The NSW Government has passed the Fair Trading and Building Legislation Amendment Bill (opens a new window), laying the final legislative groundwork for Latent Defects Insurance (LDI), to be brought to market for apartment developments across the state.
This marks a significant milestone for the property and construction industry and represents one of the most substantial enhancements to consumer protection in the residential apartment sector in decades.
For owners, developers and contractors, the focus now shifts from anticipation to preparation.
What has changed?
The legislation creates the framework needed for insurers to develop and seek approval for LDI in NSW.
The reform is designed to provide apartment owners with up to 10 years of protection against the cost of rectifying serious building defects affecting critical building elements such as structure, waterproofing and fire safety systems.
Importantly, the policy attaches to the building rather than an individual owner, so it is designed to provide protection to future owners throughout the policy period.
Why this matters
It addresses a longstanding challenge in the Australian building market and helps to ensure owners have an effective pathway to remediation when serious defects emerge years after construction is complete.
Unlike traditional legal recovery processes, Latent Defects Insurance is designed as a first-party, no-fault insurance solution.
Rather than pursuing builders, developers or consultants through lengthy litigation, owners may be able to claim directly through the insurance policy when covered defects arise.
The reforms are also intended to strengthen confidence in the apartment sector following several high-profile defect cases that highlighted gaps in existing consumer protections.
What property developers and contractors should be doing now
With the legislative framework now in place, insurers are expected to focus closely on project governance, quality assurance processes, risk management practices and contractor selection.
Developers and contractors who can demonstrate strong controls, robust documentation and a commitment to delivering quality outcomes are likely to be better positioned as the market matures.
Looking ahead
The passage of this legislation is more than a regulatory milestone.
It signals a fundamental shift in how building defect risk may be managed in Australia.
As LDI progresses through approval processes and becomes more widely available, the industry has an opportunity to embrace a model that improves consumer confidence, rewards quality construction practices and provides long-term protection for apartment owners.
For developers considering future projects, organisations that prepare early will be best placed to navigate the changing regulatory landscape and capitalise on the opportunities it creates.
Contact us
To learn more, visit our Latent Defects Insurance (opens a new window) page on our website or contact us.
The contents of this publication are provided for general information only. Lockton arranges the insurance and is not the insurer. While the content contributors have taken reasonable care in compiling the information presented, we do not warrant that the information is correct. The contents of this publication are not intended as a legal commentary or advice and should not be relied on in that way. It is not intended to be interpreted as advice on which you should rely and may not necessarily be suitable for you. You must obtain professional or specialist advice before taking, or refraining from, any action based on the content in this publication.
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