TOM CANTWELL and DAVID ANDREWARTHA from DLA Piper provide insight into the Commercial Building Disclosure program and consider some of the issues that became apparent during the transition period.
The full Commercial Building Disclosure (CBD) program commenced on 1 November 2011 after a 12-month transition period. The CBD program is part of the National Strategy on Energy Efficiency policy and is aimed at improving the energy efficiency of commercial buildings. It was set up under the Building Energy Efficiency Disclosure Act 2010, with much of the detail in supporting regulations and various determinations.
The enacted scheme is robust and provides for substantial penalties, but, as is often the case, there are some uncertainties that will only be resolved with time and subsequent amendments. The issues discussed are likely to be valid for most facilities managers, as it is expected that the CBD program will be extended to Stage 2 in 2014, after consultation in 2012.
DISCLOSURE ISSUES TO BE AWARE OF
- To comply a Building Energy Efficiency Certificate (BEEC) must be valid, current and registered.
- A BEEC must contain a NABERS Energy rating, a Tenancy Lighting Assessment and a statutory guidance form on improving energy efficiency.
- An accredited CBD assessor must apply for a BEEC on behalf of their client.
- At any time there can be only one BEEC for any particular building; however, it is not always necessary to have a BEEC in respect of an entire building.
- A BEEC remains current for 12 months or until one of the underlying certifications expires.
- It is possible to maintain a ‘rolling’ certificate by reapplying for a BEEC with a new TLA or NABERS Energy rating before the previous one expires.
- New buildings and buildings that have undergone a major refurbishment are excluded from the scheme.
WHO NEEDS TO COMPLY?
Under the Act, from 1 November 2011 most owners, lessors and sub-lessors of disclosure-affected commercial office buildings are required to obtain and register a Building Energy Efficiency Certificate (BEEC) before offering to sell, lease or sublease a commercial office building or tenancy with a net lettable area (NLA) of 2000 square metres or greater.
One drawback of the Commonwealth enacting the CBD program is that it has used its constitutional power to regulate corporations so the Act primarily impacts only constitutional corporations and not individual owners. Other types of owners may still be required to disclose under the Act, however, if a constitutional corporation is a proposed purchaser or tenant. The disclosure obligations do not apply to sales of a partial interest in a building or of shares or units in a building owner.
To comply with the Act, a BEEC must be valid, current and registered. There are two certifications underlying the BEEC: a NABERS Energy rating, and a Tenancy Lighting Assessment (TLA).
The TLA will calculate the nominal lighting power density (in watts per square metre) of the general lighting of the relevant office space being sold, leased or subleased, as well as review and broadly categorise the capacity of the installed lighting control system. It does not, however, measure lighting output, quality or suitability of the lighting for use in offices or how efficiently it operates in practice.
Once the certifications have been obtained, an accredited CBD assessor may apply for a BEEC on behalf of their client, which is registered on the publicly accessible Building Energy Efficiency Register.
At any time there can be only one BEEC for any particular building; however, it is not always necessary to have a BEEC in respect of an entire building. For example, if an owner intends to lease a disclosure-affected area in a building that is more than 2000 square metres, then it is only necessary to obtain a LTA in relation to that area. Subsequently, if the owner wanted to sell the building or lease another area, then it would be necessary to obtain a TLA in relation to the remainder of the building. In contrast, the NABERS Energy rating applies to the base building (or whole of the building if not separately metered) and cannot be obtained in parts.
A BEEC remains current for 12 months or until one of the underlying certifications expires. Inevitably, this will be for less than 12 months, as there will be time taken to register the BEEC after the NABERS Energy rating or TLA have been obtained. It is possible to maintain a ‘rolling’ certificate by reapplying for a BEEC with a new TLA or NABERS Energy rating before the previous one expires and this may become necessary in practice. This is feasible, as at the time of writing there was no application fee for obtaining a BEEC. In addition to the two certifications, a BEEC must also contain the statutory guidance form on improving energy efficiency.
An intention of the regulations is to ensure that separate areas in a building that “may be bundled together for offer of lease” are covered in calculating the 2000-square metre threshold. The current drafting is broad, however, and the position with non-contiguous floors in a building is uncertain.
We consider the better view to be that non-contiguous floors should not be bundled together, as in practice a tenant would be unlikely to lease non-contiguous floors. This is a matter for close attention by agents when advertising vacant space in a building to avoid contraventions of the Act. Care should also be taken in using NABERS Energy ratings to ensure they do not include GreenPower for the purposes of the CBD program.
WHO IS EXEMPT?
New buildings and buildings that have undergone a major refurbishment are excluded from the scheme, as they will not be able to produce a NABERS Energy rating. A major refurbishment is defined as one that affects the energy efficiency rating of the base building.
A new determination was issued in August 2011, however, that removed the exception for buildings undergoing a major refurbishment and only excludes buildings for two years after the issuing of a certificate of occupancy or equivalent by a local authority.
It remains possible to seek an exemption for a building undergoing a major refurbishment. To obtain an exemption, a CBD assessor must certify that a rating cannot be obtained. Often with refurbishments, a local authority is not required to issue a certificate of occupancy and a building surveyor may issue a final certificate, which, in our view, should be sufficient.
Other times that an exemption may be required are for buildings awaiting demolition and those partially occupied. Strata-titled offices are also exempt, as they generally cannot be separately assessed.
This exception again creates uncertainty, however, as what constitutes a strata subdivision is different in different states. For instance, some strata subdivisions in Victoria that will be exempt under the Act are equivalent to stratum subdivisions in New South Wales that will be disclosure-affected.
In addition, mixed-use buildings with less than 75 percent of the building used for administrative, clerical, professional or similar information-based activities, including support facilities for those services, are automatic exceptions to the disclosure obligations as they cannot obtain a NABERS Energy rating.
STIFF PENALTIES APPLY
The CBD program is supported by significant civil penalties. Penalties of up to $110,000 for a first offence and $11,000 per day for continuing failures can be applied by a court for failure to comply with disclosure obligations or failing to provide information requested by a CBD assessor.
Alternatively, the Secretary can issue infringement notices with fines up to one 10th of the civil penalties for those contraventions. As a further deterrence, if a person receives two or more infringement notices or civil penalties within 12 months, they are added to the Energy Efficiency Non-Disclosure Register, a web-based, searchable register.
There are enough issues with the interpretation of the Act, regulations and determinations to support an argument for a settling-in period, during which penalties or infringements should only be issued after an owner or lessor fails to respond to a warning. As yet there has been very little guidance from the Department of Climate Change and Energy Efficiency on that enforcement strategy; however, they have informally indicated they are likely to take this approach. Property owners should, therefore, actively seek guidance from assessors or the department in relation to any unclear issues.
It is apparent that during the transition period of the CBD program there has been a significant increase in the number of buildings obtaining a NABERS Energy rating. This is likely to expand as the full implementation phase is reached. This topic will become of increasing interest to all facilities managers because, while the CBD program currently only applies to offices, the consultation process for Stage 2, in respect of hospitals, schools, hotels, residential, industrial and retail buildings, is expected to commence in 2012.
Tom Cantwell is DLA Piper’s head of Real Estate in Australia. He has more than 20 years of experience in commercial real estate law and advises clients on complex and high-value property-based transactions. He has a special interest in sustainability in the built environment and is at the forefront of legislative, regulatory and policy change in this dynamic area. As chair of the State Taxes Committee of the Property Council of Australia, he develops property tax reform initiatives, responds to legislative changes and liaises with government to implement strategy. Cantwell is the only lawyer on the Victorian Divisional Council of the Property Council of Australia, providing direct access to property industry leaders.
David Andrewartha has a broad range of property experience acting for developers, property owners and managers, corporates and government entities at a local, state and federal level. He advises on commercial and retail leasing matters, forestry management and related legal issues, and carbon rights. He also has extensive experience advising on property related issues as part of major infrastructure and construction projects. Before becoming a lawyer, he worked as an operational plantation supervisor and he has a thorough understanding of the industry.