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HG Alert: Energy Efficiency and Real Property Transactions: 2010 to be a year of change - 16 Nov 2009

Energy Efficiency and Real Property Transactions: 2010 to be a year of change

Next year is shaping up to be a year of change for residential or commercial property owners looking to sell their property. In 2010 a number of legislative schemes will come into effect that will require certain disclosures to prospective buyers about the energy efficiency and sustainability ratings of a building.

Residential property

The Queensland Parliament passed The Building and Other Legislation Amendment Bill 2009 on 12 November 2009. This Bill amends the Property Agents and Motor Dealers Act 2000 by inserting a new Part 5 in Chapter 11 (“Advertising sale of particular properties - sustainability declarations”), and the Building Act 1975 by inserting a new Chapter 8A (“Sustainability declarations and provisions to support sustainable housing”).

Effective 1 January 2010, before the seller (Any person who has a legal or equitable interest that the person is entitled to sell or is authorised under a power of attorney or other statutory power to sell a legal or equitable interest. This would include a mortgagee exercising power of sale) of a house, unit or townhouse (building) offers to sell the building, the seller must prepare and sign a sustainability declaration. The maximum penalty for non-compliance is 20 penalty units or $2000.

The sustainability declaration must be in the approved form, available online.

The requirement to give the sustainability declaration is satisfied if the seller prepared it to the best of his or her ability and knowledge. This is an important provision in cases where the seller cannot reasonably find out about the information requested - for example, if the ceiling cavity is inaccessible to the seller so that he or she is unable to determine if insulation is installed. The seller is obliged to update the sustainability declaration if new information becomes available, or the declaration is no longer accurate.

The seller (Where an agent has not been appointed, in which case the Building Act provisions will apply) or the seller’s agent (Under new Part 5 of Chapter 11 of the Property Agents and Motor Dealers Act 2000), whichever is applicable, has certain obligations in dealing with that sustainability declaration, as follows:

  • Any advertisement for the sale of the building (apart from an advertisement in a newspaper or magazine) must include information about where a person can obtain a copy of the sustainability declaration. For example, if the agent advertises the building for sale on a website such as www.realestate.com.au, the agent must include in that advertisement either a link or a website taking the person to a copy of the sustainability declaration.
  • The seller or the agent must not give a person a document (such as a brochure) advertising the sale without including a copy of the sustainability declaration.
  • At an open house, the seller or the agent must ensure a copy of the sustainability declaration is clearly displayed.
  • If the seller or the agent takes a person through the building for an inspection, a copy of the sustainability declaration must be given to that person beforehand or it must be available at the building for inspection.
  • If a person asks for the sustainability declaration, a copy must be delivered as soon as practicable.

What if the sustainability declaration is incomplete or contains false or misleading information?

Under the new provisions of the Building Act, if a person buys a building, and the sustainability declaration is materially false or misleading or is prepared without reasonable skill and care so that the buyer incurs a loss or expense, the seller is liable to compensate the buyer. The buyer would have to commence proceedings for compensation and the court may order payment if it is satisfied that such an order would be just in the circumstances. The buyer does not, however, have a right to terminate the contract. The Explanatory Memorandum for the Bill makes it clear that the sustainability declaration does not affect the validity of a contract of sale.

The sustainability declaration is clearly a precontractual representation. If you are selling a building “as is, where is” or you are concerned about the accuracy of the declaration or the information that you had available when preparing the declaration, it would be prudent to include a special condition in the contract dealing with those issues.

For existing option agreements where exercise of the option (and formation of the contract) takes place after 1 January 2010, the sustainability declaration would obviously not have been given to the buyer before the agreement was signed. Our view is that contracts formed pursuant to an existing option agreement would relevant building was offered for sale and advertised before the provisions came into effect.

Commercial property

Further to our Alert of 28 July 2009, it has been reported that the Federal and State Governments have reached agreement on the parameters of the mandatory disclosure regime the subject of the Consultation Regulation Document of 18 December 2008. Legislation is being prepared with a view to the mandatory disclosure regime coming into effect in the second half of 2010.

In summary, the scheme will apply to commercial office buildings with a net lettable area of 2000m2 or more. If a relevant building is offered for sale or made available for lease, the vendor must make available to any prospective purchaser or tenant a valid Building Energy Efficiency Certificate, which will include details on the NABERS Energy office star rating for the base building.

A base building rating focuses on the energy, water and indoor environment performance of the central services and common areas of the building - not services used within a tenancy space. This is a step back from the initial proposal for the NABERS Energy tenancy rating to be disclosed where part of the building (greater than 2000m2) is being leased or sold. The majority of submissions received during the public consultation process expressed opposition to that proposal, due to the difficulty in obtaining data from tenants.

While the obligation to disclose energy efficiency is still at least six months away, it is essential that owners and property managers of applicable buildings start the NABERS Energy star rating process now.

To obtain a NABERS Energy star rating, at least 12 months of data (third party verified, for example the original utility invoice) is required by the NABERS accredited assessor. The latest bill must be no more than four months old.

The data required includes:

  • details on all sources of energy consumed (e.g. electricity, gas, coal, oil) by central services such as common area lighting, lifts and air conditioning (including actual consumption data);
  • net lettable area (Based on the Property Council of Australia publication “Method of Measurement for Lettable Area” March 1997) for all of the tenancies in the building. You will need layout plans or lease documents showing this;
  • hours of occupancy, being the agreed hours per week for which services are provided by the landlord to the tenants; and
  • if a waste rating is to be included, recycling volumes for all office spaces in a building. Please note that this involves a waste audit by the accredited assessor and there are limitations as to when that can be done. For example, it cannot occur within January or February or the last two weeks of December.

We have been informed that there is currently a shortage of accredited assessors, and with increased demand, there may be substantial delays in obtaining a NABERS Energy rating. If the sale or lease of a relevant building or space is pending, we recommend the process start sooner rather than later.

Hot water systems

From 1 January 2010, where a house or townhouse is in a gas reticulated area and the existing electric hot water system needs replacing, a greenhouse efficient hot water system (for example, gas, solar or heat pump) must be installed. This is the next step by the Queensland Government in banning all electric hot water systems.

Part 7 of the Queensland Plumbing and Wastewater Code, implemented pursuant to the Plumbing and Drainage Act 2002, prevents hot water installers from installing an electric system as a replacement system in a house or townhouse in a reticulated gas area.  A hotline (1800 007 427) has been set up for owners who are uncertain about whether they are in a reticulated gas area.

For more information about these changes, please contact HopgoodGanim’s Commercial Property team.