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25 Nov 2009

Mandatory energy efficiency disclosure obligations for commercial buildings

by Brendan Bateman, Honor Irvine

Mandatory disclosure by large commercial buildings of energy efficiency ratings are to be put in place as part of the Council of Australian Governments' National Strategy on Energy Efficiency.

On 12 November, Environment Minister Peter Garrett announced that the Federal Government was drafting legislation to require mandatory disclosure of up-to-date energy efficiency ratings by commercial buildings following agreement to a new national scheme by the State Governments.

The Environment Department has released two documents, The Mandatory Disclosure of Commercial Office Building Energy Efficiency - Regulation Document, and a Regulation Impact Statement, detailing the scheme which it is proposed will come into effect in the second half of 2010.

What will the scheme cover?

The new scheme will require building owners when selling or leasing an office space over 2000 square metres to provide:

  • in any advertisement about the sale or lease, a NABERS Energy base building star rating (excluding GreenPower); and
  • a valid Building Energy Efficiency Certificate (BEEC) to prospective buyers and lessees. The BEEC will include:
    • a National Australian Built Environment Rating System (NABERS) Energy base building star rating;
    • an assessment of the lighting energy efficiency of tenancies; and
    • some suggestions on how to improve the building's energy efficiency,

and will be valid for a period of 12 months. Full details of the content of BEECs will be prescribed in the legislation.

The scheme will be implemented under Commonwealth legislation based on the corporations power of the Australian Constitution to ensure coverage of at least all constitutional corporations and the consistent application of the scheme across the States and Territories. In addition, those not covered by the mandatory scheme, such as governments, will be able to participate voluntarily.

Penalty

Non-compliance may result in civil penalty of up to $100,000. The consultation paper notes the Government's conclusion that penalty or infringement notices would unlikely to be effective in achieving compliance with the scheme.

Coverage

It is intended that the scheme be implemented in two phases. Phase one, as mentioned above, requires disclosure by large commercial office buildings of 2000 square metres or more including office buildings owned by the Australian government. Phase two involves consideration of expanding the scheme to other commercial building types, including hotels, retails building, schools and hospitals after further analysis.

It is expected that the scheme will initially cover 2,170 buildings with exemption being given to buildings less than 12 months old (because of the absence of energy data) and in situations where it is not feasible to prepare a BEEC - details are yet to be provided.

A small number of transactions will be exempt from the scheme, including short-term leases of less than 12 months duration. Further, if an office building has been substantially refurbished within the previous 12 months of an impending sale or lease, the scheme will allow the star rating to be modelled in accordance with the NABERS energy simulation protocol.

Subleases

A tenant wishing to sublease their premises (above the relevant size threshold) will be required to provide tenancy lighting details and energy efficiency guidance for the space being offered for sublease. In this case, the base building rating and energy efficiency guidance must also be provided to the potential sublessee if they are available at the time of the sublease as a result of an assessment instigated by the building owner.

Strata title

NABERS Energy does not enable the rating of the base building or tenancies in strata titled buildings. The scheme therefore excludes the disclosure of base building ratings for strata type buildings from in its initial implementation stage. It is expected, however, that the scheme will be expanded to rate strata titled buildings in a more comprehensive manner in the future.

The scheme will require strata titled buildings to disclose tenancy lighting details and appropriate energy efficiency guidance for the area being sold or leased.

GreenPower

The mandatory disclosure scheme requires that the star ratings disclosed in advertising do not include performance gains achieved through the purchase of accredited GreenPower. This is primarily because a potential purchaser or lessee may or may not continue to purchase GreenPower, and therefore risks being misled if the star rating included GreenPower. There is also a risk that sellers or lessors could rely heavily on GreenPower to promote their building’s performance while the energy performance of the building may be much lower without the GreenPower component. Such potential for confusion would detract from the core objective to ensure that "credible and meaningful information is publicly and readily-available" and that "potential buyers and tenants can compare the performance of buildings on a like-for-like basis".

The scheme therefore requires that the star rating used for the purposes of mandatory disclosure in all advertising material must not be adjusted by any GreenPower influences.

The BEEC, however, will enable the prospective purchaser or lessee to discover, and the existing owner or lessor to be recognised for, the presence of GreenPower in a particular office.

Administration

The National Administrative Unit (NAU) will be created to oversee the scheme's implementation and will have overall responsibility for training, accreditation, auditing and quality control under the scheme. The NAU will reside within an existing Australian Government department such as the Department of the Environment, Water, Heritage and the Arts.

NSW DECC will continue to administer the NABERS Energy scheme with its training and accreditation being expanded to cover all components of the BEECs. It is intended that the NAU and the NSW DECC work closely together to ensure successful administration of the scheme.

Central registry

The NAU will administer an online central registry for BEECs. The NABERS Energy base building star ratings will be publicly available on the registry but BEECs will only be accessible to identified potential purchasers and lessees.

Why is this important and how do we compare?

Commercial buildings in Australia account for at least 10 percent of Australia's greenhouse gas emissions, excluding emissions associated with building and construction, and those emissions have grown by 87 percent between 1990 and 2006.

This scheme, said the Minister, "is part of an ambitious scheme to make Australian's homes and businesses more energy efficient, by improving base standards and star ratings for appliances, equipment and buildings, and by phasing out inefficient technologies". However, Australia still has a fair way to go according to the International Energy Agency. Dr Nigel Jollands, head of the IEA's energy efficiency unit says that based on its analysis, Australia needs to focus its efforts on improving energy efficiency of buildings and transport. He views the new system as "a good step" but made comparisons with Europe which has had similar systems in place for a number of years for both residential and commercial buildings.

Next steps

To ensure that businesses are aware of the requirements of the new scheme, the Department will be conducting a series of seminars together with the Property Council of Australia in the coming weeks. Representatives from NABERS will also be present.

Building owners who fall within the threshold and who may be looking to sell or lease in the future have been strongly encouraged by the Government to familiarise themselves with the NABERS Energy base building assessment tool with the warning that getting the first rating could take some time.

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Disclaimer

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.