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Building Upgrade Agreements – what Councils need to know about the draft Local Government (Building Upgrade Agreements) Regulations 2016 (December 1st, 2016)

Further to our Alert on amendments made to the Local Government Act 1999 (“the Act”) concerning Building Upgrade Agreements earlier this year, the draft Local Government (Building Upgrade Agreements) Regulations 2016 (“the draft Regulations”) have now been released for consultation.

Consultation on the draft Regulations is open until 5.00pm on Friday 13 January 2016.

The draft Regulations, associated draft Building Upgrade Agreement template and explanatory information can be found at the SA Government Yoursay site, http://yoursay.sa.gov.au/decisions/yoursay-engagements-building-upgrade-finance/about.

In order to assist with the preparation of submissions, we provide comments on the draft Regulations and template Building Upgrade Agreement.

The yet to commence amendments to the Act provide for councils to enter into building upgrade agreements with the owners of “prescribed buildings” and finance providers for the purposes of undertaking “upgrade works”.  Finance provided to the building owner is secured by a charge placed on the land by the council.

The terms “prescribed buildings” and “upgrade works” are both defined in the draft Regulations as follow:

prescribed buildings” mean “a building on land that is used primarily for commercial, industrial or other non-residential purposes” (clause 5 of the draft Regulations);

upgrade works” in respect of works to be undertaken in respect of heritage buildings in clause 4 of the draft Regulations includes:

  • works for the purposes of maintaining, repairing, upgrading or reinstating the heritage significance of the building;
  • works associated with compliance with requirements under the Building Code (within the meaning of the Development Act 1993) or the Disability Discrimination Act 1992 of the Commonwealth;
  • works for the purpose of facilitating the ongoing occupation of the building. The purpose of the definition of “upgrade works” is to expand upon the definition already contained within the Act. This existing definition limits “upgrade works” to “environmental upgrade works” – being works that improve the energy, water or environmental efficiency or sustainability of a building – only.

heritage building” is defined in clause 4 to mean “a building suitable for occupation…that is or forms part of, a State Heritage Place under the Heritage Places Act 1993 or…designated as a place of local heritage under the Development Act 1993”.

Clause 7 sets out the mandatory provisions which must be contained within each and every Building Upgrade Agreement.   These are each reflected in the template agreement.  On the whole, the template agreement appears to be adequate.  It is important to note, however, that the template is exactly that, a template.  Councils will be able to use or depart from the template as they see fit, subject of course to meeting the requirements of the mandatory Building Upgrade Agreement provisions in clause 7.

The template Agreement contains a number of issues where ‘input’ is sought:

  • clause 17.3 – notice to the Finance Provider should be provided. This notice will assist the Finance Provider by confirming that the sale will occur and is also a prompt for the Finance Provider to make preparations in the event that the sale does not fully discharge the debt owed to it;
  • clause 17.4.4 – there should be no clause requiring the Building Owner to enter into a subsequent Deed for the recovery of amounts owing after a sale. This matter should be left to the Building Owner and Finance Provider and not included in the tripartite Deed;
  • clause 19.1 – there should be a clause for a trustee assurance. Whilst this clause may not be required for every Deed, it should be included to protect councils and Finance Providers who enter into Deeds with trustees in their capacity as trustee of a trust;
  • clause 20.5 – it is sufficient that assignment be with the consent of the council and Finance Provider. The instances where assignment may and may not be appropriate are varied and should be considered on the facts and circumstances;
  • clause 21.2 – this is a matter for Finance Providers to respond to;
  • clause 21.3.3 – this clause is not necessary. It is sufficient that a Deed in the form set out in Schedule 6 be entered into;
  • Schedule 2 – the table needs to be amended to reflect that an Agreement may be entered into for environmental upgrades or upgrade works to heritage buildings or a combination of both. The column “environmental benefit” could simply be deleted. Alternatively, the column could be labelled “outcome of works” or similar;
  • Schedule 3 – feedback on this Schedule needs to be provided by Finance Providers;
  • Schedule 4 – the table appears to be sufficient to record payment details and scheduling;
  • Schedule 5 – as per our comments for Schedule 3 above;
  • Schedule 6 – the Deed needs to ensure that the obligations of the land owner to pay the charge are sufficiently transferred to the new land owner upon transfer of the land occurring;
  • Schedule 7 – to annex the enforcement procedure referenced in clause 17.2 of the Deed. The enforcement procedure is intended to contain how and when the council will enforce the charge securing the repayments of finance for the relevant building upgrade. It will be up to each individual council to adopt its own enforcement procedure. This is considered appropriate as it provides sufficient flexibility to allow for individual council preferences and procedures.

Clause 9 – provides the procedures which must be followed in relation to the sale of land. These procedures are considered to be reasonable, they share some similarities with the rates sale process under section 184 of the Act.

Clause 11 – concerns the register of Building Upgrade Agreements which must be kept by each council.

This clause requires councils to ensure that information concerning new Building Upgrade Agreements is entered on its register within 5 days after execution of the Agreement. Further, that information is removed within 5 days after repayment of the relevant charge or termination of the Agreement (whichever occurs first). Councils may wish to consider whether 5 days (note, not 5 business days) is an adequate time to update the register.

If you have any questions regarding the above please contact Michael Kelledy at mkelledy@kelledyjones.com.au or on 8113 7103 or Victoria Shute at vshute@kelledyjones.com.au or on 8113 7104