How green is my building? Building energy efficiency laws are about to begin

By Nick Thomas.

Key Points:
From 1 November 2010, most sellers and lessors of office space of 2,000m2 or more will need to obtain and disclose an up-to-date energy efficiency rating for the space, and should review their energy efficiency strategies.

From 1 November 2010, many sellers and lessors of office space of 2,000m² or more will need to obtain and disclose an up-to-date energy efficiency rating for the space, or face significant penalties and adverse publicity.

The disclosure obligations are in the Building Energy Efficiency Disclosure Act 2010 (Cth), and are part of what the Commonwealth Department of Climate Change and Energy Efficiency calls the Commercial Building Disclosure (CBD) program. Disclosure under the CBD program will be based, at least initially, on the NABERS Energy rating scheme.

Many of the mechanical provisions of the Act commenced on 1 July 2010. The disclosure obligations will commence in a limited way on 1 November 2010, and there is a 12 month transitional period until full commencement on 1 November 2011.

This article provides a brief overview of the disclosure requirements in the Act, including an outline of exemptions, and some comments on the implications for building owners and tenants.

When do the disclosure obligations apply?

Broadly speaking, disclosure obligations apply to:

• an owner who proposes to sell or let a whole building which is "used or capable of being used" as an office and has a net lettable area (NLA) of 2,000m² or more;
• an owner or lessee who proposes to let or sublet a whole building which is "used or capable of being used" as an office and has a NLA of 2,000m² or more; and
• an owner or lessee who proposes to let or sublet a part of a building where that part is "used or capable of being used" as an office and has a NLA of 2,000m² or more.

The obligations are expressed to apply in respect of a "disclosure affected building" and a "disclosure affected area of a building". Currently, these terms are defined to incorporate the NLA and office capability requirements identified above, and specifically exclude:

• newly constructed office buildings (and areas within such buildings) for which the applicable certificate of occupancy is less than two years old; and
• strata-titled offices (because there is currently no recognised energy efficiency rating tool for these offices).

The Act provides the following additional exceptions to the disclosure obligations:

• the sale of a building through the sale of shares or units in a trust or the sale of a partial interest in a building; and
• leases and subleases of 12 months or less (including any option to extend).

A person can also apply for an exemption from the disclosure obligation in the following situations:

• where a building or area is used for police or security operations; or
• where an energy efficiency rating cannot be assigned, or the energy efficiency of building lighting cannot be assessed, because of the characteristics of the relevant building or building area.

(In practice, this would most likely be because it is not possible for a NABERS Energy base building or whole building rating assessment to be completed (eg. major refurbishments where it is likely that the building is vacant or not fully occupied for an extended period).)

The Department will maintain a public register of exempt buildings.

What has to be disclosed?

The disclosure obligations include:

• obtaining and registering the relevant energy efficiency information (see below) for the "disclosure affected" building or area;
• in some cases, giving a bona fide prospective purchaser or lessee a copy of the documents containing that information; and
• including the relevant energy efficiency rating for the "disclosure affected" building or area in any advertisement for the sale, lease or sublease of the building or area.

The Act also requires an owner, lessee or sublessee of a "disclosure affected" building or area to give an accredited assessor information and access to the building or area, for the purpose of enabling another person to obtain the information necessary to satisfy a disclosure obligation.

The relevant energy information

In full disclosure mode (ie. from 1 November 2011), the Act will require disclosure of a Building Energy Efficiency Certificate (BEEC). BEECs are valid for 12 months, must be publicly accessible on the online Building Energy Efficiency Register, and include:

• a NABERS Energy rating for the "disclosure affected building" or the building in which the "disclosure affected area of a building" is located;
• an assessment of tenancy lighting in the area of the building or area which is being sold or leased; and
• guidance on how energy efficiency might be improved (which is specified in detail in a Ministerial determination issued under the Act).

In transitional disclosure mode (ie. from 1 November 2010 to 31 October 2011), the Act will require disclosure of a current NABERS Energy base building rating for the relevant building (or a NABERS Energy whole building rating if it is not possible to work out the NABERS Energy base building rating) instead of a BEEC. The advertising requirement mentioned above will also apply in the transitional mode.

Offices now, other commercial buildings soon?

The NABERS Energy rating scheme has been selected for providing energy efficiency ratings under the Act, because it is the most widely recognised and most commonly used.

The Act currently limits the disclosure obligations in the CBD program to commercial office space. However, Phase 2 of the CBD program is expected to expand disclosure to other types of commercial buildings including hotels, retail, schools and hospitals.

For those who don't comply

Breaches of the Act carry significant maximum penalties, but are usually not criminal offences. For example, civil penalties of up to $110,000 for a body corporate and $38,500 for an individual apply for failing to provide a BEEC when required. Alternatively, the Department Secretary may issue an infringement notice with a penalty of up to $11,000 for a body corporate or $3,850 for an individual.

Repeat non-compliers can also be noted, by name, on the Energy Efficiency Non-disclosure Register.

Implications and next steps

The CBD program will have less impact on office owners and tenants who are already focused on energy efficiency. However, all owners and tenants of substantial office space should put in place compliance systems to avoid delays in office space transactions, and consider energy efficiency measures to improve competitiveness in transactions.

Owners of office buildings should consider obtaining an energy efficiency rating for their buildings. Given the time it takes (and the energy use records required) to obtain a rating, early action is important. Owners may also want to consider carrying out upgrade works or changes to building operations should be carried out to improve the building's energy efficiency.

Owners should also review their proposed sale and lease documents to ensure they are adequately protected once the disclosure obligations begin on 1 November 2010.

For further information, please contact Nick Thomas.