In our recent legal update we advised on the terms of the Building Energy Efficiency Disclosure Bill 2010 (Bill) which was tabled in Parliament by the Minister assisting the Minister for Climate Change and Energy Efficiency The Hon Greg Combet, AM MP, on 18 March 2010. The Bill was passed by the lower house, however, when it was tabled in the upper house the Senate called for an enquiry. That enquiry has now taken place, the outcome of which was a recommendation by the Senate Standing Committee for the Bill to be passed with some amendment. The Property Council of Australia has been involved in the negotiation of some of those amendments. Those negotiations concluded last week with the result in the amended Bill being passed this week with a commencement date of 1 July 2010.
What are the changes?
There are three main changes
- allowing for the use of energy rating assessments other than those recognised as Building Energy Efficiency Certificates (BEEC's) during the transition period
- a reduction in the maximum penalties per day for continuing contraventions of a number of the civil penalty provisions, and
- the exclusion from the scheme of certain short term leases.
These changes are not substantive nor do they change the way that the legislation will operate.
The most significant change is to the transitional provisions. As previously explained, the Bill provides for a 12 month transition period commencing on implementation day which is expected to be some time in October 2010 but no later than 31 December 2010. During this 12 month transition period a rating of the energy efficiency of the building is now a recognised rating if the rating is issued before or during the transition period and is issued by a person or body that is recognised as an issuing authority at the start of the transition period. This means that NABERS ratings whether obtained before or after the commencement of the legislation can be used to satisfy the disclosure obligations in the Bill during the 12 month transition period.
In addition the tenancy lighting element of the scheme will be delayed and the government has undertaken to consult further with the industry in relation to this requirement having regard to the concerns raised particularly by the Property Council of Australia that the cost of providing the certificate would be prohibitive with little benefit for tenants. The government has committed to providing cost effective information on base lighting within office tenancies.
The second positive change to the legislation is the penalty regime. Whilst the maximum prescribed penalties (generally in the amount of $110,000.00) will apply in relation to the initial contravention of the legislation, the amendment limits the penalty payable for certain contraventions where the contravention continues for more than one day. This means that each new day of the contravention after the initial contravention will generally be calculated at a maximum amount of $11,000.00 per day rather than the initial maximum penalty of $110,000.00 per day. This is a small win for the industry, however, owners of commercial office buildings will still need to be vigilant in relation to the disclosure process.
Short Term Leases
The final substantive amendment made to the Bill as a result of the Senate inquiry process is an exemption for short term leases of 12 months or less. The new provisions provide that disclosure will not be required if an invitation to offer or an offer is made to let or sublet a building or an area of the building with an area of 2,000m˛ or greater if at the time the invitation or offer is made the term of the proposed lease or sublease is 12 months or less and a term of more than 12 months is not proposed at any time while the invitation or offer is continuing. In having regard to the twelve month term any options to extend the lease or sublease must be included and therefore we expect that similar to retail lease legislation throughout Australia this 12 month exemption will have limited application for the industry.
The balance of the amendments relate to drafting errors and do not change the operation of the legislation nor its impact on the industry.
As previously advised a lot of the detail in relation to the disclosure requirements will be set out in the Regulations. Disappointingly, the Regulations are still not available. We are hopeful that the Regulations will be issued shortly at which time we will provide a further update.
What does this mean for you?
It is likely that the disclosure obligations will commence in less than four months. It is now more important than ever for the commercial office sector to be ready for mandatory disclosure. We strongly recommend that owners of commercial office buildings undertake the following course of action:
- Ensure that they have current NABERS ratings available for all of their commercial office buildings.
- If NABERS ratings are not currently available then action should be taken to immediately commence the process to obtain those ratings.
- At the commencement of any negotiations in relation to the sale of a commercial office building or lease of all or part of a commercial office building over 2,000m˛ processes should be in place to ensure that disclosure is made at the commencement of any discussions with prospective purchasers or tenants and that the prospective purchaser or tenant should acknowledge in writing that they have received the recognised NABERS rating at the commencement of those discussions.
- Due diligence checklists should be reviewed to ensure that appropriate due diligence is undertaken in relation to the status of any building that is to be purchased or leased in relation to its current NABERS rating status and if that building does not have a current NABERS rating then the prospective purchaser or tenant should ensure that they can contractually secure the information from the vendor or landlord respectively to enable it to obtain a rating in future.
- Financiers should review their loan documentation as well as their conditions of drawdown to ensure that their borrowers have or will obtain in the near future a NABERS rating for the commercial office building and will maintain that rating during the term of the facility.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.