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What do you need to do?Be prepared to disclose the energy efficiency of certain commercial office buildings and tenancies at the time of sale or lease.
David Colenso
Partner
Damiano Castelli
Senior Associate
David Colenso
Partner
T +61 7 3244 8152
David Bell
Partner
T +61 7 3244 8051
Sydney
Michael Allen
Sue Kench
David O'Donnell
Peter Pether
Melbourne
Simone Menz
Andrew Norman
Brisbane
David Bell
Scott Budd
Matthew Austin
Canberra
Chris Wheeler
From 2010, owners of certain commercial office buildings will be required to disclose the energy efficiency of those buildings when they are sold or leased under proposed new Commonwealth legislation. The scheme will place the onus on building owners to accurately report and disclose energy efficiency measures to create a transparent marketplace.
In brief
- The National Australian Built Environment Rating System (NABERS) will be used to benchmark a building’s greenhouse impact using a one to five star rating. One star represents a high greenhouse impact and five stars represents a low impact.
- The mandatory disclosure scheme is intended to reveal a building’s ‘green credentials’. The resulting market forces may also indirectly force owners to explore ways to implement energy efficiency initiatives in buildings they own.
Drivers behind the new scheme
Roughly a quarter of all carbon emissions come from buildings, with 10 per cent from the commercial building sector alone.
The Federal Government recognises public demand for action on climate change. Coupled with the growing focus on participation in the Kyoto Protocol and on limiting carbon emissions, the spotlight is on energy efficiency in the regulation of building construction and management. ‘Green buildings’ are a part of the Government’s commitment to carbon reduction and a response to public demand for action on climate change.
The objective of the scheme is to overcome perceived market failure in delivery of energy-efficient buildings and tenancies:
- Tenants, while concerned about energy efficiency, are unable to influence their landlords to make changes to their buildings.
- Landlords have insufficient incentive to improve a building’s efficiency since landlords cannot generally recoup costs from tenants, despite tenants benefiting from the improvements.
- It is costly and difficult for buyers and tenants to determine a building’s energy efficiency.
The aim of the new scheme is to allow buyers and tenants to compare buildings in terms of their energy efficiency. The intention is to allow market forces to force building owners to improve the energy efficiency of their properties to remain competitive. At present (aside from general minimal building standards under the Building Code of Australia and some limited local government planning scheme requirements) the energy efficiency of commercial buildings is largely self-regulated by the private sector. Many industry players believe that the market has in fact responded well in producing innovative green building solutions. Policy makers, however, are wishing to effect a tangible change and accelerate pressure on the market to improve, particularly existing buildings.
Disclosure is only required at the points of advertising, sale or lease and to a central registry. So, unlike the European Union directive which mandates disclosure for any building occupied by public authorities, ongoing public disclosure of the ratings is not required.
The draft Commonwealth legislation is expected to be made public in the next few months.
How will it work?
Following the lead set by the United Kingdom, the Federal Government proposes to use the National Australian Built Environment Rating System (NABERS). This is a performance based rating system which measures a building’s overall environmental performance and gives it a star rating linked to carbon dioxide emissions per square metre. It is this star rating which will be disclosed in advertisements for sale or lease.
Duties of disclosure
The current proposal is for three different disclosure obligations on owners:
- First, when a building or part of a building is advertised for sale, lease or sub-lease, the advertisement must disclose the NABERS star rating.
- Second, once a proposed sale, lease or sub-lease is initially advertised, the owner (or sub-landlord) will have 30 days to provide a central government registry with the Building Energy Efficiency Certificate (BEEC) and Energy Efficiency Assessment Report (EEAR). The public register will enable prospective purchasers or tenants to verify the validity of the EEAR and BEEC supplied to them.
- Third, when a sale, lease or sub-lease is proposed, any prospective purchaser or tenant who receives information from the owner or views the property must receive both a BEEC and an EEAR. If part of a building is to be sold or leased, then there must be an additional disclosure of both the BEEC and EEAR for that part of the building. It is the building owner’s responsibility (or a sub-landlord’s, in the case of a sublease) to arrange for the reports and certificates to be provided.
The BEEC discloses the energy efficiency of the current use of the building. Under the scheme, it is proposed that this certificate will be valid for 12 months. The EEAR focuses on opportunity for increasing energy efficiency including analysis of the method and costs of improving particular energy uses such as lifts and air conditioning. It is proposed that the EEAR will be valid for seven years.
The new scheme will initially apply to Class 5 buildings under the Building Code of Australia (BCA) (office buildings used for professional or commercial purposes) with an NLA over 2000m2 or parts of those buildings that meet the 2000m2 threshold.
How will the scheme impact on owners?
The new scheme will encourage a transparent market by disclosing a building’s energy efficiency credentials. In doing so, the policy makers hope it will put pressure on building owners to reduce the energy used in their building systems to improve the building’s environmental credentials and consequent star rating and value in the market. It is not clear whether this new legal framework will result in an increase in demand for building refits, engineering solutions and replacement or upgrading of cooling, ventilation, elevators and lighting systems to reduce a building’s total emissions. If it does, then this will be a costly task for owners of older buildings.
Although only commercial buildings are captured from 2010, the scheme may possibly extend beyond commercial office buildings to retail and industrial buildings in the foreseeable future.
Compliance
Infringement notices will be the primary enforcement mechanism for non-disclosure, supplemented by:
- Powers of the administering body to formally seek a civil penalty order against an infringer in court
- A right for a person to whom the information should have been disclosed to enforce the right to disclose in court, and
- In a sales context, the right of a purchaser to withhold the balance of the purchase price under a contract of sale until the disclosure is made.
It has also been proposed to impose criminal offences for the provision of misleading material.
The final form of the penalties and incentives to comply has yet to be determined.
Building owners - action required
- Incorporate comprehensive energy efficiency targets and performance criteria in planning for new projects.
- Prepare for an increasing market appetite for green leases.
- Prepare for assessment and rating of current buildings captured by the scheme and be ready by 2010.
- Encourage dialogue with tenants on their energy efficiency and requirements.
- Prepare a strategy for potential upgrades to improve energy efficiency.
Moving forward
The new scheme’s effectiveness will be gauged by the market’s response to the information required to be disclosed. NABERS, BEEC and EEAR could become secondary drivers of value in the market.