On 18 March 2010 Greg Combet, the Minister assisting the Minister for Climate Change and Energy Efficiency, tabled the Building Energy Efficiency Disclosure Bill 2010 (Bill). The tabling of the Bill is the final piece of the jigsaw puzzle which commenced in December 2004 when Mandatory Disclosure of Commercial Building Energy Efficiency was first proposed under the Stage 1 Implementation Plan of the National Framework for Energy Efficiency, a joint initiative of the Commonwealth, State and Territory Governments under the Ministerial Council on Energy.
More recently, in November 2009, the Federal Government released a Regulation Document after industry consultation, which outlined the likely key elements of the scheme but which left many aspects of the detail of the scheme still to be articulated. The draft legislation which has now been released addresses many of these aspects, but as we explain below, the ambit of operation of many of the key obligations will be dependent on definitions, methods and standards to be set out in regulations which have not yet been released.
Why Mandatory Disclosure?
The built environment sector is a significant contributor (estimated somewhere in the order of 30%) to Australia’s greenhouse gas emissions. Despite this, the built environment sector is not covered by the Government’s proposed Carbon Pollution Reduction Scheme (CPRS).
The proposed mandatory disclosure legislation coupled with changes to the Building Code of Australia are the key policy tools being implemented by the Federal Government to reduce emissions in the built environment sector. The Federal Government is of the view that there are persistent market barriers to energy efficiency and that mandatory disclosure will address these market barriers.
Likely commencement date of Mandatory Disclosure
Assuming the Bill is passed, the commencement date of the legislation is 1 July 2010 when the scheme administration will commence, however, the obligation on parties to disclose will occur on a day to be fixed by proclamation of the Governor General which is anticipated to be around October 2010 but no later than 31 December 2010.
What Buildings are covered by the Bill?
The Bill has been drafted from the perspective that the disclosure requirements apply to buildings and areas of buildings that are capable of being used as an office and are of the kind determined by the Minister by regulation. At this stage the regulations have not yet been released, however, it is expected that the disclosure obligations will only apply to buildings and areas of buildings that exceed the minimum size threshold of 2,000 square metres in net lettable area and that strata buildings will be excluded. In the November 2009 Regulation document it stated that mandatory disclosure would only apply to class five buildings under the Building Code of Australia, however, the Explanatory Memorandum accompanying the Bill suggests that a wider definition of building may be utilised and there is no reference to class five buildings.
When do you disclose?
The Bill is designed so that disclosure occurs as early as possible and before the commencement of any negotiations involving the sale, lease or sublease. Essentially any offer or the inviting of offers will be caught.
Further at any time that a property or tenancy is advertised for sale or letting, such advertisement must include the energy efficiency rating for the building. What this will mean in practice is not yet known and will also be the subject of the regulations. What is important, however, is that the penalty regime sets a maximum of 1,000 penalty units ($110,000 fine) for failure to include the rating in the advertisement and a separate contravention will occur on each day that the owner or landlord fails to comply with the requirement so that the maximum penalty may well be in excess of $110,000. In addition, each separate advertisement that does not include an appropriate energy efficiency rating will be considered a separate contravention. The financial consequences of failing to include the energy rating in any advertisements are therefore significant.
The Bill is also drafted in such a manner that it is designed to capture both standard property transactions such as sales, leases and subleases that take place through negotiation, contract exchange and settlement and also more complex transactions such as call options, put options, irrevocable offers and agreements for lease. It does not, however, appear to cover the transfer of buildings or areas of buildings through the sale of shares or units in the entity owning the building although until the regulations are tabled this cannot be ruled out.
The Bill also includes the right for a prospective purchaser, tenant or subtenant to request disclosure in writing.
What must be disclosed?
A valid, current and registered Building Energy Efficiency Certificate (BEEC) must be disclosed to the potential purchaser, tenant or subtenant.
The Bill prescribes the contents of a BEEC and the conditions under which a BEEC will be regarded as current, valid and registered.
The BEEC must contain three elements:
- an energy efficiency rating;
- an assessment of the energy efficiency of the lighting; and
- energy efficiency guidance.
The assessment methods and standards for the BEEC will be determined by the Secretary by regulation. The Explanatory Memorandum discloses that for the purposes of the energy efficiency rating, the assessment methods and standards will apply the protocols of the National Australian Built Environment Rating System (NABERS) for energy efficiency. Interestingly both the Bill and the Explanatory Memorandum are silent as to whether green power will be excluded from the rating.
The assessment of the energy efficiency of the lighting is only in relation to the lighting which might reasonably be expected to remain after the transaction, that is, transfer to the incoming owner, tenant or subtenant. How this will be determined is unclear. Further, the assessment methods and standards are not specified in the Bill and will be determined by the Secretary by regulation. The Explanatory Memorandum states that it is expected that the regulation will include rules for determining the lighting which might reasonably be expected to remain after the transaction.
Energy Efficiency Guidance
The form of energy efficiency guidance will also be determined by the Secretary through regulation although the Explanatory Memorandum has indicated that the guidance will be generic and designed to initiate investigation of specific improvement that may be carried out on a particular building or area of building.
The Bill also leaves the door open to allow the Federal Government to introduce additional items to be included in a BEEC by regulation in the future, such as details of on site renewable or low emissions energy sources, green power usage and past year’s energy efficiency ratings.
What does current mean?
The BEEC will only be current for a period of up to 12 months and may in certain circumstances be for shorter periods where the energy efficiency rating or assessment of the lighting energy efficiency was completed at a substantial period prior to the registration of the BEEC.
What does valid mean?
A BEEC will be valid if the issuing authority is satisfied that:
- the energy efficiency rating is appropriate for the building when applying the assessment method and standards, and
- the assessment of the lighting energy efficiency is appropriate for the building or the area of the building when applying the assessment methods and standards.
Building Energy Efficiency Register
The Bill provides for the establishment of an electronic register for BEEC’s known as the Building Energy Efficiency Register. This Register will be accessible to the public. The Register may also include details of past BEEC’s that are no longer current to inform potential purchasers, tenants and subtenants of the historical performance of buildings.
The Secretary has the power to remove from the Register any BEEC if it has been found by audit that either the energy efficiency rating or the assessment of the energy efficiency of lighting has not been carried out in accordance with the prescribed assessment methods and standards.
The Secretary may, but is not obliged to, alert the relevant owner, tenant or subtenant of the removal of a BEEC from the Register.
Will there be any exemptions from disclosure?
There is no automatic right of exemption under the Bill. In each case it will be necessary to apply to the Secretary to receive an exemption.
The classes of exemption specified in the Bill are:
- if the building or the area of the building is used for police or security operations,
- where it is not possible to conduct a building assessment to obtain a BEEC in accordance with the prescribed methods and standards,
- regulations may also be made which will generally describe the types of buildings or areas of buildings for which the Secretary may grant an exemption from disclosure.
It is expected that the regulations would prescribe a category exemption for newly constructed buildings or buildings that have undergone major refurbishments and which are vacant or not fully occupied for an extended period such that it is not possible to assign an energy efficiency rating. More importantly whether or not the Secretary grants the exemption is at the discretion of the Secretary.
One of the concerns raised during the consultation process was the potential difficulties of an owner of a building securing the information which it required in order to achieve an energy rating and BEEC.
The Federal Government has addressed this concern in the Bill by empowering an accredited assessor who has been appointed by the person seeking to provide a BEEC (which in most cases will be the owner or head landlord) to request the owner, tenant or subtenant of a building or area of building to provide the information that is necessary for the purposes of producing the BEEC.
Further, the Bill empowers the accredited assessor to request that an owner, tenant or subtenant provide access to a building or area of the building for the purposes of producing a BEEC. Failure to comply can give rise to a maximum fine of $22,000 for an individual and $55,000 for a corporation. There is, however, a right for an owner, tenant or subtenant who is the subject of a notice for information or access to seek an exemption from the Secretary in respect of the information and/or access that is requested. Again this exemption is discretionary and more importantly the Bill does not prescribe a minimum period within which the Secretary must grant or reject an application for an exemption. Nor does the Bill include an exemption from the civil penalty provisions prescribed in the Bill in cases where the Secretary is taking longer than the period specified in the notice to produce information and/or provide access to respond to the request for exemption.
The apparent policy behind this is a concern that if an explicit legislative provision had been included in the Bill it may have the undesired effect of exemptions being sought as a delaying tactic by applicants wishing to avoid their obligations without good reason.
Penalties and offences
The Bill includes numerous provisions setting out a regime for offences and prescribed penalties for failure to comply with the provisions of the Bill and include:
- If an owner offers to sell the building, invites offers to purchase the building or offers or invites offers to lease a building without a current, valid and registered BEEC the owner will be liable to a maximum fine of $110,000. If the contravention continues there will be a separate contravention in respect of each day the contravention continues.
- Failure to provide a copy of a valid, current BEEC within a reasonably practicable period after being requested to do so may result in the owner or head landlord being liable to a maximum fine of $38,500 in the case of an individual and $110,000 in the case of a corporation.
- Advertising a building for sale or lease without including a reference to the rating in the prescribed format will result in the owner of the building being liable to a maximum fine of $110,000 and the possibility of the fine increasing by each day that the advertisement is published.
There is also the prospect of imprisonment of two years if a person uses, copies or discloses information that is obtained or generated as part of obtaining or issuing a BEEC unless the information is used or copied for the purposes of issuing a BEEC.
Owners, landlords and tenants will also have a right to recover damages from an assessor for any loss suffered as a result of the assessor not applying the methods and standards prescribed in the Bill or not complying with the assessors’ conditions of accreditation when carrying out an assessment for the purposes of obtaining a BEEC.
The Bill contains extensive enforcement provisions including establishing the power of magistrates to issue monitoring warrants to empower an auditor to enter a building where consent to enter has not been voluntarily provided by the occupier.
If the penalty provisions are not enough there is also a name and shame register whereby persons who are responsible for two or more instances of non-disclosure within a period of 12 months will be named on the register.