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Lawyers for local government

Building Upgrade Agreements (January 14th, 2016)

Local Government (Building Upgrade Agreements) Amendment Act 2015 – a significant reform quietly becomes law.

Amongst the numerous significant legislative reforms which passed the Parliament late last year was this amendment to the Local Government Act 1999 (“the LG Act”).

This amendment creates a new form of financing arrangement for building upgrades. It provides for a “building upgrade agreement” which will allow councils to play an active role in assisting building owners to obtain finance for upgrades to improve the energy, water or environmental efficiency or sustainability of their building(s).

These agreements are a voluntary arrangement between a council, a building owner and a finance provider whereby the council recoups money advanced for building upgrade works on behalf of the finance provider through levying a charge on the relevant land.

This amendment originated from a recommendation made by the Premier’s Climate Change Council in 2012 to address difficulties in obtaining finance to upgrade buildings to current environmental standards.

The draft Bill was subject to consultation in early 2014 and was modelled upon a similar scheme which was implemented in the City of Melbourne Council area some years ago. This scheme was subsequently expanded to cover all buildings within Victoria by way of a Bill passed by the Victorian Parliament in September 2015.

Building upgrade agreements in South Australia will be governed as follows:

  • they can only be entered into on a voluntary basis. Councils will not be able to require agreements to be entered into as a condition of a development authorisation issued under the Development Act 1993 or through other means;
  • they may only be made in respect of certain buildings which will be prescribed by regulation and which were constructed at least 2 years before the making of the proposed agreement;
  • councils will be able to charge service fees and late payment fees to building owners under these agreements, provided that these fees are agreed to by the other parties;
  • interest will be able to be charged to the building owner and paid to the finance provider at a rate to be prescribed by regulation;
  • they can only be entered into where:
    • the total amount of taxes, rates, charges and mortgages owing on the relevant land, when added to the total value of the building upgrade charge, does not exceed 80% of the capital value of the land prior to the works occurring; and
    • the building owner has complied with other requirements as prescribed by regulation;
  • building upgrade charges are, until paid in full, a charge on the land except where the building upgrade relates to the common property or part of the common property of a community scheme or strata scheme in which case they are a charge on each of the community lots or units of the strata scheme in proportion to the relevant lot or unit entitlements;
  • where a building upgrade charge payment remains unpaid for more than 3 years, the council may sell the land on terms which are similar to the sale of land for non-payment of rates under section 184 of the LG Act;
  • councils are protected from liability to the finance provider under an agreement in that:
    • where a building owner defaults on their payments under the charge, the council is not liable to pay the finance provider the amount in default; and
    • there is no liability for any failure by a building owner to pay a building upgrade charge, provided that they use their best endeavours to recover the charge;
  • councils will be required to keep a register of building upgrade agreements and the register will be available for public inspection;
  • the Minister administering the LG Act can require a council to report on building upgrade agreements entered into by the council;
  • councils will only be able to delegate their functions and powers relevant to building upgrade agreements to the CEO and the CEO cannot sub delegate those functions and powers; and
  • certificates of liabilities issued under section 187 of the LG Act will include details of amounts owed under a building upgrade agreement.

If you have any questions please contact Victoria Shute on 8113 7104, or by email at vshute@kelledyjones.com.au or Michael Ashforth on 8113 7110 or by email at mashforth@kelledyjones.com.au