Debate around extending the Commercial Building Disclosure (CBD) program from large office blocks to shopping centres and hotels (including data centres and serviced apartments) is intensifying as an independent review draws closer to finalisation. Draft findings of the review undertaken by The Centre for International Economics (CIE) were released last month (September 2019) and will be up for discussion at stakeholder consultation workshops in Sydney and Melbourne later this month with feedback due by October 31.
While there is much support for expanding the CBD Program and the energy efficiency benefits it creates, industry bodies are concerned about the impact on their smaller operators. These operators, such as mum and dad landlords in the tourism sector and minor retailers with nowhere near the resources of large institutional investors, may struggle with suddenly having to comply with the CBD Program, particular the requirement for a NABERS (National Built Environment Rating Sydney) star rating. According to a report by a trio of leading property lawyers from legal firm Norton Rose Fulbright Australia, the biggest fear expressed in submissions to the CIE so far from industry sectors is that expanding the Program could prove more hindrance than help.
In relation to the tourism sector for instance, the legal team found there is a “real risk that the expansion of the CBD Program to hotels would add yet another layer of administrative burden and expense”.
Likewise, from a retailer’s perspective, the legal team found that “there might be concern that the additional costs associated with participation in the CBD Program would be passed on to tenants under the outgoings provisions in the lease. Not to mention the obligation on retailers to themselves monitor and report back to the landlord is an additional burden, and potentially costly, in an already unstable retail market.”
The bottom line is that expanding the Program is not straight forward and will require clear parameters and guidelines to ensure a level playing field. Information would be key: “Training and education for the smaller players is an essential consideration for the Government should the CPD Program expand to shopping centres,” the report noted.
The CBD Program was introduced to rate and regulate energy use in commercial office buildings and is part of federal government measures to reduce greenhouse gas emissions. The Program’s main aims are both to improve energy efficiency in large office blocks as well as ensure prospective tenants and buyers of commercial office spaces over 1000 sqm are informed of the building’s energy usage. Providing this information is compulsory, enshrined in the 2010 Building Energy Efficiency Disclosure Act, and must be delivered to tenants and buyers in the form of a Building Energy Efficiency Certificate (BEEC). A BEEC includes a building’s NABER’s star rating, a government initiative to rate energy use, greenhouse gas emissions and benchmarks the property’s energy performance against similar buildings. It also includes details on lighting efficiency in tenanted areas.
Extending the CBD Program to large shopping centres has been welcomed by bigger players in the sector. These landlords see the Program’s potential benefits being higher rents, more comfortable, cost-efficient premises for tenants and attracting more sophisticated tenants.
But smaller operators would be more likely to struggle affording the investment in infrastructure the CBD Program requires, suggests the report titled To BEEC or not to BEEC – that is the question, co-authored by infrastructure and property lawyers Tom Young, Julie Brown and Sarah Philipson. Importantly, if the current regime were followed, it would include shopping centres of 1000 sqm or greater, effectively putting a portion of the sector’s “David’s” on the same playing field as its “Goliath’s”.
“It’s not clear… whether the proposed changes are intended to apply to all shopping centres or whether the application will depend on the size of the shopping centre,” the Norton Rose Fulbright report states. “
Requiring retailers in an already unstable market to report specific energy usage data back to their landlords could be just the kind of costly burden they don’t need. “It is certainly not a suitable time for further complexities and costs in the retail market if we want to see the already struggling retailers continuing to keep shopfronts in Australian shopping centres,” the report’s authors note.
Level playing fields
Expanding the CBD Program into the hotel sector similarly carries the risk of adding yet another layer of administrative burden and expense. “While large hotel chains may be able to absorb the additional time and cost involved in complying with the CBD Program, this could prove problematic for small 'mum and dad' investors,” the report states.
Determining the size and style of properties that will be required to provide a BEEC is especially critical for this sector. “The trigger which applies to office space of the offer of a sale or lease of an area of more than 1000 sqm may not be appropriate for small scale investors and could potentially add barriers to investing in hotels...A pub in the Australian outback is a vastly different enterprise from a major hotel in a capital city.”
Tourism Accommodation Australia (TAA) raised the point in its submission to the CIE that due to the vast differences in accommodations - from number of workers to room styles as well as facilities and whether restaurants or spas had to be factored in – that creating a consistent environmental rating scheme would be difficult and “could create an unlevel playing field.”
Striking a system that is acceptable to all is paramount. “If it decides to extend the CBD Program to hotels and shopping centres, the government in determining the thresholds and triggers to apply will need to find a happy balance between any potential commercial impacts on the hotel industry and on landlords and tenants in the retail market, as against the overall the objective of the CBD Program to improve the energy efficiency of Australia's buildings,” the legal team concludes.