Focus: How the Energy Efficiency Disclosure
Scheme affects landlords
Services: Property & Projects
Industry Focus: Property
1.1 Transitional Dates
The Building Energy Efficiency Disclosure Act 2010 ("Act") was implemented on 1 November 2010 with a transitional period that expires as of 31 October 2011.
Generally, the trigger point for disclosure obligations under the Act is when a party intends to sell or lease a property captured by the Act.
From 1 November 2011 a landlord wishing to lease disclosure affected premises will generally be required to disclose a Building Energy Efficiency Certificate ("BEEC"). These obligations will also apply to building owners wishing to sell disclosure affected premises.
Considering the broad nature of the legislation, landlords should ask three key questions before preparing to lease a property:
- What are the minimum disclosure requirements of the Act?
- Which of my properties are considered 'disclosure affected' premises within the Act?
- How can I comply with and manage disclosure obligations for my property portfolio?
1.2 What is a BEEC?
A BEEC has three components:
- a National Australian Built Environment Rating System ("NABERS") base or whole building rating base or whole building certificate disclosing the energy efficiency rating of a building;
- an assessment of the energy efficiency of lighting systems in tenanted areas, where such tenanted areas can be expected to remain unchanged upon sale, lease or sub-lease; and
- advisory and guidance materials on the proposed energy efficiency performance improvements of the building.
It is here that a distinction must be made between NABERS whole building and NABERS base building ratings. Where a party has control over the common areas and central services of a building, they must obtain a base building rating. However, where a party has control over individual tenancies in addition to base building obligations, then a whole building rating must be obtained.
1.3 Current Minimum Disclosure Requirements
Buildings Captured by the Act – disclosure affected premises
A landlord may be required to disclose a BEEC if it intends to lease disclosure affected premises. Premises captured by the Act include those which have a net lettable area exceeding 2,000 square metres where 75% of the net lettable area is being used for administrative, professional or similar information-based activities, including any support facilities for those activities.
If multiple premises are contained in one title, the net lettable area of each premises is to be calculated individually when determining the 2000m2 threshold. Multiple premises should not be aggregated to calculate the net lettable area.
However, there are some exceptions to the requirements to disclose as referred to in paragraph 1.4 below.
Where do unsolicited offers to lease or sublease fit into this framework?
The disclosure obligations would be triggered as soon as a landlord with a disclosure affected premises received an unsolicited offer to enter into any kind of negotiation with a person who made an offer about the terms of a lease or sublease.
At this point in time a landlord should not enter into negotiations in response to an unsolicited offer without first registering a BEEC (unless exempt under the Act), unless the landlord proposes to accept the offer unconditionally.
When and How Must Disclosure Be Made?
If a landlord intends to lease disclosure affected premises, it will be required to include a valid, current energy efficiency rating in any advertising material.
Precise details on how the rating disclosure must be presented in advertising will be determined by the Secretary of the Department of Climate Change and Energy Efficiency ("Secretary") from time to time. Presently, the rating disclosure in advertising material must be:
- displayed prominently;
- clearly visible;
- presented in such a way that it is not obscured; and
- in a form where the number and the text is at least as large as the majority of text in the advertising.
The BEEC must also be disclosed on the online Building Energy Efficiency Register.
1.4 Buildings and Transactions Constituting Exceptions Under the Act
The following buildings and transactions will be excluded from the disclosure requirements:
- new buildings less than two years old;
- strata-titled buildings (however described) which have been established under State or Territory law;
- office buildings which have undergone a major refurbishment and obtained a certificate of occupancy less than 2 years old (see 1.6 for more information);
- short term leases and sub-leases of less than 12 months (including any options to extend). For example, a six month lease with an option to extend for another six months would be exempt. However, a six month lease with an option to extend for 12 months would trigger a disclosure requirement; and
- the sale of shares or units or sale of a partial interest in a building. This is regardless of whether disclosure is ordinarily required in relation to that building.
Applications to the Secretary
The Act allows building owners to apply to the Secretary for an exemption in the following circumstances:
- where a building is used for policy or security operations;
- where a rating is not possible due to the characteristics of the building. For example, there is insufficient energy data due to vacancies in the building over an extended period; and
- where the building belongs to a class prescribed by the regulations.
As the Act was only recently implemented, the regulations do not currently prescribe additional exempt buildings or transactions. However, based on the operation of a similar Act in the UK, we suspect that the following buildings may also come to be exempted:
- temporary buildings;
- buildings to be demolished; and
- buildings where a reasonable attempt has been made to obtain BEEC equivalent certification but which could not be obtained due to no fault of the building owner.
An application to the Secretary must be in a prescribed form and accompanied by a fee of $350 (GST inclusive).
1.5 Penalties for Non-disclosure
Non compliance with disclosure obligations may incur civil penalties or infringement notices. The Secretary has discretion to commence proceedings or issue an infringement notice based on the nature, extent and circumstances of the breach.
For civil proceedings, the court may impose a penalty of up to $110,000 for the first day of a contravention and up to $11,000 for each subsequent day of the contravention. For Infringement Notices, the initial one day penalty is $11,000 and $1,100 for each subsequent day of the contravention.
1.6 Recent determination under the Act
The Secretary is empowered by the Act to make determinations which affect its interpretation and application.
On 11 August 2011, a determination was made affecting properties which are undergoing or had recently undergone a major refurbishment affecting the energy efficiency ratings of the base building.
Where a major refurbishment has been completed, and a certificate of occupancy (or equivalent) has been issued by local authorities, the building will not be disclosure affected for a period of two years from the date of issue of the certificate.
Qualifying for this exemption requires a party to provide evidence to the Department of Climate Change and Energy Efficiency that the refurbishments will impact the energy efficiency rating of the building.
If a party has not been issued with a certificate of occupancy, the party may nonetheless apply for an exemption to the Secretary. An exemption, if granted, will be designed to allow sufficient time to collect the relevant energy information in relation to the building to substantiate a rating.
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.