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Green landlords – new incentives for green retrofits to existing buildings

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The background to the proposed legislation is the 1200 Building Project undertaken by the City of Melbourne and the Sustainable Melbourne Fund.  The project aims to achieve the green retrofitting of 1200 commercial buildings in the City of Melbourne by 2020.  The City of Melbourne has calculated that if it achieves this goal there will be significant green house gas mitigation.

Much of the regulatory support for green buildings has been based on new buildings.  The City of Melbourne is keen to address the gap it sees for environmental changes to existing buildings.

The Project will also provide additional resources such as technical support, policy information and case studies of other building owners who have been through the exercise.  This could prove to be a valuable resource to building owners.

How will the Scheme work?

Low cost loans will be made available to building owners for environmental upgrades of existing commercial buildings.  The loans will be repaid by the building owner to the Council through charges on rates notices and passed on to the lender.  

Environmental Upgrade Agreements (EUAs)

It is proposed that EUAs will allow the Council to use its rating powers to secure private lending to building owners that will fund environmental upgrades of commercial buildings in the city.

The EUAs will be:

  • For rateable land with an existing building, that is entirely or predominantly used for non-residential purposes
  • Used to fund works that improve the energy, water or environmental efficiency or sustainability of the building

Environmental Upgrade Charges (EUC) will give lenders additional security, in that unpaid charges will become a charge on the land that is subject to penalty interest rates and can be recovered.

Implications for commercial leases

The incentive for the landlord to green retrofit is that the costs of the upgrade will be passed onto the tenant as an outgoing on the basis that the tenant will be paying reduced outgoings because of improvements in energy efficiency.  

Other support for green building retrofits

From 1 July 2011 the Federal Government is offering a one off tax break for businesses that invest in eligible assets or capital works to improve the energy efficiency of their existing buildings from 2 stars to 4 stars or higher.  The incentive will enable businesses to claim a bonus of 50% of the cost of eligible assets or capital works.

From 1 November 2010 most sellers and landlords of office space of 2,000m2 or more will need to obtain and disclose an up to date energy efficiency rating for the space or face significant penalties and adverse publicity. 

The future

This is a one off opportunity for building owners to upgrade and green retrofit their existing buildings and take the benefit of the tax breaks and low costs loans that are available to assist them and in the process do something that will have a beneficial impact on the environment.

Click here to view an earlier article on commercial buildings disclosure.

For more detailed information contact own of our Commercial Property lawyers.

Author:  Sandra Robinson

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