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New energy certificate exemptions for sellers and landlords

6 March 2015
Energy Government Property & Development

In brief

From 1 July 2015, sellers and landlords will be able to enter into sales and leases which are the result of unsolicited offers, or which involve only wholly-owned subsidiaries, without the need to first provide a building energy efficiency certificate, following amendments to federal legislation. Partner Alister Fitzgerald reports.

Jump To

  1. Background
  2. The changes
  3. Conclusion

Background

The Building Energy Efficiency Disclosure Act (Cth) (the BEED Act), which commenced in July 2010, requires energy efficiency information to be disclosed by the provision of a building energy efficient certificate (the certificate), in most cases when commercial office space of 2000 square metres or more is offered for sale or lease. The purpose of the BEED Act is to require sellers and landlords to give prospective buyers/tenants energy efficiency information. This must be given before offers of sale or lease are made or invited, and is meant to assist buyers/tenants to make more informed decisions and take full account of the economic costs and environmental impacts associated with operating the building when they are considering buying or leasing the building.

As the requirement to give a certificate related to all offers and invitations for offers to sell/lease, it had the consequence of inhibiting commercial transactions where, in effect, the buyer/tenant was not concerned about energy efficiency information. Amendments to the BEED Act seek, among other things, to facilitate the removal of the requirement to provide a certificate in certain circumstances.

The changes

The Building Energy Efficiency Disclosure Amendment Act (the Amending Act), which commences on 1 July 2015, replaces the existing exemption provision (which allows for an exemption from the obligation to give a certificate) of the BEED Act with a more general exemption provision. Sellers and landlords will need to apply for an exemption based on 'circumstances prescribed by regulation' (item 20 of the Amending Act). There are no draft regulations at this time but the Explanatory Memorandum states:

The Amending Act 'provides for exemptions in the circumstances prescribed by the regulations. Providing exemptions to building owners who receive unsolicited offers for the sale or lease of their office space will be provided for under a new class of exemptions to be set out in the regulations. This will reduce the regulatory burden on industry by providing a time limited exemption from the mandatory disclosure requirements for the two parties involved in a negotiation started by an unsolicited offer.' (our bolding)


So it appears that the process would run as follows:

  1. An unsolicited offer is received to sell or lease. At this stage, there is no clarity about what is an unsolicited offer. For example, if a campaign to sell has been unsuccessful and has ended, but a prospective buyer was made aware of the sale through the campaign, is an offer from that buyer unsolicited? In addition, as is usual with most offers, negotiations will be required to bring any offer to fruition. Presumably those negotiations cannot occur until an exemption is obtained, otherwise a seller/landlord runs the risk of not getting an exemption and committing an offence. Does a seller/landlord commit to the costs of an exemption at this very preliminary offer stage when it is unclear whether a deal will actually be finalised? The exemption process will need to contemplate this.
  2. The seller/landlord applies for an exemption in respect of the normally required certificate. It will be critical for the exemption to be dealt with rapidly, otherwise the very purpose behind the amendment will be frustrated.
  3. Assuming the exemption is granted, the sale/lease negotiations can proceed .

It will be interesting to see what clarity the regulations bring to the above issues.

Some of the other changes implemented by the Amending Act are:

  • Allowing transactions between wholly owned subsidiaries to be excluded from disclosure obligations.
  • Addressing ambiguity in the BEED Act in relation to the status of assessments undertaken by assessors accredited under the National Australian Built Environment Rating System Program, but not accredited under the CBD Program.
  • Introducing the ability to determine a commencement date for a certificate that is later than the date of issue. This will provide greater flexibility for businesses wishing to proactively maintain current certificates for their property portfolios.
  • Removing the need for new owners and lessors to reapply or pay the application fee for fresh exemptions if there is an existing one in place for a building.
  • Removing the requirement for six pages of standard energy efficiency guidance text on the certificate, and providing live and interactive online information about improving energy efficiency for office buildings instead.

Conclusion

Sellers and landlords should familiarise themselves with the changes and the process for exemption so they can take advantage of them if an unsolicited offer (whatever that is ultimately defined to be) comes out of the woodwork.

We will keep you advised on the progress of the new regulations.