below will apply to those buildings.

Builders will be required to pay an insurance premium to the VBA before work starts. A relevant building surveyor will not issue a building permit until the VBA has issued a notice of cover for the work. However, the SIS will extend cover to owners even if their builder failed to purchase an insurance policy (this will be known as deemed cover). This aims to address the problems owners experienced following the collapse of Porter Davis homes.

The VBA will administer the SIS as a government monopoly and private insurers will not participate. The SIS will depend on the VBA’s enhanced power to order rectification work (outlined below) to be financially viable; the VBA will be able to order rectification work to reduce demand for insurance payouts. If a builder fails to rectify work and the SIS responds, the VBA can take disciplinary action and seek to recover costs from the builder.

3. Developer bonds for residential apartment buildings over three storeys

While the SIS will protect low rise building owners, a developer bond scheme modelled on the New South Wales Strata Building Bond and Inspection Scheme will protect owners of residential apartment buildings with more than 3 storeys.

The developer bond scheme aims to address the current gap in protection for home owners of residential apartment buildings with more than 3 storeys, which are not covered by the current domestic building insurance scheme. The developer bond scheme is intended to be an interim protection ahead of the introduction of decennial liability insurance (DLI) for these buildings in the future. This aligns with developments in New South Wales, where DLI is already available as an optional alternative to a strata building bond, with the NSW Government aiming to encourage industry to move towards DLI as more insurers begin to offer this product.

The developer bond is expected to be 2 per cent of the total build cost initially. This is consistent with New South Wales, where the building bond is currently 2 per cent, with plans to increase the amount of the bond to 3 per cent when the DLI market matures.

Developers will be required to lodge the bond before applying for an occupancy permit, and to notify the VBA of their intent to apply for an occupancy permit between 6 and 12 months before doing so. The VBA will inspect the building; if it identifies serious defects and issue a rectification order, the developer will be unable to apply for an occupancy permit, register a plan of subdivision or complete an off-the-plan sale until rectification work is completed. Purchasers will be able to rescind their off-the-plan contracts and recover their deposits if an occupancy permit has not been issued or the developer bond has not been lodged.

An inspection scheme will be introduced to support the developer bond scheme. The bond can be accessed to rectify defects identified in inspections conducted 15-18 months and 21-24 months after the occupancy permit is issued.

4. Increased VBA powers to make rectification orders

The VBA will be able to issue rectification orders in relation to incomplete, non-compliant and defective building work any time before the work is completed and up to 10 years after the occupancy permit. While most of the reforms in the Bill are focused on domestic building work, the VBA will be able to issue rectification orders to builders (but not developers) in relation to commercial building work as well.

The VBA will be able to issue rectification orders to the “person who carried out the work” (which will include subcontractors), and if the building is a residential apartment building (more than 3 storeys) also to the “developer” of the work. The definition of “developer” in the Bill is broad and may capture more than one entity. If an order is issued to more than one person each will be jointly and severally liable to comply with the order.

If the rectification order relates to a residential apartment building and involves a “serious defect” there will be restrictions on issuing an occupancy permit, registering a plan of subdivision and completing a sale until the order is complied with.

5. Minimum financial requirements for builders

Applicants for builder registration will need to meet prescribed minimum financial requirements. The purpose is to support the VBA’s underwriting activities related to its domestic building insurance functions under the SIS. The minimum financial requirements will be prescribed by regulations. According to the second reading speech, the Victorian Government will consult with stakeholders before determining the minimum financial requirements.

You can access the media release, the Bill and related materials here

https://www.legislation.vic.gov.au/bills/building-legislation-amendment-buyer-protections-bill-2025

https://www.premier.vic.gov.au/sites/default/files/2025-03/250304-New-Building-Watchdog-For-Buyer-Peace-Of-Mind.pdf

Consultation process for further reforms

In addition to the proposed reforms in the Bill, the Victorian Government is consulting with industry in relation to 2 other possible reforms:

• Building manuals for apartment buildings, prepared by builders or occupancy permit holders, to keep a building’s permits and documents in one place and to detail building or maintenance work completed.
• Additional mandatory inspections during construction, before waterproofing and plastering, with the aim of detecting defects earlier.

The consultation process is open until 30 April 2025. You can access details of the proposal and provide feedback here: https://engage.vic.gov.au/new-building-regulations-for-apartments.

Takeaways

While the Bill has not yet been passed and further consultation will occur, clearly developers and builders will need to take these likely reforms into account when planning for future projects. Parties will be able to look to recent experience in New South Wales for guidance on how the industry has addressed some of the proposed changes including the developer bond scheme.

Given the VBA’s increasing powers and role, it will be critical for the Victorian Government to adequately resource the VBA so it can quickly scale up and avoid delays to the administration of the integrated regulatory regime.

We will publish further updates as the Bill passes through Parliament and further reforms are announced.