Environmental upgrade finance

Environmental upgrade finance

Smarter finance for better building performance

Environmental upgrade finance is a smarter way for building owners to access capital for commercial building improvement projects, allowing both owners and tenants to reap the benefits of operating a more sustainable and efficient building.

Environmental upgrade loans can be provided by any lender to fund works that improve the environmental performance of an existing building.

As part of this finance, a contract known as an environmental upgrade agreement (EUA) is entered into by the building owner, the lender and the City Of Sydney. Under this contract, the lender advances funds to the building owner to complete the upgrade works and the loan is repaid through the City’s existing rates collection process, as an environmental upgrade charge (EUC).

The EUA scheme is managed by the NSW Office of Environment and Heritage. You can contact an EUA coordinator on 9995 5289 for more information on how EUA finance can help fund environmental upgrades to buildings. 

Why upgrade?

Sustainable buildings deliver greater financial returns, have lower vacancy rates and greater value than non-sustainable buildings¹.

Improving the efficiency and environmental performance of a commercial building through upgrades can make an existing building more attractive to tenants. Particularly with the introduction of the Commonwealth’s commercial buildings disclosure program which makes it easier for tenants to find and lease more efficient spaces.

Greener buildings have the added benefit of lowering utility bills and providing protection against rising energy prices in the future.

¹ 'Building Better Returns' by the Australian Property Institute and the Property Funds Association Green Property Investment Index produced by IPD (Investment Property Databank), March 2011.

1. Identify eligible building upgrade project works. 2. Confirm in-principle finance approval with your lender and then your eligibility for environmental upgrade finance with City of Sydney. 3. Submit an Environmental Upgrade Agreement (EUA) application to the City of Sydney. Successful applications proceed to the template stage. 4. Prepare and finalise scope of work and tender process. 5. Finalise finance with lender including the letter of offer. 6. Finalise EUA documentation - building owner/representative, City of Sydney and the lender prepare and execute EUA (contract and annexures). 7. Funds released and upgrade works are carried out. 8. Council levies upgrade costs on the land (Environmental Upgrade Charge) and sets repayments schedule. 9. The loan repayments are collected by the City of Sydney quarterly through the rates system and passed on to the lender. 10. The building owner submits a report when works are completed and provides an annual energy, water and CO2 savings report.

Benefits

Financing an upgrade using environmental upgrade finance delivers multiple benefits to building owners and tenants not generally achievable through traditional commercial finance including: 

Building owners

  • 100% project finance, removing the need for upfront capital.
  • Tenants can be requested for contributions which can be used to help service the loan, improving return on investment and payback periods.
  • Longer loan term (10-20 years) fixed rates compared to typical commercial financing (2-5 years).
  • Debt tied to the property not the owner (so doesn’t affect existing loan to valuation ratios). If desired the debt can be transferred to the new owner if the property is sold.
  • Energy savings can effectively pay back the capital outlay.
  • Greater transparency in cost/benefit sharing with tenants.

Tenants

  • Improves amenity with zero upfront capital outlay.
  • Any contributions a tenant makes are equal to or less than the energy bill savings resulting from the upgrades. The tenant can never be financially worse off.

Self-funded upgrades or those financed through commercial loans usually result in the tenant receiving much of the immediate benefits (utility savings benefits), not the building owner. 

The environmental upgrade finance mechanism overcomes this by allowing building owners to share the costs of the environmental upgrade with their tenants through existing net lease provisions or through specific agreement with the tenant. 

This was made possible by changes to the Local Government Act 1993 to encourage building upgrades. 

You can find out more about eligibility and review some case studies.

The City of Sydney has dedicated staff to help building owners access this innovative finance to upgrade their buildings.

The service is part of the City’s commitment to reduce carbon emissions across the local area by 70% by 2030, based on 2006 levels.

Last updated: Tuesday, 6 December 2016