Sustainability Initiatives in Commercial Property Management

By Sjouke Price AAPI

The Commonwealth ‘Mandatory Disclosure’ scheme for commercial real estate is almost upon us, with new laws scheduled to come into effect on 1st July 2010.

The underlying theme of these changes is targeted towards ‘greening’ Australia’s office buildings, which reportedly contribute to more than 10 percent of Australia’s Greenhouse gas emissions. Caused predominantly by poor energy efficiency, poor energy management and outdated technology, the average commercial property is currently rated at only 2.5 of 5 stars.

The requirement of mandatory disclosure will affect all owners, developers and tenants of commercial office buildings for premises with a Net Lettable Area of 2,000 sqm or more, while smaller building owners and tenants will also be encouraged to voluntarily disclose this information.

Under the scheme, any commercial building (initially only Class 5) to be sold, leased or sub-leased are required to:

• Provide an accredited energy efficiency rating under the NABERS Energy star system for office buildings with NLA of 2000 sqm or greater;
• Mandatorily disclose energy efficiency to any prospective buyers or tenants. This will comprise a Building Energy Efficiency Certificate (BEEC), valid for 1 year, and an Energy Efficiency Assessment Report (EEAR), valid for 7 years;
• Disclose the NABERS energy star rating in all property advertisements; and
• Submit property energy rating details to be held in a central registry.

The scheme is set to have a major impact on existing commercial buildings as they move to comply with the new energy efficiency regulations. At a minimum, it is recommended that property owners aim to achieve a NABERS energy rating of 4 stars.

While many property owners currently provide potential tenants with energy rating and efficiency reports upon request, the new regulations will now make this compulsory as part of any lease or purchase. This will mean many buildings will require significant upgrade to remain competitive in the new ‘sustainable property’ environment.

For those affected by the changes it is important to consider the length of time required to undertake the audit, the data required for the assessment to take place and the date by which the changes required by the EEAR and BEEC to achieve the required mandatory rating must be completed.

Owners of leased commercial property must also consider the impact of the changes on existing tenants and the influence the changes will have on a property sale when considering a typical Due Diligence period.

In addition to the potential expenditure associated with property upgrades, property owners will also be required to bear the cost of energy efficiency assessments and certification, together with application fees.

The mandatory disclosure will establish a new precedent in the commercial real estate market that introduces some challenges during the short term.

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