The Building Legislation Amendment (Buyer Protections) Bill 2025 (Vic) signals a decisive shift in how residential development risk will be managed in Victoria. Among a broad range of consumer-focused reforms, the centrepiece for developers is the introduction of a statutory developer bond scheme.

Subject to earlier proclamation, the scheme is due to commence on 1 July 2026. It will apply to residential apartment buildings of more than three storeys, and developers will be required to lodge a financial bond before applying for an occupancy permit.

The consequences of non-compliance are far-reaching, including regulatory penalties, delayed settlements, contract rescissions by off-the-plan purchasers, and the possibility of public enforcement action. In short: the new regime raises the bar on post-completion accountability and will reshape project planning, finance structuring, and compliance risk management in the development lifecycle.

This article explores the key features of the proposed scheme, outlines the practical and legal implications for developers, and identifies the steps that sophisticated market participants should be taking now to prepare.

The Bill inserts into the Building Act 1993 (Vic) a new statutory objective focused on consumer protection, based on a developer bond scheme. It imposes a precondition to the issuance of occupancy permits for residential apartment buildings over three storeys namely that the developer must first execute and lodge a developer bond with the Victorian Building Authority (VBA).

Failure to do so is not a mere procedural defect. The scheme expressly prohibits developers from applying for occupancy permits unless they have complied with the bond requirement. Non-compliance will attract significant penalties—up to 500 penalty units for individuals and 2,500 penalty units for corporations, equating to fines in excess of $500,000 under the current penalty unit rate.

These provisions fundamentally alter the compliance landscape for developers. Obtaining an occupancy permit will no longer be purely dependent on the building surveyor's certification. It will now be tied to a financial compliance event, enforced at the regulator level and monitored throughout the handover process.

The bond must be executed in favour of the VBA and must represent 2% of the “total build cost” of the apartment building.

Importantly, “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. This is not limited to structural work or base building costs. It captures the complete cost of construction—including finishes, services, and external works.

Acceptable forms of security include bank guarantees, surety bonds, or other prescribed instruments. The bond must be secured and lodged prior to submission of the occupancy permit application, meaning it must be factored into both development finance and the project program well in advance of completion.

The legislation is silent on whether staged occupancy permits will require staged bonds, though this may be clarified by regulation. Developers pursuing staged towers or podium-tower configurations should consider whether each component will attract a separate bond obligation.

Perhaps the most commercially sensitive change for developers lies in the Bill’s amendment to the Sale of Land Act 1962 (Vic). These provisions provide that vendors under off-the-plan contracts must not require or permit purchasers to take possession of a lot until an occupancy permit has been obtained.

More critically, if an occupancy permit is issued but the developer has not lodged the bond, purchasers are granted a statutory right to rescind their contracts.

This right is not limited to minor purchasers or first home buyers. It applies to all off-the-plan sales, and where exercised, it entitles the purchaser to a full refund of all monies paid, including the deposit, together with penalty interest as determined under the Penalty Interest Rates Act 1983 (Vic).

In effect, this creates a high-stakes compliance trigger. If the bond is not in place at the time of occupancy permit issuance, developers may face mass contract rescissions, refund obligations, and corresponding enforcement action. The implications for finance settlements, cash flow, investor relations, and project viability are potentially severe.

The bond is designed to function as a safety net for defective building work identified post-completion. It is not an insurance scheme but a targeted compliance mechanism that enables third parties to apply to the VBA for access to funds.

Those eligible to make a bond claim include the owners corporation, the appointed building assessor, or any person performing a statutory function under Part 6 of the Building Act. The VBA will determine claims, and where there is disagreement between the developer and owners corporation, it has the power to appoint an independent expert to assist. Unless otherwise prescribed, the cost of this report is to be shared equally between the parties.

Once a claim is approved, the owners corporation must use the bond for the specific purpose approved by the VBA. However, with the developer’s consent, the funds may be applied for other uses. Any unused portion of the bond must be returned to the developer following the bond period and clearance of liability.

This feature reinforces the temporary nature of the obligation—it is not an open-ended contribution, but it does require careful planning to ensure proper release.

The developer bond regime is underpinned by a new independent role: the building assessor. This person must be appointed by the developer to inspect building works post-completion and produce two key reports: a preliminary report and a final report.

The preliminary inspection must be conducted no later than 18 months after the occupancy date (or any later date authorised by the VBA). Its purpose is to identify defective building work and determine the cause. A final inspection must then be carried out by the same assessor to confirm whether the identified defects have been rectified.

If a developer fails to engage the assessor to conduct the final inspection, the VBA has the power to appoint one itself. This mechanism ensures that the bond cannot be indefinitely withheld or left unresolved by developer inaction.

Developers must therefore ensure that assessor engagement is formally contracted, costed, and programmed into their delivery timelines. Delays in assessor engagement or reporting may delay bond release or trigger claims from owners corporations.

This legislative reform reshapes how completion risk is allocated in Victorian apartment projects. Rather than resolving disputes post-handover through private enforcement or insurance claims, the State has now created a front-end compliance mechanism that compels developers to carry secured exposure beyond practical completion.

Key commercial implications include:

• Settlement timing risk: Projects cannot settle unless bonds are executed, and occupancy permits are available. One missing step may derail a coordinated handover.

• Capital structuring impact: 2% of the total build cost will need to be secured for a period of at least two years, with little commercial leverage to reduce that exposure.

• Dispute exposure: The VBA will become the de facto arbiter of post-completion disputes, potentially overriding negotiated outcomes between developers, builders, and OCs.

Contractual flow-down: Developers will need to revisit builder contracts, consultant engagements, and D&C risk allocation to ensure downstream parties are properly aligned to this new regime.

Top-tier developers should begin preparing well before mid-2026. Projects already in procurement or design should be assessed now to identify:

• Whether the development will fall within the bond scheme;

• What impact a 2% bond will have on project finance, or liquidity;

• How to structure builder and consultant obligations to account for the post-completion inspection process;

• Whether the project settlement strategy is sufficiently flexible to accommodate the new preconditions.

This is also the time to engage with government and regulators to understand implementation guidance, and—where appropriate—to make submissions on draft regulations that will support the scheme.

Our team is already advising leading developers on the implications of the developer bond regime and related consumer protection reforms. We can assist with:

• Structuring and drafting delivery contracts that address the bond regime;

• Settlement strategy reviews and contract compliance audits;

• Advising on building assessor engagement frameworks and reporting obligations;

• Managing bond disputes and navigating VBA processes;

• Developing standard form clauses and compliance procedures to ensure future-proofed development models.

To discuss how these reforms affect your projects, or how to position your business for compliance and competitive advantage—please get in touch with our fully integrated, Planning, Property & Development and Construction & Engineering teams.