THE DRIVE FOR ENERGY EFFICIENCY
Until recently, Commonwealth, State and Territory governments have separately implemented or committed to a range of energy efficiency policy measures. In order to address the varied nature of energy efficiency policies and programs to date, the Council of Australian Governments (COAG ) has agreed to develop a national energy efficiency policy framework to harmonise these policies and programs across jurisdictions.
This article provides a brief overview of the 'National Framework for Energy Efficiency' (NFEE ) developed by COAG and highlights the main features of the 'Mandatory Disclosure of Commercial Office Building Energy Efficiency Scheme' (Mandatory Disclosure Scheme) proposed to form part of the NFEE .
AUSTRALIA'S ENERGY EFFICIENCY FRAMEWORK
National Framework For Energy Efficiency
The NFEE (administered by the Ministerial Council on Energy (MCE )) was created by COAG to 'provide a sound platform to improve energy efficiency performance nationally... through coordinated action by Australian, State and Territory agencies'.
As part of this national approach, the MCE approved an extensive package of policy measures as part of Stage 1 of the NFEE . The key measures of Stage 1 of the NFEE were directed at addressing impediments to the implementation of energy efficiency measures in the following key areas:
- buildings – energy efficiency standards and mandatory disclosure;
- appliances and equipment – minimum energy performance standards (MEPS) and labelling;
- industry – the Australian Government's Energy Efficiency Opportunities scheme; and
- capacity building – training, accreditation and the provision of information.
The MCE more recently agreed to develop further energy efficiency measures as part of Stage 2 of the NFEE , including:
- a strengthened and expanded MEPS program;
- a heating, ventilation and air conditioning systems strategy;
- an incandescent lighting phase out strategy;
- government leadership through green leases; and
- the development of a national hot water strategy.
MANDATORY DISCLOSURE OF COMMERCIAL OFFICE BUILDING ENERGY EFFICIENCY SCHEME
The Mandatory Disclosure Scheme is currently being developed by the Department of the Environment, Water, Heritage and the Arts (DE WHA) as part of Stage 2 of the NFEE referred to above.
In A Nutshell
According to DEWHA , the Mandatory Disclosure Scheme 'will require the energy efficiency of commercial office buildings to be disclosed at the point of sale or lease so that potential buyers and tenants can compare the energy efficiency of buildings on a 'like for like' basis...to overcome market impediments and ensure that both parties in a transaction have access to credible and meaningful information about a building's energy efficiency'.
On 18 December 2008 DEWHA published the 'Mandatory Disclosure of Commercial Office Building Energy Efficiency Consultation Regulation Document' (CRD ) see http://tinyurl.com/b5ofd8. The CRD sets out details of the regulatory proposal for the Mandatory Disclosure Scheme, and calls for public submissions.
The CRD contemplates the Mandatory Disclosure Scheme as requiring:
- disclosure by owners (or tenants in the case of a sub-lease) of a valid 'NABERS Energy' rating (excluding Green Power) in all advertising material relating to the sale or lease of certain commercial property;
- disclosure by owners (or tenants in the case of a sub-lease) of a valid Building Energy Efficiency Certificate (BEEC) and Energy Efficiency Assessment Report (EEAR) to prospective purchasers or tenants of certain commercial property; and
- disclosure by owners (or tenants in the case of a sub-lease) of a valid BEEC and EEAR to a central registry of 'accredited assessors'.
The Mandatory Disclosure Scheme could be implemented as early as 2010. I t is intended that the Mandatory Disclosure Scheme will be given effect via 'stand-alone' Commonwealth legislation, relying on the 'corporations power' granted to the Commonwealth under section 51(xx) of the Constitution.
Key Elements Of The Mandatory Disclosure Scheme
Set out below are the key features of the proposed Mandatory Disclosure Scheme, as disclosed in the CRD.
The Mandatory Disclosure Scheme is intended to have the 'widest practical coverage possible'.
If the proposals contemplated by the CRD are implemented, the Mandatory Disclosure Scheme will apply to 'constitutional corporations' that own or lease 'class 5' commercial office buildings (or parts thereof) with a net lettable area (NLA) of 2000m˛ or more.
By limiting its application to constitutional corporations, it appears that the Mandatory Disclosure Scheme will not apply to class 5 commercial office buildings owned (or leased in the case of sub-leasing) by:
- individuals – though query how many individuals would own or sub-lease class 5 commercial office buildings (or parts thereof) with NLA greater than 2000m˛ anyway;
- partnerships; or
- government departments (whether local, Territory, State or Commonwealth) – although government departments (at least Territory, State and Commonwealth) are likely to 'opt-in' for policy reasons.
It also raises issues as to the application of the Mandatory Disclosure Scheme to commercial office buildings owned under trust arrangements (although the use of corporate trustees is likely to trigger the application of the Mandatory Disclosure Scheme).
When Disclosure Will Be Required
As indicated above, the central requirement of the proposed scheme is that when a class 5 commercial office building (or part thereof) with an NLA of 2000m˛ or more is to be sold, leased or sub-leased, an energy efficiency rating and assessment report must be disclosed by the owner or tenant (in the case of a sub-lease):
- in any advertisement about that sale or lease – disclosure requirement is limited to a valid NABERS Energy rating;
- to prospective buyers and tenants – via a valid BEEC and EEAR ; and
- to a central registry – via the disclosure of a valid BEC and EAR.
Limited exemptions may apply to new buildings (eg where 12 months of contiguous data is not yet available to enable the required NABERS Energy rating to be obtained), tenancies of less than 12 months and other situations where compliance is impossible or not practicable (eg where inadequate metering or other factors prevent a NABERS Energy rating from being obtained).
As noted above, voluntary participation on an 'opt in basis' will apply in respect of the Commonwealth, State, Territory and local governments.
Voluntary participation will also be possible for others not required to comply (eg individuals, or constitutional corporations where the 2000m˛ threshold is not met or exceeded).
As noted above, the intention is for the Mandatory Disclosure Scheme to apply to buildings classified as 'class 5' under the Building Code of Australia, including buildings that are used, designed for, or physically capable of, professional or commercial use.
However, the CRD also suggests that the Mandatory Disclosure Scheme may, in future, be expanded to cover other classifications of commercial buildings – consistent with the intention to have the 'widest practical coverage possible'.
Relevant Energy Efficiency Rating Tool – NABERS Energy
As indicated above, NABERS Energy (excluding Green Power) is the energy efficiency rating proposed to be used for the purposes of the Mandatory Disclosure Scheme. NABERS Energy was selected primarily for its ability to compare buildings on a 'like for like' basis. However, the CRD suggests that other suitable tools may be adopted over time.
According to the CRD, the likely NABERS Energy ratings to be obtained would be as follows:
- in the case of the sale of a whole building containing one or more tenancies meeting the 2000m˛ threshold – a 'whole building' NABERS Energy rating;
- in the case of the sale of part of a building where the part being sold contains one or more tenancies meeting the 2000m˛ threshold – a 'base building' NABERS Energy rating, and relevant 'tenancy' NABERS Energy ratings for the leased areas;
- in the case of the lease of an area of a building meeting the 2000m˛ threshold – a 'base building' NABERS Energy rating, and a 'tenancy' NABERS Energy rating for the area being leased; and
- in the case of the sub-lease of an area of a building meeting the 2000m˛ threshold – a 'tenancy' NABERS Energy rating for the area being sub-leased.
Note, however, that the CRD does not appear to expressly address the following scenarios:
- the case of the sale of a whole building meeting the 2000m˛ threshold, but which does not contain any tenancies – in which case either a 'base building' or 'whole building' NABERS Energy rating may be appropriate; and
- the case of the sale of part of a building (eg strata) meeting the 2000m˛ threshold, but which does not contain any tenancies – in which case a 'base building' NABERS Energy rating would seem appropriate.
Clarification of the above two scenarios therefore seems to be necessary for the proper operation of the Mandatory Disclosure Scheme.
The intention appears to be for owners (or tenants in the case of a sub-lease) to engage assessors directly (as consultants) to undertake the required NABERS Energy ratings and carry out energy efficiency assessments in order to prepare BEECs and EEARs – however, the CRD is not entirely clear on this point.
It is proposed that the BEEC to be disclosed (free of charge) to prospective buyers or tenants include details such as:
- the appropriate NABERS Energy rating (excluding Green Power);
- a description of the type of rating – ie base building, tenancy or whole building; and
- detailed energy consumption and greenhouse gas emissions data.
A BEEC will remain valid for 12 months.
It is expected that an EEAR, also to be disclosed (free of charge) to prospective buyers or tenants, will include details of opportunities to improve the energy efficiency of the relevant building in areas such as:
- heating, ventilation and air-conditioning systems and controls;
- lighting systems;
- hot water systems;
- building controls, switching and operating parameters (zoning and sub-metering);
- building insulation, shading and glazing; and
- office equipment.
In addition to the information above, the CRD also suggests that EEARs could also include 'diagnosis and advice' on:
- maintenance and operation issues;
- equipment and equipment efficiency;
- detailed replacement costs;
- sub-metering and building management system use;
- lifts and common area lighting; and
- server energy and general office equipment and appliance information for tenants.
An EEAR will remain valid for 7 years.
Building owners (or tenants in the case of a sub-lease) would be required to disclose the valid BEC and EEAR to a central registry of accredited assessors within 30 days of advertising the relevant property for sale, lease or sub-lease.
Regulation And The National Administrative Unit
The CRD proposes:
- the creation of a national administrative unit (within DEWHA ) to administer the Mandatory Disclosure Scheme (including BEECs, EEARs and the central registry); and
- that DEWHA (with the power to delegate its functions to other bodies) monitor the implementation of the Mandatory Disclosure Scheme.
Compliance And Enforcement
A range of enforcement measures are proposed – including criminal penalties in certain circumstances.
Criminal offences are contemplated in circumstances where:
- an owner (or tenant, in the case of a sublease) provides a BEEC to a prospective purchaser or tenant (as applicable) which the owner (or tenant, in the case of a sublease) knows to be false or misleading;
- an assessor knowingly supplies a certificate to an owner (or tenant, in the case of a sublease) which is false or misleading;
- an owner (or tenant, in the case of a sublease) induces or attempts to induce an assessor to supply a certificate which is false or misleading; and
- an owner (or tenant, in the case of a sub-lease) provides false or misleading information to an assessor.
The CRD does not suggest penalties for such criminal offences, however if, for example, clauses 11.2 and 137 of the Commonwealth Criminal Code were to operate (such of the conduct referred to above, as noted by the CRD), penalties could be as severe as 12 months imprisonment.
The operation of the Mandatory Disclosure Scheme may also give rise to other liabilities, for example:
- direct civil liability (eg in contract or tort (eg negligence) arising out of a failure by an assessor to exercise 'reasonable care and skill' in preparing a BEEC or EEAR); and
- liability under section 52 or 53A of the Trade Practices Act 1974 (Cth) for misleading and deceptive conduct due to the disclosure of false, misleading, inaccurate or incorrect information in a BEEC or EER .
The broad range of enforcement measures proposed under the Mandatory Disclosure Scheme creates another level of risk associated with the procurement, design and construction of new commercial office buildings and the subsequent management and maintenance of those buildings.
HOW COULD THE PROPOSED MANDATORY DISCLOSURE SCHEME BE RELEVANT TO YOU?
The proposed Mandatory Disclosure Scheme is a further indication that the environmental performance of buildings is becoming a focal point for building and construction projects in Australia, increasing the need for contractors, developers and commercial office building owners to focus on energy efficiency and 'green building rating systems' (particularly NABERS Energy) when procuring, designing, constructing and operating commercial office buildings.
The Mandatory Disclosure Scheme's 'like for like' comparison of the energy efficiency of a commercial office building during the marketing, sale and leasing process will likely increase the 'marketability' of those commercial office buildings that have high NABERS Energy ratings and better overall energy efficiency performance. This, in turn, is likely to lead to:
- increased focus by developers and owners of commercial property portfolios on the importance of a building's on-going energy efficiency performance – and an associated need to incorporate comprehensive energy efficiency targets, benchmarks and performance criteria in:
- contractual documentation prepared for new projects;
- ongoing building operation and maintenance arrangements; and
- leases (ie 'green' leases);
- a need for construction contractors and design consultants to increase their awareness and skills in respect of green building rating systems and the measures that can be taken at both a design and construction level to improve the energy efficiency performance of commercial office buildings; and
- a need for facilities management contractors to similarly increase their awareness and skills in respect of green building rating systems and the measures that can be taken at an operation and maintenance level to maintain (and perhaps improve) the energy efficiency performance of commercial office buildings.
The introduction of the proposed Mandatory Disclosure Scheme may also give rise to an increase in the retro-fitting of existing buildings – as developers and owners of commercial property portfolios seek to capitalise on the most cost-effective and efficient means of increasing the energy efficiency of their commercial property portfolios and thereby maximise the attractiveness and marketability of their commercial property portfolios.
The proposal of the Mandatory Disclosure Scheme further emphasises that a market advantage is increasingly presenting itself for those design consultants, construction contractors and facilities management contractors who can develop and implement the most cost-effective means of maximising the energy efficiency of both new and existing commercial office buildings.
For consultants currently operating in the area of energy efficiency (particularly those involved in the assessment of NABERS Energy ratings), or seeking to do so, the scope for direct civil liability (contractual and otherwise) and criminal prosecution is something which will need to BECarefully considered – particularly from an insurance perspective.
The following consultation documents have been released for public comment:
- Consultation Regulation Impact Statement; and
- Consultation Regulation Document.
Written comments on the consultation documents must be provide by 27 February 2009 to:
Commercial Building Energy Efficiency Team Department of
Environment, Water, Heritage and the Arts
GPO Box 787
Canberra ACT 2601
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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.