Local Government (Building Upgrade Agreements) Amendments Bill 2015

Adjourned debate on second reading for the Local Government (Building Upgrade Agreements) Amendment Bill.

The Hon. J.M.A. LENSINK ( 16:21 :30 ): I rise to make some remarks in relation to this bill. The Local Government (Building Upgrade Agreements) Amendment Bill is a fulfilment of a Labor election commitment to upgrade sustainable commercial buildings. As the government says in its own commentary, it is designed 'to unlock barriers to invest in retrofitting improved energy, water and environmental performance of existing commercial buildings'.

Proposals for this scheme were promoted by the Premier's Climate Change Council, which endorsed advice to the former environment minister in April 2012. A draft bill was released on 30 January 2014 for a 10-week consultation process. This current bill was tabled in February 2015.

This legislation is shaped around similar models in Victoria (operating since 2010) and New South Wales (operating since 2011). A bipartisan approach has been taken in both those states; however, progress on adopting the schemes to perform upgrades has been slow. To date, seven upgrades have been entered into in Victoria, and New South Wales has had five local governments sign up to the scheme and five building upgrade agreements signed, with five currently in process.

In relation to the components of the bill, in terms of the building upgrade agreement, the bill establishes a voluntary (or section 3) mechanism between three parties (the provider of finance for the upgrades, the building owner and the local council) to enter into an agreement to allow money to be loaned in advance for the purpose of environmental upgrade works to be undertaken on an existing commercial building.

The council then issues a building upgrade charge, which is section 6 of the bill, which is levied against the land, paid by the building owner, to recoup the advance. These moneys are then returned to the financier by the council, which is section 7 of the bill. Originally the money was to be held in a trust account by council; however, after consultation, this provision appears to have been removed.

The council must also keep a publicly-available register of all building upgrade agreements (BUAs), section 13, and the minister may request the council report on their BUAs at any time (section 14). An important aspect of this bill is that the charge is tied directly to the land, rather than the building, otherwise it needs to be discharged.

If the building upgrade charge is not received by the council for a period of three years, the council has the authority to sell the land in accordance with regulations, under section 9 of the bill. The bill stipulates the order in which moneys collected through the sale are to be applied. This section was amended following consultation to reflect council concerns. Whilst the council must make every effort to recover outstanding moneys, the council is not liable for them.

Regarding the recovery of the contribution towards building upgrade charge from lessees, the other main component of the legislation enables costs to be passed onto, or recovered through, the tenants who, theoretically, gain significant efficiency rewards and savings from the upgrade. That is provided for in section 12(1). This bill enables the building owner to recover costs from tenants, firstly, if the tenants consent or, if they do not, if the amount recoverable by the building owner as a contribution does not exceed a reasonable estimate of the cost savings resulting from the upgrade.

The methodology in calculating this is yet to be determined by the government and will be published in the Gazette, and the government have advised they will consult across the board on the methodology to be used. I note that this is what has taken place in New South Wales and that, in Victoria, the tenant contribution is not compulsory. Before the tenant can be required to pay a contribution towards the charge, they are entitled to receive a copy of the BUA and must receive at a minimum written notice from the lessor if they consent. If the tenant does not consent, they will receive, at least 30 days prior to the first payment, written notice of their contribution, the time period in which the contribution is required to be paid and so on and so forth.

In regard to a dispute mechanism for tenants, the bill is silent. In the circumstance that dispute resolution is required between building owners/landlords and tenants, we have been advised that the Retail and Commercial Leases Act and the Residential Tenancies Act stand. I note (and I will refer to this in a moment) that Business SA has expressed concerns about this matter, while I note that the Property Council is satisfied with these measures because they believe it reduces red tape for building owners.

In our government briefing—for which I thank the minister and his officers—we were advised that the intention in relation to the administrative unit is to appoint either the Local Government Association or the Adelaide City Council to oversee the administration and that, if it is to be the LGA, they would recruit specifically for this role. However, this is not part of the bill and I am not satisfied with the fact that it is not explicit. There is clearly a potential conflict of interest for councils to have this role and I understand that the Property Council would have preferred an alternative to this model as well.

I thank the government for providing me with all of the consultation they received on this matter. I note that the council submissions, which were received from the City of Adelaide, Marion council, Onkaparinga and the LGA, were supportive of the bill. In fact, I would say that there are no stakeholders at all who do not support the concept in principle. I think it is a question of the details, which are yet to be determined.

I note that because there are three parties in the legislation to the BUAs—councils, the financial institutions which finance the upgrades and the building owner who all opt in on a voluntary basis—all of the stakeholders who represent those interests are supportive. However, outstanding issues remain, particularly for tenants. That is a concern of the opposition, and concern has been expressed to us, as I mentioned, by Business SA.

I am not going to be the one defending issues on talkback radio if some of these things go pear-shaped and tenants feel like they have been roped into this unfairly and that they have been charged more than they ought to have been. Therefore we require that some matters be resolved prior to this bill proceeding. We will support it at the second reading. I would just like to quote from Business SA's submission from 11 April last year. They say:

Although Business SA lends support to BUF, it is critical that all entities party to the costs and benefits of a BUF project are afforded equal rights to participate in any project. BUF should not override a tenant's existing lease arrangements if the tenant does not wish to make contributions towards an environmental building upgrade.

They make a number of points, but specifically they say:

Clause 12(3 )(b)(ii) of the draft bill must be removed to protect the financial position of tenants, many of whom are small businesses. Although this section provides tenants only pay a contribution to BUF based on a reasonable estimate of cost savings, this puts the risk of cost savings not eventuating back on the tenant. Providing landlords have good relationships with tenants, we do not see any need for a clause in the draft bill which overrides a tenant's right to object to a BUF contribution. Business SA acknowledges the split incentive which is inherent with environmental upgrades, but considering BUF enables a cheaper form of finance—

And I note from the example from the City of Melbourne that the government provided that this is certainly true—
for capital improvements. Landlords will still benefit even without tenant contributions, which has been proven interstate. Furthermore, commercial property markets work on effective rents , and any improvement in outgoing costs will eventually improve a landlord ' s bargaining position based on rent.

I am sure the government has received a copy of that. The opposition's outstanding concerns with this are, firstly, that the administrative unit has not been explicitly clarified. We find that that situation where this legislation has been in government circles since 2012 unsatisfactory. There is also the matter of the metrics for the regulations. I understand there is not even a draft available on that matter yet, and that is also unsatisfactory.

In my discussions with our colleague, the Hon. John Darley, he has also raised issues particularly, which I am sure he will talk about, in relation to, not the financiers of the upgrade, but banks which have lent already and where they are in the queue. I think those concerns are certainly also relevant and I would like to have those matters clarified prior to the further passage of the bill. We will support the second reading, but we certainly will reserve our right at the third reading and trust that the minister will take some corrective action prior to the committee stage to address these matters.