Introduction

  1. This article examines the key requirements of the Building Energy Efficiency Disclosure Act 2010 (Act) that was recently introduced by the Commonwealth Government.
  2. The first part of the article will look at the Act, the Building Energy Efficiency Disclosure Regulations 2010 (Regulations) and the associated Determinations (Building Energy Efficiency Disclosure Determination 2010 and Building Energy Efficiency Disclosure (Disclosure Affected Buildings) Determination 2010 (Determinations)). The second part will consider what the Act, Regulations and Determinations mean for affected owners, landlords, tenants and purchasers.

PART 1

  1. On 1 July 2010 the Act and the Regulations commenced operation. The Act was introduced to promote the disclosure of information about energy efficiency of buildings and for related purposes. The Act is a national scheme which requires the mandatory disclosure of energy use and greenhouse gas emissions when selling or leasing a commercial office building over 2,000m2. The introduction of the Act means that from 1 November 2010 any corporation:
  • selling commercial office buildings; or
  • offering to lease all or part of commercial buildings,

with a net lettable area of 2,000m2 (or more) must disclose on all marketing material the energy efficiency rating of the disclosure affected building to be sold or leased. In addition, information about energy use and greenhouse gas emissions of the building or relevant area must be available for disclosure at the time of offering to sell or lease.

  1. Additionally, also from 1 November 2010, where a corporation is a prospective purchaser, lessee or sublessee of an office building or part of an office building, it may request that the owner or lessor provide it with information regarding energy use and greenhouse gas emissions of the building or relevant area and the owner or lessee, whether it be an individual or a corporate, must provide that information. Again, this right to request the information and corresponding obligation arises where the relevant office or part of an office has a net lettable area of 2000m2 or more.
  2. This disclosure is predominantly by way of a National Australian Built Environment Rating System (NABERS) energy efficiency rating for the marketing material and a Building Energy Efficiency Certificate (BEEC) for the disclosure associated with the transaction. Both the NABERS certificate and the BEEC are discussed further below.
  3. The Act is part of a program by the Australian, state and territory governments under the National Strategy on Energy Efficiency. As part of the program, governments will consider expanding the requirements to cover other building types (such as hotels, shopping centres and hospitals) from 2012.

The scheme

  1. The Act mandates that any corporation which:

(a) owns a commercial office building of relevant size (2,000m2 or larger); and

(b) wishes to sell such a building or lease a tenancy in such a building which is or exceeds 2,000m2;

OR

(c) leases premises which exceed 2,000m2 in such a commercial office building of 2000m2 or larger and wishes to sublease those premises,

must comply with the Act.

  1. If the building has multiple tenancies, some of which are 2,000m2 or more, the building owner will need to comply with the Act if they sell the building or lease a tenancy of 2,000m2 or more. They will not have to disclose if leasing a tenancy that is less than 2,000m2.
  2. Significantly, if the total building is 2,000m2 or more and there are multiple tenancies, all of which are under 2,000m2, the building owner will only need to comply with the Act if they sell the building, not when leasing office space.
  3. For the purposes of the Act “office” means:

(a) administrative;

(b) clerical;

(c) professional; or

(d) similar information based activities including any support facilities.

Any party not covered by the legislation, such as owners of smaller buildings may opt in and elect to comply with the legislation.

  1. Two key concepts established by the Act are “disclosure affected building” and “disclosure affected area of a building”. In general terms:

(a) A “disclosure affected building” means a building:

(i) that is used or capable of being used as an “office”; and

(ii) which contains a net lettable area of office space of 2,000m2 or more.

(b) “A disclosure affected area” of a building is an area within a disclosure affected building:

(i) that is used or capable of being used as an “office”; and

(ii) which has a 2,000m2 or more net lettable area.

Exceptions to the Act are newly constructed buildings (for a period of 2 years from grant of occupation certificate) and buildings held under strata title. Such buildings are not disclosure affected buildings even if they meet the other requirements.

Offering to sell or lease

  1. Sections 4 and 5 of the Act set out in very broad terms what it means to offer to sell or lease a building. Generally, the Act states that a person is taken to offer to sell a building if they offer to enter into a contract under which they are obliged to sell even if the obligation is contingent or conditional.
  2. Similarly a person is taken to offer to let a building or area of building if the person offers to enter into a contract under which they are obliged to let the space even if the obligation is contingent, for example, on an agreement to lease which is conditional on certain conditions being satisfied.

Obligation to disclose energy efficiency information

  1. There is no penalty for disclosing an inefficient building but there is a penalty for not disclosing or incorrectly representing the emissions and energy efficiency of a building for sale or lease.
  2. The Act makes clear that if a corporation owns a disclosure affected building or leases (including subleases) a relevant part of a disclosure affected building it must not:

(a) offer to sell the building;

(b) invite offers to buy the building;

(c) offer to lease the building or premises in the building exceeding the relevant size; or

(d) invite offers to lease the building or lease or sublease premises in the building exceeding the relevant size,

unless a valid and current BEEC for the building (or if leasing or subleasing a relevant part of the building, a BEEC for the disclosure affected area) is registered with the Building Energy Efficiency Register (BEER) (discussed further below). The penalty for a breach of this section 11(1) of the Act is 1,000 penalty units which is currently $110,000 (and continuing at 100 penalty units ($11,000) every day until disclosure has been made).

Exceptions to the requirement to disclose

  1. The exceptions to the requirement to disclose include:

(a) where the lease term is less than 12 months (including any option to extend);

(b) newly constructed office buildings (and areas within such buildings) for which the certificate of occupancy is less than 2 years old;

(c) strata-titled offices; and

(d) the sale of a building through the sale of shares or units or the sale of a partial interest in a building.

  1. Where such an exception to the disclosure obligation applies, no action is required by the owner or lessor.

In addition a party may apply for an exemption from the requirements of the Act. See paragraphs 38 to 41 below.

Failure to disclose

  1. Apart from the civil penalty mentioned above due to a failure to disclose when offering to sell or lease, if a person, being either an individual or a corporation, offers to sell a disclosure affected building without the relevant BEEC, or lease or sublease a disclosure affected area without the relevant BEEC, a corporation which is the prospective purchaser or lessee and which has an interest, in good faith, to proceed to buy or lease may give notice to the owner/lessor requiring the owner/lessor to give the purchaser a valid and current BEEC for the building or area, as the case may be. Any failure to comply with the request to provide a BEEC as soon as reasonably practicable for a body corporate is 1,000 penalty units and 350 penalty units for an individual (and continuing at the daily rate).

Building Energy Efficiency Certificates

  1. The Act provides that owners or lessors must not offer for sale or lease or invite an offer to sell or lease unless a valid current BEEC is registered with the BEER.
  2. The BEEC must set out:

(a) the energy efficiency rating for the building (as determined by the NABERS rating system);

(b) an assessment of the energy efficiency of the lighting for the building or leased premises that might reasonably be expected to remain if the building, or relevant leased premises, is sold, let or sublet; and

(c) guidance of a kind determined by the Secretary of the Department (Secretary) by legislative instrument on how energy efficiency might be improved.

  1. A BEEC is current for a period of no more than 12 months as specified in the certificate. The period begins on the day on which the certificate is issued.
  2. A BEEC for a building is valid if the authority that issued it is satisfied, based on an application by an accredited assessor or information provided by the auditing authority, that the energy efficiency rating specified in the BEEC for that building is appropriate for that building.

Contents of a BEEC

Key information which must be set out in a BEEC includes the following:

(a) date of certificate and date it ceases to be current;

(b) unique identifying number, and name and registration number of assessor;

(c) name of owner of building, building name and address;

(d) key building data, including net lettable area of the building or relevant area, and hours of occupancy;

(e) whether the energy efficiency rating is a base building rating or whole building rating, and detailed energy consumption and greenhouse gas emissions data; and

(f) if Green Power is used, an energy efficiency rating that takes into account the effect of any electricity purchased under the Green Power program.

NABERS

  1. NABERS has been chosen by the Australian Government as the tool to be used when determining the energy efficiency of the building or an affected area for the purposes of the BEEC.
  2. Despite the Act commencing on 1 July 2010 the energy efficiency disclosure obligation does not commence until 1 November 2010. From 1 November 2010 there is a 12 month transition period until 31 October 2011, during which time a valid NABERS Energy base or whole building rating may be disclosed in lieu of a BEEC, in order for a party to comply with the Act.
  3. It should be acknowledged that only a NABERS based rating for “Energy” is to be disclosed for the purposes of the Act. The other NABERS ratings for water and waste are not required to be disclosed.
  4. The NABERS rating system measures actual performance of a building, based on measurements over a 12 month period. It determines energy usage and greenhouse emissions on a “rate per square metre” basis and allocates a “star rating” – 2.5 stars being market average and 5 stars being excellent.
  5. NABERS will benchmark the actual operational energy use of an existing commercial office building against other office buildings of a similar size. NABERS has rating tools for offices, hotels, shopping centres and homes, but the Act only requires disclosure under the NABERS offices rating tool.
  6. The benchmark used in preparing a NABERS rating is based on an industry survey as adjusted for size, location, hours and number of occupants.
  7. The NABERS rating is not adjusted for the use of Green Power. This is because the decision to use Green Power is a matter for the building owner and does not necessarily reflect the energy efficiency of that building. The BEEC, however, will take into consideration the use of Green Power.
  8. The Australian Government’s endorsement of the NABERS’ energy scheme will go a long way in promoting this scheme amongst building owners ahead of the Green Building Council scheme. Whilst there are significant and fundamental differences between the 2 schemes, namely NABERS is based on output and the Green Building Council scheme is based on the construction technique of the building and the materials used, endorsement by the Australian Government of NABERS will mean that in practice, there may be a preference to only adopt the NABERS’ energy scheme.
  9. There are often criticisms of the NABERS’ energy scheme on the basis that it is over reliant on utility bills and less reliant on the building materials used in construction. Further, it is not based on international best practice but is based purely on benchmarking amongst other similar buildings.
  10. It is conceivable that situations may arise where hugely inefficient buildings, when compared with each other, could get disproportionate star ratings as they are marginally better than their competitors. In other words the NABERS’ system may reward the inefficiencies of buildings by comparing them against other inefficient buildings rather than being compared to international best practice for energy efficient buildings.

Building Energy Efficiency Registers

  1. The BEER is a register which includes all the details of a valid BEEC.
  2. The BEER is designed to be accessible to the public to enable them to check the certificates for various buildings from time to time.
  3. The Act also establishes a second register, the Energy Efficiency Non-Disclosure Register (EENDR). The EENDR lists the details of individuals and corporations that have persistently failed to comply with the disclosure requirements. Details of non-compliance will usually be listed on the EENDR where there have been 2 or more instances of non-disclosure by an individual or corporation in a period of 12 months. Inclusion on the EENDR is not automatic and details may be withheld from the register if the non-compliance is not considered part of a continuing pattern. An instance of non-disclosure occurs where an individual or corporation is issued with an infringement notice, or where a Court imposes a civil penalty.

Advertisements to include energy efficiency ratings

  1. The Act provides that a corporation must not advertise for sale or lease a disclosure affected building unless a valid and current energy efficiency rating of the building is included in the advertisement and the rating is expressed in the advertisement in a manner determined by the Secretary. A failure to comply carries with it a penalty of 1,000 penalty units (and continuing at the daily rate). This provision also applies to any advertising of a disclosure affected building (or relevant disclosure affected area) for lease or sublease.
  2. The energy efficiency rating referred to for advertising is the NABERS rating as it appears in the BEEC.

Exemptions

  1. A party may apply for an exemption from the requirements of the Act. In order for a party to obtain an exemption from the Act it must make an application in writing to the Secretary. The application must be accompanied by a supporting statement made by a NABERS accredited assessor, which details the reasons why a rating cannot be assigned.
  2. The Secretary may grant an exemption from disclosure if:

(a) the building or area to be leased is to be used for police or security operations; or

(b) due to the characteristics of the building or area, an energy efficiency rating cannot be assigned.

  1. Situations where an energy efficiency rating cannot be assigned would be most likely to arise because it is not possible for a NABERS Energy base building or whole building rating assessment to be completed. Possible examples include major refurbishments where it is likely that the building is vacant or not fully occupied for an extended period such that it is not possible to assign a NABERS Energy rating, or other exceptional circumstances where it is not possible to assign either a NABERS Energy base building or whole building rating.
  2. In contrast, as discussed earlier, if an exception to the disclosure obligations applies no such application is required.

Information gathering

  1. Obtaining a building’s first NABERS Energy rating can take some time. It will save time and money if all of the materials needed by the accredited assessor are available in advance.
  2. If the accredited assessor is not given relevant information which is available to the owner, lessee or sublessee, the accredited assessor may serve a written notice to the owner, lessee or sublessee requiring the relevant party to provide information that is necessary for the purposes of the assessment or of a kind specified in the notice. The accredited assessor may also serve a written notice requiring the owner, lessee or sublessee to give the assessor access to a place in or associated with the building or area.
  3. During the 12 month transition period from 1 November 2010 to 31 October 2011, existing NABERS Accredited Assessors will continue to complete NABERS Energy assessments, which can be used for disclosure.

Auditors

  1. The Act provides a very rigorous process around ensuring that the assessors properly carry out their roles. This process involves the introduction of auditors to review the performance of the assessors.
  2. Auditors may only be appointed from the public service of the Australian, state or territory governments or through direct engagement by the Australian Government.
  3. Most energy efficiency ratings will be subject to desktop audits to ascertain whether an assessor has conducted an assessment accurately. It is also anticipated that on-site audits will be conducted in a small number of cases to investigate possible concerns about an assessor’s conduct or abilities or instances where fraud is suspected.
  4. The Act goes into great detail, providing broad powers for auditors to check the work of the assessors including observing any activities conducted in the building, and giving auditors the power to take measurements, photographs, documentation and inspection of the works.
  5. The auditors may even obtain warrants to investigate the premises for the purposes of determining whether the assessments have been properly carried out.

Enforcement

  1. If the Secretary reasonably believes that a person has knowledge of information or custody or control of documents relating to whether a civil penalty provision has been complied with, the Secretary may give notice requiring that person to provide the relevant information. A failure to comply with this notice provision will attract a fine of 30 penalty units.
  2. The Secretary has a period of 6 years within which to bring an action against a person for contravening a civil penalty provision.
  3. Daily limits have been introduced into the penalty regime. The maximum prescribed penalty is $110,000 for the first day of non-compliance and each subsequent day of the contravention will be up to a maximum amount of $11,000 per day.

Defence

  1. 53 Where a civil penalty order has been issued against a person, under section 57 of the Act it is a defence if, at or before the time of the conduct constituting the contravention, the person:

(a) considered whether or not the fact existed; and

(b) was under a mistaken or reasonable belief about those facts and, had those facts existed, the conduct would not have constituted a contravention of the civil penalty provision.

  1. The defence under this provision relates to a person’s honest and reasonable belief that circumstances surrounding the present occasion were the same as the last occasion or substantially the same and based on that they had disclosed in a certain way.

Reviewable decisions

  1. Part 6 of the Act states that certain decisions of a delegate of the Secretary are reviewable. An application for review of a decision must be made within 28 days after the person is notified of the decision, and it must set out the reasons for making the application for review.
  2. The Secretary may either:

(a) affirm the decision under review;

(b) vary the decision under review; or

(c) set aside the decision under review and make a decision in substitution for it.

  1. An application may be made to the Administrative Appeals Tribunal for a review of a reviewable decision made by a Secretary personally or a decision of a Secretary under the reviewable provisions.

PART 2

Practical application of the Act

  1. As stated above, the Act mandates disclosure for commercial office buildings being sold with a net lettable area of 2,000m2 or more or tenancies in a relevant building which have a net lettable area of 2,000m2 or more being leased or subleased. Failure to comply with the Act will result in initial fines of up to $110,000. For this reason the Act cannot be ignored and property owners will risk fines unless they ensure compliance. Affected parties should consider taking preparatory steps to avoid delay and unnecessary costs once the scheme commences on 1 November 2010.

Advice to owners and landlords

  1. If a disclosure affected building or a disclosure affected area is a part of a transaction, landlords and owners need to ensure that NABERS ratings are available. Assessment costs are likely to increase in the early stages of the Act’s application, as it is expected that there will be an increase in demand for accredited assessors. Getting a NABERS star rating requires 12 months of consecutive metered fuel data, with the most recent data being no more than 4 months old. Depending on the transaction, many landlords may need to work with their tenants to collect this data, and also work with accredited assessors to provide access to disclosure affected areas and information.
  2. Where an owner or a landlord considers that a building should be exempt from the Act’s disclosure requirements (other than because it is under 2 years old or strata title), an application must be made in writing to the Secretary. The application must be accompanied by a supporting statement made by a NABERS accredited assessor, which details the reasons why a rating cannot be assigned.
  3. Landlords should assess pro forma and other lease documents now to consider relevant provisions and amendments which would be desirable including:

(a) the ability to recover the cost of BEECs and requirements for access and provision of information;

(b) the ability to require tenants to provide necessary access and information in the time frame required by the Act (and to compensate the landlord if they fail to do so);

(c) whether the tenant’s obligation to comply with laws is broad enough to cover the scheme; and

(d) whether additional landlord rights are required to effect energy efficiency works and, if possible, recover the cost of works in outgoings.

Landlords should consider introducing formal ‘green lease’ obligations on tenants, and establishing formal and informal collaboration between the landlord and tenant on energy saving initiatives.

  1. Owners and landlords should ensure that operational procedures are reviewed to ensure compliance with the new disclosure requirements for any relevant property.
  2. The Building Energy Efficiency Disclosure Determination 2010 provides guidance on how energy efficiency might be improved for building owners. The guidance focuses on having an energy management plan and reviewing skills and responsibilities. Improvements to lighting energy efficiency, and reviewing equipment settings, maintenance procedures and replacement schedules are all recommended.

Advice to tenants

  1. Prospective tenants of disclosure affected areas should assess proposed rental space and lease terms and consider:

(a) the landlord’s current NABERS assessments;

(b) the landlord’s future proposals for introducing energy efficiency measures to the base building;

(c) the outgoings provisions to assess the costs landlords may seek to pass on to tenants;

(d) obligations on landlords to comply with the scheme and to provide the necessary access and information within the timeframe required by the Act in order to enable a tenant to sublease relevant premises (and to compensate the tenant if they fail to do so); and

(e) where properties do not have a current NABERS rating then the prospective tenant should ensure that they can contractually secure the data to enable it to obtain a rating in the future.

  1. The Building Energy Efficiency Disclosure Determination 2010 sets out guidance on how energy efficiency might be improved for both prospective and existing tenants. The guidance recommends reviewing energy efficiency policies and procedures, building management provisions, and education and awareness policies.

Advice to purchasers

  1. Purchasers should assess their due diligence procedures and review pro forma purchase documents in relation to examining historic and current NABERS assessments and obtaining any relevant information to put them in the best position for ongoing compliance.
  2. Where properties do not have a current NABERS rating, the purchaser should ensure they can contractually secure the data to enable it to obtain a rating in future.
  3. Purchasers should obtain relevant historic business records for the purchase, and should review building leases to assess the impact of the Act for example, the landlord’s ability to recover costs of compliance from tenants.

Important dates, click here to see table