Latent Defects Insurance in Victoria

Victoria has legislated LDI as a formal alternative to the new developer bond.

Victoria under the Building Legislation Amendment (Buyer Protections) Act 2025 has now legislated that all Class 2 developments (excluding DBI) require either decennial liability (latent defects insurance, LDI) or a 2% developer's bond. LDI is far superior, not only from a developer protection aspect, but managed correctly through SHC Insurance Brokers, it is a positive financial purchase. Subject to change (by government), there are two triggers: first trigger, if any building permit is issued after July 2026, and second trigger, occupancy certificate is applied for after 1st July 2027. SHC is the most experienced to manage this process on your behalf.

What the Victorian reform means for your project

The direction is clear: Victoria now requires cover, not just compliance intent. Under this legislation, residential apartment buildings of more than three storeys cannot receive an occupancy permit from 1 July 2026 without decennial liability (Latent Defects Insurance, or LDI) or a tie up capital with developers bond.

Applies to Class 2 apartment buildings over three storeys.
Administered by the Building and Plumbing Commission (BPC), successor to the Victorian Building Authority.
Projects with a building permit already issued, or issued before 30 June 2027, fall under transitional arrangements.
LDI must be secured before construction begins. Contact SHC as early as possible.

What Latent Defects Insurance Covers

Covered

Structural elements: load-bearing walls, slabs, columns, beams, transfer structures, and foundations
Building envelope: external walls, roof, and waterproofing systems
Waterproofing failures relating to structural or envelope defects
Fire Safety Structural Elements
Consequential losses: temporary accommodation, reinstatement fees, and pre-authorised investigation costs where the building is uninhabitable
MEP - Mechanical, Electrical and Plumbing systems

Not Covered

Cosmetic or non-structural defects
Damage from poor maintenance or wear and tear

*Not all events are covered

Who should hold this policy?

As the developer, you carry the project risk. LDI is built around that. But the policy extends its value to every party in the transaction: builders, financiers, and future owners all benefit from 10 years of first-resort structural cover.

For financiers

Significantly reduce your lending risk by protecting yourself with an LDI policy.
For future purchasers and owners corporations

Increase your confidence. The policy is transferable. Owners corporations inherit 10-year first-resort structural cover at handover, without needing to initiate legal action to access it.

LDI or developer bond: what it costs your project

Latent Defects Insurance

Premium averaging 1.5% of construction cost
One-off premium, no capital held or returned
10-year cover from the date of your Occupancy Certificate
First-resort, strict-liability: claim directly with the insurer, no fault attribution required
TIS (Technical Inspection Cost) averaging 0.2 - 0.25% of CV. This saves considerably more in defect rectification costs.

Developer bond

2% of total build cost, lodged with the BPC
Held as a bank guarantee or surety bond for over 24 months after occupancy.
SHC’s experience is that the bond (capital) is held considerably longer.
Covers rectification, assessed and released by the BPC on application.
Empirical evidence suggests it costs up to 1.7% to retrieve your 2% guarantee back.

We are national LDI specialists

A Melbourne-based specialist team

SHC Insurance Brokers operates from Melbourne CBD, with a team that works directly with Victorian developers, financiers, and building surveyors for the entire SHC ecosystem of insurances around LDI.
Risk management that sharpens your whole program

SHC Insurance Brokers builds independent risk management into every LDI project from design through to occupancy. The result is a demonstrably better, independently verified risk profile, and we use that evidenced position to negotiate significantly sharper rates and broader cover across your entire construction program.
One broker, one file for the full ten-year tail

From DA through to OC and beyond, SHC Insurance Brokers carries you through each stage with one continuous file and one specialist team. We understand where insurance intersects the certification pathway, flagging issues before they become PC or OC blockers, because we have seen every version of this before.

Frequently asked questions

Is LDI mandatory in Victoria?

No. LDI is a voluntary alternative to the developer bond. Since 1 July 2026, one of the two has been required before an occupancy permit can be issued for apartment buildings over three storeys. Neither is optional; the choice between them is.

What is the Victorian developer bond, and how does it compare to LDI?

The developer bond is a financial security equal to 2% of total build cost, lodged with the Building and Plumbing Commission and held for up to 24 months after occupancy. LDI is a 10-year insurance policy secured through a one-off premium, with no capital held against the project.

Does LDI replace the developer bond?

LDI is a formal alternative to it, not an addition. A developer choosing LDI does not also need to lodge a bond for the same building.

When do I need to arrange LDI for a Victorian project?

LDI must be secured before construction begins. The independent Technical Inspection Service (TIS) that forms part of the policy starts at the design stage. Retrospective cover is not available.

Does this apply to my project if it is three storeys or less?

No. Buildings of three storeys or less fall under Victoria’s separate First-resort Home Warranty Scheme, not the developer bond or LDI framework.

What happens if my building permit was issued before 1 July 2026?

Transitional arrangements apply to projects with a building permit issued before 1 July 2026, or by 30 June 2027. Speak with SHC Insurance Brokers to confirm how this applies to your project.

What does LDI cost compared to the bond?

LDI premiums generally range from 1.3% to 1.9% of construction cost, averaging around 1.5%, paid once. The developer bond ties up 2% of total build cost as cash or a bank guarantee for the holding period. SHC Insurance Brokers can also arrange premium funding for LDI where cash flow is a consideration.

Can LDI be transferred to the owners corporation at handover?

Yes. LDI is issued to the developer and is transferable, including to the owners corporation on creation. It remains in force regardless of whether the original developer or builder is still operating.

What is the Technical Inspection Service, and is it required in Victoria?

TIS is a mandatory, independent third-party oversight service that runs from design stage through to practical completion, confirming the project is being built to its approved design and code. It applies to LDI-insured projects nationally, including Victoria.

Who administers the Victorian scheme?

The Building and Plumbing Commission (BPC), which replaced the Victorian Building Authority, administers both the developer bond scheme and the requirements for LDI as its alternative.