Frank Sartor

29 November 2010 –The NSW government late last week passed legislation that will provide easier access to finance for building upgrades, with loans secured alongside council charges and ahead of mortgages along.

The move which mirrors legislation in Victoria to facilitate the Melbourne City Council’s 1200 Buildings program allows low cost loans to be attached to a building with repayments included by way of additional council charges.

Minister for Climate Change and the Environment Frank Sartor, said the Local Government Amendment (Environmental Upgrade Agreements) Act 2010 was timed to coincide with new Commonwealth tax deductions, promised to commence from 1 July next year.

He said it had the potential to unlock more than $2 billion in investment in the Sydney market.

The amended Local Government Act 1993 overcome two key barriers to retrofitting large commercial buildings and large strata unit blocks:

•    Access to low-cost loan funds – at present, loans are made to companies that own buildings. This Bill enables the environmental upgrade loan to be directly attached to the property, to be repaid via an agreed extra council rate. This means loans can be secured more readily and at a lower interest rate.

• Split incentives – at present a landlord cannot pass through the cost of energy savings measures that directly benefit tenants via lower energy bills. As the loan repayment will be via a council rate charge, the portion of the project cost that will benefit the tenant can be passed through. The Bill includes a provision to ensure that no tenant would pay more as a result of the agreement, unless specifically agreed.

Key points in a media statement from Mr Sartor included:

•    Similar mechanisms to those in the Act were pioneered in California in 2009, and introduced by the Victorian Government in September 2010.
•    The Environmental Upgrade Agreements will initially be of most interest in major urban council areas such as Parramatta, North Sydney and City of Sydney where three quarters of NSW office buildings are located. Other councils may opt in later.
•    The agreements are voluntary and will enable building owners to implement works that will deliver the best environmental outcomes and value for their building on a case by case basis.
•    Because they are secure, loans for upgrades will become available at lower interest rates and for longer terms. This will greatly increase the range of projects that can be undertaken.
•    Stimulating activities to improve energy, water or environmental efficiency or sustainability of the building will improve the quality, attractiveness and value of NSW building stock and stimulate local economic activity and jobs with tradespeople required to design and implement the works.

“The commercial property sector consumes approximately a fifth of Australia’s electricity and accounts for around 13 per cent of greenhouse gas emissions – rising by 3 per cent a year,” Mr Sartor said.

“In high density areas, such as the Sydney CBD, office, hotel and retail buildings can account for as much as 77 per cent of the city’s greenhouse gas emissions.

“Rising demand for electricity from this sector requires increased investment in the electricity network.

“Wherever we can use less power, this reduces pressure on the network, putting downward pressure on everyone’s bills.

“This Act establishes a mechanism for voluntary environmental upgrade agreements to be struck between building owners, finance institutions and councils.

“It will encourage landlords to invest in energy savings upgrades because over time the resulting savings in electricity pay for the cost of the upgrades.

“Tenants will benefit over time from reduced electricity bills from energy efficiency upgrades that otherwise would have been unlikely to happen.”