Other considerations

Other considerations

Further detail about the finance

Tenants

Building owners are able to request contributions from their tenants towards the cost of an upgrade funded under an environmental upgrade agreement (EUA) where the tenant saves money as a result of the upgrades. In some cases these contributions have provided for up to 40% of the total loan value.

Tenants benefit from building upgrades completed using an EUA with improved operations, reduced operating costs and a greener workplace without any upfront cost.

Tenants are also fully protected under the legislation, which ensures that tenant contributions are 100% offset by the savings on utility bills resulting from the upgrade.

Before an EUA is entered into, the building owner must provide an estimate of the cost savings their tenants can expect. This estimate must be prepared by a suitably qualified person using approved calculation methods.

A contribution amount equal to or less than the calculated cost-saving estimates will be issued to the tenant by the building owner as a part of the usual rent and outgoings process. EUA legislation enables this without the need to negotiate or modify existing leases in the case of a net lease. The tenant contributions can then be used by the building owner to service the loan repayments and greatly improve the return on investment.

Building owners are required to report on actual savings against the estimated savings on a yearly basis to the tenants and to the City of Sydney. If the difference between the estimate and actual savings is significant, the building owner must reimburse each lessee for any excess contribution in that year.

Once the EUA loan is repaid, the tenants cease making contributions and continue to benefit from reduced utility bills.

Existing mortgages

As EUA loan repayments are a council charge, they take priority (with rates) over all other debts on the land.

To ensure transparency, it is required that the building owner notify any existing financier of their intention to enter into an EUA.

The existing financier then has 21 days to notify the City if they object to the EUA. Only after this 21 day period can the City approve the EUA.

Property sale

In the event of a building with an EUA being sold, the building owner must provide prior notification to the City and the finance provider as no party can assign its rights under an EUA without the written consent of each party.

The vendor has 2 choices. The vendor may elect to pay out the balance of the EUA loan either before or on settlement of the sale of the property. Alternatively, the vendor may elect to negotiate with the purchaser to transfer the outstanding EUA debt with the building. In the latter case the purchaser must enter into a deed through which the purchaser becomes bound by the terms of the EUA.

EUA limits

The value of an EUA in the City's local area cannot exceed the unimproved land value, as determined by the Valuer General.

EUA loan defaults

In the event that there is a non-payment of a quarterly environmental upgrade charge (the EUA loan) then the City may initiate debt recovery action against the building owner.

The City’s EUA enforcement procedure details what debt recovery action may be taken against a building owner for an unpaid environmental upgrade charge that has been levied.

GST

Goods and Services Tax (GST) applies to the City’s administration service fee that is charged to recoup costs incurred by entering into and administering the agreement. The environmental upgrade charge does not, however, incur a GST liability.

The building owner must pay, or immediately on demand reimburse the City and the lender for all taxes that may be payable or determined to be payable by the building owner, the City or the lender.

Calculation and reporting requirements

The building owner is required to provide an annual report detailing the energy, water and CO2e savings to the City by 1 August each year for the term of the EUA. This report details environmental and cost savings and any tenant contributions collected.

In entering into an EUA with the City of Sydney, the building owner warrants that all calculations and reports prepared for the EUA will be prepared by a suitably qualified person and in accordance with any legislative requirements.

Caveats on the title of the land

In the vast majority of cases, entering into an EUA with the City does not require the registration of a caveat on the title of the land.

Projects with a value of less than $5 million will not require registration of a caveat. 

Where the value of the proposed environmental upgrade works (plus interest) exceeds $5 million, the building owner may be required to consent to registration of a caveat on the title of the land subject to the EUA. The caveat (if applied) will disclose the City’s interest in the land and the total amount of the charge that will be levied on the land. This will be determined by the City on a case-by-case basis.

Land exempt from rates

An EUA can still be entered into for an existing building that is on land that may otherwise be exempt from the payment of rates, such as universities.

EUA legislation

The legal framework for EUAs is governed by the Local Government Act 1993, the Local Government (General) Regulation 2005 and the Guidelines for Environmental Upgrade Agreements.

The amendment in 2011 to the Local Government Act 1993 established the EUF (environmental upgrade finance) mechanism. Amendments to the Local Government (General) Regulation 2005 then support the operation of EUF extending to compliance with the EUA guidelines and the mandatory adoption of an EUA template.

The relevant legislative extracts to the Local Government Act, Regulations and Guidelines can be found on the NSW Office of Environment and Heritage website.

Last updated: Wednesday, 5 July 2017