A mandatory scheme of disclosure of energy efficiency for commercial buildings will come into effect in 2010.

Whilst legislation has not as yet been drafted implementing the system applying to commercial buildings a voluntary system is already in place for the energy efficiency rating of commercial buildings.

The reasoning behind the new legislation is as The Council of Australian Governments (COAG) National Strategy on Energy Efficiency (NSEE) observed in July 2009:

“Energy consumption in buildings accounts for approximately 20 per cent of Australia’s greenhouse gas emissions – split equally between commercial and residential buildings.”

The disclosure scheme will apply to commercial office buildings from the middle of 2010 and in parallel with this a review of the Building Code of Australia’s energy efficiency requirements will be conducted which is intended to be finalized in 2010.

November 2009 – February 2010 – legislation will be drafted

February 2010 – April 2010 – Bill passed by Parliament

Phase 2 of the National Strategy on Energy Efficiency will be to expand disclosure to other commercial building types such as hotels, shops, schools and hospitals.  This is likely to be implemented in 2012.

The scheme will require disclosure in 3 ways:

• A current NABERS (National Australian Built Environment Rating System) Star Rating must be quoted on all advertising materials.
• A current Building Energy Efficiency Certificate (BEEC) must be given to all prospective buyers and tenants.
• The BEEC must be lodged with a central registry.

The NSW Department of Environment, Climate Change and Water (DECC) administers the NABERS system on behalf of all Federal, State and Territory governments.

Property owners have been using NABERS on a voluntary basis to report corporately and gain market recognition of their building’s environmental performance since the launch of the NABERS Energy for offices tool (previously called an Australian Building Greenhouse Rating (ABGR)) in 1999.

NABERS gives building owners the confidence to promote their green initiatives and report building performance with reputable government certification to gain market recognition.

A high NABERS rating for a building may lead to: enhanced capital value of the building, recognition as a cost-effective, environmentally friendly place to work and increased rental returns for the building.

More than 600 buildings have been rated for energy efficiency using NABERS.  These buildings represent about 41% of nationally available office space.

The scheme will apply when 4 criteria are satisfied:

• The building must be classified as BCA Class 5 commercial or professional office space;
• There must be a sale, lease or sublease of all or part of the building;
• The area sold, let or sublet must be more than 2,000 square metres Net Lettable area;
• At least one party to the transaction must be a “constitutional” corporation.

There will be an exemption if:

• The building is less than 12 months old;
• The building has received a major refurbishment within the last 12 months;
• If disclosure is not practical (eg if some required information cannot be gathered)

Some Local Government planning regulations require that new office buildings commit to a NABERS Energy rating of 4 or 4.5 stars.  For example, the City of Melbourne’s Environmentally Sustainable Office Buildings Policy requires a minimum 4.5 star ABGR (Australian Building Greenhouse Rating) Base Building Rating for office developments with a gross floor area of 2,500m2 and greater.

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” – 1 being poor and 5 being excellent.

The NABERS rating system rates:

• Energy Efficiency
• Water Efficiency
• Waste Management
• Indoor Environment
• Transport  

There are 3 kinds of NABERS energy ratings:

• Base Building Rating – which will be the compulsory rating required by legislation
• Tenancy Rating – this rating depends on the behavior of tenants
• Whole Building Rating – a combination of the base building rating and tenancy rating.

A BEEC (Building Energy Efficiency Certificate) will show:

• The NABERs star rating for the base building
• Tenancy lighting details
• Energy consumption data
• Greenhouse gas emission data
• Suggestions for improving energy efficiency in the building

The person or company who provides a NABERS rating and BEEC must be an Accredited Assessor with NABERS.  A list of Accredited Assessors appears on the NABERS website.

The Accredited Assessor will calculate and then lodge the building’s rating application with DECC (NSW Department of Environment and Climate Change).  DECC will check that the rating application complies with the NABERS Validation Protocols, before certifying the rating application and producing a rating certificate.

Data from a building may not currently be collected in a way that supports a “base building’ rating so extra metering may need to be installed to support data collection.  Some data may need to be converted to different measuring systems.  For example, gas consumption must be measured in mega-joules, whereas suppliers often invoice on the basis of the number of litres or kilograms delivered.

It is not clear as yet what obligations will be placed on tenants.  Existing leases will need to be reviewed once the legislation is passed to see if they will properly support the disclosure regime and new leases should be prepared with data collection in mind.  This should be extended to all retail, industrial and commercial leases because the government intends to extend the scheme as far as they can make it go.

A buzz word in property at the moment is “Green Leasing”.  A “green lease” encourages environmentally sustainable operation of a tenanted building with conditions governing the management and operation of a building or tenancy.  It usually includes mutual obligations for tenants and owners to achieve agreed sustainable objectives and targets for the consumption of energy and water and management of waste and indoor environment qualities.  The Green Lease conditions may also include targets for improvements to the building or premises during the period of the lease to achieve higher ecologically sustainable outcomes.

A key feature of a Green Lease is the requirement to measure and benchmark the performance of the building/tenancy, using performance ratings such as NABERS.  The requirement to measure ongoing performance can help to ensure buildings operate to their design standard.

The Australian Government’s Energy Efficiency in Government Operations (EEGO) policy strategy includes a requirement for Commonwealth Government Agencies to sign a Green Lease when a new office building lease is signed.  The Australian Government has developed a suite of Green Lease Schedules for this purpose and the schedules are available at: http://www.environment.gov.au/settlements/government/eego/index.html.

At a national level, COAG’s National Strategy for Energy Efficiency has proposed the development of a National Green Lease Policy for use by Government.

The Federal Government’s Green Building Fund provides for $90 million in grants over five years, including up to $500,000.00 on a dollar for dollar basis, to cover up to 50% of the costs of energy efficient retro-fitting of existing buildings.  To qualify for these grants, projects must be completed by 31 December 2011.

Current proposals for enforcement include the usual Commonwealth civil penalties of up to $100,000.00 for each offence of non-disclosure, criminal fines and criminal prosecution.

It is proposed that aggrieved parties may be able to bring statute based compensation claims or withhold part of the purchase price until the mandatory disclosure is provided

Of course there will be the usual trade practices liability for any “misleading and deceptive” conduct and the usual common law liability for damages will apply.