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Focus: Legislation to promote energy efficiency

13 April 2010

In brief: New legislation was introduced into Federal Parliament recently which, if passed, would impose energy related disclosure obligations on those offering to sell, lease or sub-lease office buildings of 2000m2 or more. This Focus is the first in a series on the Federal Government's policies to promote energy efficiency. Partner Chris Schulz (view CV) and Lawyer Nadia Harrison report.

How does it affect you?

  • The Bill would impose an obligation on property owners wishing to sell or let office buildings of more than 2000m2 (and tenants wishing to sublet such buildings), to register a Building Energy Efficiency Certificate (BEEC) with the Government prior to making the offer or inviting offers to be made. The BEEC would contain an energy efficiency rating and other energy efficiency data. The certificate would be available on the Internet. Additionally, advertisements for such a sale, lease or sub-lease would be required to include the energy efficiency rating provided in the BEEC. Failure to comply with disclosure obligations may result in fines of up to $110,000.

Response

Those who plan to sell, let or sublet large office buildings during the next financial year should collate information upon which energy rating assessments will be made and obtain an energy rating from a recognised issuing authority prior to the 'implementation day' (see below). This will ensure that you are not prevented from offering or advertising office buildings during the transition period.

If you are planning on offering to sell or let a property at some future date, you may wish to improve its energy efficiency prior to the disclosure obligations coming into force.

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Background

The Building Energy Efficiency Disclosure Bill 2010 (Cth) was introduced into Federal Parliament in March 2010. If passed in its current form, it will impose energy related disclosure obligations on those offering to sell, lease or sub-lease certain office buildings. The legislation is to apply to office buildings of 2000m2 or more.

The Bill would apply in addition to obligations that otherwise exist to report:

  • energy consumption under the National Greenhouse and Energy Reporting Act 2007 (Cth.); and
  • energy efficiency opportunities under the Energy Efficiency Opportunities Act 2006 (Cth.).

Legislation on energy efficiency disclosure for office buildings was approved under COAG's National Strategy on Energy Efficiency in July 2009. That policy also foreshadows mandatory disclosure of the energy efficiency of residential buildings at the time of sale or lease from May 2011.

The Bill coincides with the introduction of a new national Building Code from 1 May 2010, which incorporates various energy efficiency measures.

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Legislative development and key dates

The Bill is currently before the Senate Environment, Communications and the Arts Committee, which is due to report on 11 May. (Submissions closed on 6 April.)

While the Bill is scheduled to come into force on 1 July 2010, reporting obligations identified below will only apply to offers made or advertisements published from the 'implementation day', which is to be fixed by proclamation. If the implementation day is not prior to 31 December 2010, obligations will apply from 31 December 2010.

Transition period

If a property owner or landlord holds an energy efficiency rating provided by a recognised issuing authority prior to the implementation day, that rating may be relied upon to satisfy disclosure obligations for 12 months following the implementation date, as long as the rating has not itself expired. NABERS (National Australian Built Environment Rating System) energy ratings, for example, will be sufficient during this period.

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Impact on property owners and tenants who sublet

Offers

Unless a BEEC has been registered, a property owner (or tenant that sublets) may not, in respect of an office building that is 2000m2 or more offer, or invite offers:

  • to sell the building;
  • to let or sublet the building; or
  • to enter into a contract creating an obligation or right to sell or let the building (ie an option).

The obligation exists at the point at which the offer is made, not at some later stage during negotiations or upon finalisation of the transaction. The cost of obtaining the BEEC would fall on the offeror.

A fine of up to $110,000 may be imposed for not registering a BEEC prior to making an offer. The fine may apply each day that the requirement is not met.

Advertising

An advertisement for the sale, lease or sublease of an office building that is 2000m2 or more must include a valid, current energy efficiency rating.

A fine of up to $110,000 may be imposed for not including an energy efficiency rating in an advertisement. The fine may apply each day that the requirement is not met.

Buildings to which the legislation will apply

While the Minister has indicated that the regime will apply to office buildings of 2000m2 or more, the Bill also leaves scope for the Federal Government to determine that the obligations outlined above will apply to other categories of building, or areas within buildings.

It is notable that the Bill, in its current form, would apply to sales, leases or sub-leases where both parties to the transaction are part of the same corporate group.

BEECs

BEECs are issued by the issuing authority, based on information usually provided by an accredited assessor.

A BEEC will include:

  • an energy efficiency rating for the building;
  • an assessment of the efficiency of the lighting for the building that might reasonably be expected to remain if the building is sold, let or sub-let; and
  • guidance on how the energy efficiency of the building might be improved.

The nature of the mandated guidance within BEECs on how energy efficiency might be improved, is yet to be determined.

The BEEC is only current for the period specified in the certificate, which will be no longer than 12 months from the date the certificate is issued. Those involved in frequent transfers of freehold and/or leasehold title will need to ensure that the BEEC is regularly updated.

Register

A publicly available Building Energy Efficiency Register will include information contained within BEECs, whether current or not, unless the Department is notified in writing by an auditing authority that the ratings or lighting energy efficiency assessments within BEECs are not appropriate. The availability of this information may have an impact on freehold and leasehold values.

An Energy Efficiency Non-disclosure Register will also be maintained, listing persons who have been given an infringement notice or had a civil penalty order made against them by a court on two or more occasions.

Exemptions

In limited circumstances, the Government may grant an exemption from the disclosure obligations outlined above upon application. This may apply, for example, where it is not possible to assign a rating or assess the energy efficiency of lighting in accordance with the legislation because of a building's characteristics.

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Impact on purchasers, lessees and sublessees

Right to demand a copy of a BEEC

A prospective purchaser, lessee or sub-lessee of an office building of 2000m2 or more will have a right to require the owner, or tenant in the case of a sub-lessee, to provide it with a copy of a BEEC. A failure to do so may result in a fine of up to $110,000.

Termination

The Bill does not provide that a prospective purchaser or tenant may terminate an otherwise enforceable undertaking on the basis of non-compliance with the disclosure obligations outlined above. In the absence of specific provision in the contract, or consequential amendments to state/territory legislation, a breach of these disclosure obligations would not, of itself, provide grounds for termination.

Rights of accredited assessors to require information and access

Where a landlord or tenant has engaged an accredited assessor for the purposes of satisfying an energy efficiency disclosure obligation, the assessor is empowered to give notice requiring that the owner, tenant or sub-tenant of the relevant building gives the assessor:

  • information necessary for the purposes of the assessment; and
  • access to a place necessary for the purposes of the assessment.

Failure to comply with such a notice may result in a maximum fine of $22,000 for an individual and $55,000 for a corporation.

Rights of auditors

Auditors appointed under the scheme will be responsible for auditing assessments carried out by accredited assessors. In performing this function, they may enter a building by consent or under warrant for the purposes of determining whether an assessment was carried out in compliance with the legislative requirements.

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Circumstances not covered

Disclosure obligations are not imposed in circumstances where a:

  • building is transferred through the sale of shares in a company that owns the building;
  • building is transferred through the sale of units in a trust that owns the building; or
  • lease is assigned.

The Bill does not currently impose an obligation to register a BEEC, if the property owner seeking to sell or let, or tenant seeking to sublet is a:

  • natural person;
  • partnership; or
  • trust that does not have a corporate trustee.

A prospective purchaser or prospective tenant may, however, require such non-corporate entities, that own and/or propose to lease large office property, to provide a registered BEEC.

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Relevance to the electricity industry

It is not clear from the Bill whether the election of green power will impact on energy efficiency ratings reported within a BEEC. If so, the new regime has the potential to increase demand for green power. The Explanatory Memorandum to the Bill states that a BEEC may include 'additional information' such as on site, renewable or low-emissions energy sources or green power usage. This suggests that this information will not be considered as part of the energy efficiency rating assessment.

For further information, please contact:

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