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Funds Management - Real Estate & Superannuation

Focus: Leasing – February 2001

In this issue: Recent amendments to Queensland electricity laws mean significant changes in the way landlords can charge tenants for electricity, writes Matthew Raven.

Background

Several years ago, the Council of Australian Governments agreed to establish a competitive national electricity market. The aim was to remove the monopolies of government electricity authorities and create a competitive marketplace in which customers could 'shop around'. The right of individual customers to negotiate with retailers is being phased in, beginning with the largest users of electricity. Presently customers using more than 0.2GWh per annum are eligible to become 'contestable'. In the near future, the right to be contestable will be extended to all customers in the electricity marketplace.

On-supply agreements

The most recent changes deal with on-selling of electricity by property owners to retailers in embedded networks (jargon for the sale of electricity by landlords to tenants).

The laws allow landlords and tenants to agree about the landlord providing electricity to the tenant's premises and about the tenant's contribution to common area electricity consumption. These 'on-supply agreements' may be part of a lease.

Recovery of common area electricity contributions

The most significant procedural changes for landlords are the new disclosure and auditing requirements2. If a landlord recovers contributions towards common area electricity costs from tenants:

  • the lease must state how common area consumption and cost apportionment between tenants is to be calculated;
  • tenants must be given an estimate of the common area consumption for the first year of the on-supply agreement3 . The estimate must be given a reasonable time (sufficient to enable the tenant to estimate its liability) before the lease is entered;
  • further estimates must be given to the tenant one month before each anniversary of the agreement being made; and
  • tenants must be given audited statements containing prescribed information within three months of each anniversary of the agreement.

Unlike the Retail Shop Leases Act, there is no provision for giving statements on a calendar year or financial year basis. Therefore simply complying with the RSLA requirements will not suffice.

If the landlord fails to comply with the first two requirements, the tenant may terminate its liability for common area electricity consumption within two months of the agreement being made, but not the lease or any agreement relating to supply of electricity to the premises.

Electricity supplied to individual tenancies

Firstly, tenants may elect to be charged for electricity used in their premises on the basis of metered consumption (we expect in the majority of commercial buildings and shopping centres this will already be the case).

Tenants may install the meters themselves after giving the landlord notice. They must comply with the landlord's reasonable requirements (landlords have five days after receiving the notice to advise their requirements) and pay compensation for any damage caused.

Landlords may not charge more for metered consumption than the lowest rate the tenant would have paid if the tenant had been a non-contestable customer of the 'relevant electricity retailer' (Energex in south-east Queensland), disregarding network connection costs4 .

Can tenants buy elsewhere?

The amendments don't prevent landlords from requiring that all tenants buy their electricity from the landlord. But further changes are being contemplated and the ACCC is taking a keen interest in the electricity reform process. It has indicated the 'unconscionable conduct' provisions of the Trade Practices Act could be invoked5 .

Generally speaking, because of the 'buying power' of landlords and the cost and complexity in electing to become contestable, there will be sound commercial reasons for tenants to continue buying from their landlords.

Footnotes
  1. The Electricity Amendment Regulation (No.2) 2000 (Q) commenced on 13 October 2000.
  2. The requirements apply to agreements made after 13 October 2000.
  3. The regulation does not define when an agreement is made but an on-supply agreement may be oral so the likely meaning is (consistent with the RSLA) the earlier of execution of the lease by the landlord and tenant or entry into possession. This will not necessarily coincide with the commencement date of the lease.
  4. The requirement that electricity charges be calculated in the same way for all tenants (s342B(3)) has been dispensed with.
  5. For a discussion of recent cases on the unconscionable conduct provisions of the TPA, see the November edition of Focus on Leasing

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