Commercial Building Owners Beware of New Building Disclosure Requirements

Recent amendments to the Commercial Building Disclosure Program (“CBD Program”) will see more sellers and lessors forced to consider and disclose energy efficiency information of large commercial buildings when selling, leasing or subleasing the building.

The CBD Program implemented in 2010 aims to improve the energy efficiency of large commercial buildings and ultimately reduce emissions of Australia’s large office buildings by requiring building owners and lessors to make energy efficiency disclosures to potential buyers and tenants. Originally only applicable to commercial buildings with office space of at least 2,000 square metres, the federal government has now lowered the threshold for the CBD Program disclosure obligations to include commercial buildings with office space of at least 1,000 square metres.

The CBD Program requires sellers, lessors and sub-lessors to acquire a Building Energy Efficiency Certificate before putting the building up for sale or lease and to provide a copy of the certificate to the buyer or lessee at time of the sale or commencement of the lease and also applies to transactions such as put and call options, agreements for lease and sale pursuant to court order. Building Energy Efficiency Certificates must be obtained from an accredited assessor and are valid for up to 12 months. In addition, the CBD Program also imposes disclosure obligations on real estate and managing agents of commercial buildings that meet the office space area threshold by requiring the agents to ensure that all advertisements for the sale or lease of the building contains the National Australian Built Environmental Rating System Energy star rating relevant to the building.

The disclosure obligations largely only apply to owners, lessors and sub-lessors that are a foreign or Australian corporation, however, non-corporate entities such as individuals and partnerships must give prospective purchasers, lessees and sub-lessees a copy of the current building energy efficiency certificate where the prospective purchaser, lessee or sub-lessee is a corporation.

Exceptions apply to contracts of sale or leases between an entity and a wholly owned subsidiary of the entity, strata-titled buildings, mixed use buildings where the total office space is less than 75% of the net lettable area and new buildings or buildings which have completed a major refurbishment where a certificate of occupancy which has not yet been issued or was issued less than two years earlier.

Failure to comply with the disclosure obligations may result in civil penalties of up to $210,000 being payable.

Owners that are selling or leasing large commercial buildings and sub-lessors of large commercial buildings are recommended to seek legal advice in relation to their energy efficiency disclosure obligations prior to offering or entering into any transactions. For further information, please contact Renze Verheyen of our office.