Insights | Building Upgrade Agreements Legislation Operational from 1 August 2017AUGUST 2017
- The Local Government (Building Upgrade Agreements) Amendment Act 2015 has been proclaimed and comes into operation, together with the Regulations, on 1 August 2017
- Councils, financiers and building owners can now enter into tripartite building upgrade agreements
After passing both Houses of the South Australian Parliament in December 2015, the Local Government (Building Upgrade Agreements) Amendment Act 2015 (Act) has now been proclaimed and comes into operation on 1 August 2017. The accompanying Local Government (Building Upgrade Agreements) Regulations 2017 (Regulations) come into operation on the same date.
The Act amends the Local Government Act 1999 (LG Act). A new Schedule 1B will facilitate building upgrade agreements (BUAs) to be reached between councils, financiers and
BUAs provide a mechanism by which building owners can access commercial loans from financiers to undertake specified upgrade works to increase the environmental efficiency of existing commercial and industrial buildings. Certain works prescribed in the Regulations will also be eligible in relation to heritage buildings.
The loan moneys advanced by a financier under a BUA will be secured by way of a first-ranking statutory charge declared by the relevant council over the land. The charge attaches to the property rather than the owner of the land (but will not appear on the certificate of title). Councils are restricted from entering into BUAs if the total charges owing on the land (including the value of the proposed building upgrade charge) exceed 80 per cent of the capital value of the land.
The money invested for the purpose of the upgrade works is recouped by way of repayments from the building owner (generally the owner of the land) to the council. The council
then passes on the funds to the financier.
The Act provides that a council must use its best endeavours to recover a building upgrade charge, but that it will not be liable to the finance
provider for any outstanding repayment amount from a building owner.
Building owners can also recover contributions towards the charge from tenants. The Act enables recovery of contributions with tenant consent or without tenant consent via a 'no
worse off' pathway, where the contribution cannot exceed the estimate of cost savings to the tenant from the BUA. An approved methodology for calculating tenant cost savings is to be published in the SA Government Gazette.
Contributions recovered from tenants are to be treated as an outgoing for the purposes of the Retail and Commercial Leases Act 1995 (and are expressly excluded from being considered a capital expenditure obligation under section 13 of that Act). Contributions are recoverable, whether or not disclosed in a disclosure statement, where the lease commenced prior to the imposition of the building upgrade charge. Additionally, where a lease entered into prior to the commencement of the Act required the lessee to pay any rates or charges imposed on the land under the LG Act, this will require the lessee to pay a contribution towards any building upgrade charge on the leased land.
However, a tenant under a residential tenancy agreement (within the meaning of the Residential Tenancies Act 1995) cannot be required to pay a contribution towards the building upgrade charge in accordance with section 73 of that Act.
In the event of default by a building owner, the building upgrade charge ranks above mortgages and liabilities to the Crown (eg outstanding tax). The Regulations provide for a statutory power of sale by councils that mirrors the process for nonpayment of rates under the LG Act.
Councils will be required to keep a public register of BUAs.
A template BUA and draft methodology for estimating tenant cost savings were released for consultation in late 2016. Consultation closed in January 2017. To view these draft documents please click here.
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The content of this newsletter is for general information purposes only and should in no way be treated as formal legal advice.