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HG Alert: Mandatory disclosure of energy efficiency for commercial office buildings - 28 July 2009

Owners and tenants: are you ready?

Commercial buildings reportedly account for at least 10 percent of Australia’s greenhouse gas emissions - 60 mega tonnes of CO2-e  in 2006 and growing. Aside from the Carbon Pollution Reduction Scheme, Federal Government consultation (Mandatory Disclosure of Commercial Office Building Energy Efficiency Consultation Regulation Document and Impact Statement issued by the Department of Environment, Water, Heritage and the Arts on 18 December 2008) has revealed the benefits (relative to costs) of a mandatory disclosure scheme, which would require the energy efficiency of a commercial office building to be disclosed at the point of sale or lease. The stated objective is to have new Federal legislation and regulation in place in 2010.

As an owner or tenant of a commercial office building you should be aware of the proposed Scheme. Obtaining a NABERS Energy rating next year will require you to record and report energy usage data now.

The proposed Scheme

The consultation documentation suggests that the mandatory disclosure obligations will kick in when a commercial office building, or part of a commercial office building, with a net lettable area of 2000m2 or more is sold, leased or sub-leased.

Initially the Scheme will be relevant to the sale or lease of class five buildings as defined in the Building Code of Australia - that is, commercial office buildings. Eventually, on further cost-benefit analysis, the intention is to expand the Scheme to other classes of building such as class eight (laboratory or industrial) and class six (shop and other retail building).

At this stage, the proposal is that if a commercial office building with a net lettable area of 2000m2  is offered for sale or made available for lease, the following information is required to be disclosed or provided by the building owner to any prospective purchaser or tenant (and in the case of a sub-lease, by the lessee to the sub-tenant):

  • the NABERS Energy rating in all advertising material; 
  • a Building Energy Efficiency Certificate, which will set out the NABERS energy efficiency rating in addition to other prescribed information. The proposal is that these certificates, once issued, will be valid for 12 months; and
  • an Energy Efficiency Assessment Report, which will set out information on how to improve the energy efficiency of the building (for example, through changes to heating and air-conditioning controls, lighting systems, hot water systems and office equipment). It is proposed that the Assessment Report be valid for seven years from the date of issue.

Additionally, it is proposed that a copy of the Building Energy Efficiency Certificate and the Energy Efficiency Assessment Report be provided to a central government registry within 30 days of advertising the property for sale or lease.

Whether energy efficiency for the whole building, the base building (central services and common area) or a part of the building is to be disclosed will depend on the scope of the activity being undertaken. The consultation documentation states that:

  • where the whole building is being leased or sold, disclosure must be of the energy efficiency for the whole building; or 
  • where part of the building (greater than 2000m2) is being sold or leased, disclosure must be of the energy efficiency for the base building (central services and common areas) plus the tenancy areas (tenant light and power and tenant-specific air-conditioning separate from central services) being sold or leased.

A review of the submissions made by stakeholders reveals that the extent of the disclosure is a hotly contested topic, because of the cost of obtaining a NABERS Energy rating for particular premises in a multi-tenanted building. Stakeholders are concerned that, unless specifically provided for in the lease:

  • access to energy usage data for a tenancy area is not necessarily readily available to the landlord;
  • tenants are not obliged to assist with the plethora of queries made by a NABERS assessor; and
  • the insistence of a landlord to allow access by a NABERS assessor to premises could arguably breach the landlord’s covenant to the tenant for quiet enjoyment.

When must disclosure be made?

When disclosing the Building Energy Efficiency Certificate and Energy Efficiency Assessment Report to prospective purchasers or tenants (as outlined above), the legislation is likely to require that disclosure be made the earlier of:

  • if a person requests information about the building, when written information is delivered;
  • if a person requests an inspection of the building, when the person inspects the building; but
  • at least before entering into a contract or lease for the building or part of the building exceeding 2000m2.

What is NABERS Energy?

Until other appropriate rating methodologies become available, NABERS Energy will be the only accredited assessment and rating tool under the scheme.

NABERS Energy is a performance-based energy efficiency measure, as opposed to a design based measure such as Green Star. It rates energy efficiency and greenhouse performance on a scale of one to five stars, with five stars being the least polluting.

The data needed to obtain a NABERS Energy rating is:

  • energy: 12 contiguous months of utility data for all energy sources and fuels consumed for building operation (for example, electricity and gas accounts);
  • floor area: the net lettable area as defined by the Property Council of Australia;
  • hours per week: an assessment of the number of hours that the building (or premises) has been operated; 
  • equipment: the number of computers in regular use in the building or premises; and 
  • location.

Based on this information, the NABERS accredited assessor will determine the emissions per unit of rated space (kg of CO2 per m2), which will be applied against the NABERS Energy benchmarks. A five star rating would be achieved where greenhouse gas emissions are less than 71kg CO2/m2/year.

The benefit of a NABERS Energy model is that it is performance based, meaning that there should be consistency in ratings across the board.

Note that to enable potential purchasers and tenants to compare buildings on a like-for-like basis, Green Power will be disregarded for the purpose of determining the NABERS Energy rating.

Are there exemptions to the disclosure obligation?

Given that 12 months of contiguous energy usage data is required to obtain a NABERS Energy rating, it is likely that new buildings will be exempt, as will buildings where factors prevent a NABERS assessor from obtaining the necessary information.

The consultation documentation addresses exemptions for short or emergency leases (a term of less than 12 months). Given the stakeholder objection to the proposal that a tenancy-specific NABERS Energy rating be disclosed by the landlord when leasing premises, it may be that this part of the proposal is not implemented in the legislation. As a landlord, however, you should consider what steps you can take to ensure that an existing tenant or any new tenant is obliged to give you the necessary information you need to obtain the NABERS Energy rating for the premises. When the legislation is enacted, you will need a NABERS Energy rating to advertise and lease the premises.

Penalties for non-compliance

The consultation documentation recommends that the corporation’s power under the constitution be relied upon initially, because that will capture the majority of relevant commercial office buildings. Under that head of power, penalties for non-compliance will include a range of pecuniary and non-pecuniary measures, such as the right to initiate court proceedings to enforce the disclosure obligation and the right of a buyer to retain part of the purchase price where disclosure was not made. Details on the sum of any financial penalty or on how the sum of any retention of purchase price will be calculated are not currently available.

Where to from here?

Submissions on the proposed scheme have closed and the Federal and State governments are currently reviewing submissions and considering amendments to the Scheme.

In the meantime, it would be prudent for relevant commercial office building owners or tenants (where they are likely to sub-let the premises) to start collating the necessary data to obtain a NABERS Energy rating. Only a NABERS Energy accredited assessor can issue a rating, and it seems inevitable that, due to increased demand, introduction of legislation heavily reliant on that rating will result in long waiting periods before a rating is issued (The New South Wales Department of Environment and Climate Change administers NABERS and has already indicated that there is a backlog of NABERS ratings).

In the current economic climate, more and more tenants are looking for a sustainability edge to cut costs of energy use and to attract workers (The Australian Financial Review, Thursday 23 July 2009, p 2 and 3 of “City Space”). With growing demand for energy efficiency data, it is inevitable that the proposals that are the subject of this scheme will be increasingly relevant to commercial office building owners – whether disclosure is an obligation cemented in legislation or a necessity to keep up with competitors in the market. For commercial users of space and those tendering for work (particularly with financial institutions), a condition to the tender might be that the entity demonstrates compliance with existing or proposed sustainability legislation. Without a NABERS Energy rating, it may affect the ability of the entity to get work.

HopgoodGanim will continue to issue updates on this topic as more information becomes available.

For more information on the mandatory disclosure of energy efficiency for commercial office buildings, please contact HopgoodGanim’s Climate Change specialists.