Guidelines on
Green Lease Schedule Exceptions
July 2011

© Commonwealth of Australia 2010

ISBN: 978-1-921299-12-4

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Introduction

Energy Efficiency in Government Operations Policy

The Energy Efficiency in Government Operations (EEGO) policy aims to reduce the energy consumption of Australian Government operations with a particular emphasis on building energy efficiency. It commits to a progressive improvement of overall Agency energy performance through annual energy intensity reporting and minimum efficiency requirements.

A key objective of the EEGO policy is for each Government portfolio to achieve the following office building energy intensity targets by June 2011:

  • 7,500 MJ/person per annum for tenant light and power
  • 400 MJ/m2annum for central services

Minimum Energy Efficiency Performance Requirements and Green Lease Schedules

As a strategy for achieving the above targets, the policy requires new office accommodation leases and major refurbishments (over 2,000m2 in tenanted area and with a lease term longer than two years) to achieve a 4.5 star Base Building and Tenant, Light and PowerNational Australian Built Environment Rating System (NABERS) Energyrating. Green Lease Schedule (GLS) templates have been developed to ensure that Government agencies can easily incorporate the required energy efficiency standards and an effective implementation mechanism into their tenancy leases.

The GLS consists of five essential elements that are designed to facilitate implementation and ongoing compliance with the relevant energy performance standard, by creating a practical arrangement and a legally binding agreement between a landlord and a Commonwealth tenant. The five elements are:

  • agreed target NABERS standard (including annual assessment)
  • separate digital on-market status metering;
  • building management committee;
  • energy management plan; and
  • remedial action/dispute resolution clauses.

However, the EEGO policy provides flexibility and exceptions where it is not practical or cost effective to achieve a 4.5 star rating or to adopt all the five essential elements in the GLS. Refer to p.4 for further details.

Green Lease Schedule Guidance Notes are available on the Energy.gov.au website at

The Notes provide an overview of the GLS and a detailed explanation on how it works.

Purpose of this document

The aim of this document is to provide guidance on when exceptions to the minimum energy performance standards or other essential elements in the GLS are acceptable, and how to apply for an exception.

Early inclusion of GLS in the Leasing Life Cycle is essential

It is essential to include the consideration of GLS at the early stage of the leasing life cycle, e.g. at the beginning of the negotiation for the Heads of Agreement. This will allow both the Commonwealth tenant and the landlord sufficient time to investigate issues surrounding the use of GLS, and familiarise themselves with the terms and conditions involved. An early inclusion approach will facilitate a better understanding of the importance and benefits of the GLS and hence increase the successful rate of its adoption in the lease negotiation, and minimise the use of exceptions. This will in turn maximise the potential of the energy efficiency performance of the tenancy and give the best effect to the EEGO policy.

The Department or Agency should also ensure that the requirement of using a GLS is included in the Heads of Agreement. This will clearly demonstrate the tenant and landlord’s intent to adopt the GLS in the tenancy lease, and create a legally binding obligation on both parties to do so. This can avoid any uncertainty or misunderstanding at the later stage of the lease negotiation and maximise the chance of a successful and mutually acceptable adoption of GLS in the final lease.

Exceptions and Compliance with the EEGO policy

Generally where an office lease includes a 4.5 star targetNABERSEnergyBase Building and Tenant, Light and Power rating and a GLS with the five essential elements, it is in full compliance with the EEGO policy. The Department or Agency will not need to seek any exception.

If a lease (over 2,000m2 in tenanted area and longer than two years) specifies less than 4.5 star NABERS as target rating, and uses a GLS that does not contain all the five essential elements, the Department or Agency would have to justify such variations from the EEGO policy and apply for an exception. If the Department or Agency can satisfactorily demonstrate that variations are necessary, based on heritage, security, location or market reasons, and an exception is granted by the Department of the Environment and Energy, such a lease will still be considered as in compliance with the EEGO policy.

When exceptions are allowed

Under certain circumstances, a strict compliance with the minimum energy performance standards and inclusion of all five essential elements in the GLS may not be practical or cost effective. These circumstances include, but are not limited to:

  • short to medium lease terms;
  • location constraints;
  • market constraints;
  • specific heritage;
  • security requirements; or
  • other design and operational imperatives that limit agencies’ bargaining power and capacity to negotiate energy efficiency improvements in existing or new buildings.

Under these circumstances, Departments and Agencies may seek an endorsement for an exception to the standard requirements from the Department of Environment and Energy.

Nomination of a lower NABERSEnergy target (< 4.5 stars)

If a nomination of a lower NABERSEnergy target for Base Building or Whole Building is required, the Department or Agency should request evidence from the building owner to demonstrate that the nominated NABERS target is reasonably determined. This can be in the form of an NABERS assessment. The Department or Agency should also endeavour to negotiate the highest possible NABERS target and ensure that the building owner has duly considered the implementation of cost effective energy efficiency improvements for the base building.

If a nomination of a lower NABERS Energy target for Tenant Light and Power is required, the Department or Agency should engage an energy consultant to advise on the best possible NABERS Energy Tenant Light and Power rating that can be reasonably achieved. This should include the assumption of cost-effective energy efficiency improvements being implemented and reasonable energy saving practices are being observed by the employees (e.g. turning off computers and office equipment after office hours). The nominated NABERS target should be determined based on the advice provided by the energy consultant.

Sufficient evidence must be included in the exception application to demonstrate that the above procedures are followed in the determination of the nominated lower NABERS targets.

Legal risk assessment

It is the Department’s and Agency’s responsibility to make sure that in the process of drafting, preparing or settling the lease documents, their lawyers should:

  • ensure that the appropriate GLS has been selected; and
  • bear in mind the need to review the base lease document in light of the GLS to ensure compatibility, to reconcile provisions and to enable the Department or Agency to be adequately advised of the impact of base lease provisions on the GLS (and vice versa).

Departments and Agencies should endeavour to use the GLS as it is or with minimum changes made. Changes made to the GLS may erode the robustness and enforceability of the framework. Therefore Departments and Agencies should seek legal advice and manage the associated risk in situations where an exception to the GLS is sought, even though the exception may have been granted by the Department of the Environment and Energy.

Case Study 1

Agency ABC urgently requires an addition of 2,500m2 of office accommodation due to a recent Government decision to expand an existing program. The additional work space has to be within close proximity to the existing accommodation for operational reasons. Agency ABC undertook a market testing and only one suitable site was identified. The tenanted area is less than 50% of the total building area and it is intended to be a gross lease. Therefore, a C1 GLS is required in this case. However, the tenancy is designed to be NABERS 4 stars after refurbishment. Due to both the urgency in the accommodation requirement and the tight market situation, Agency ABC’s negotiating power is very limited and the landlord is unwilling to commit to further energy efficiency improvements.

Under the above stated circumstances, an exception would be granted to the 4.5 star NABERS requirement and accept a lower energy performance standard, i.e. 4 star NABERS, to be specified in the GLS. An exception in this case is justified because the Government decision necessitates the unexpected change to accommodation circumstances with little notice. There is also clear evidence that Agency ABC has undertaken reasonable steps to comply with the policy intent. And the lease will be considered as compliant with the EEGO policy.

Before applying for an exception

Before an exception is granted, Departments and Agencies will have to demonstrate that reasonable steps have been undertaken to comply with the EEGO policy intent. This usually includes the following:

  • adequate pre-planning of accommodation needs and allowances of sufficient lead time (at lease 18-24 months) for the procurement process
  • engaging a tenant advocate who has successfully demonstrated a clear understanding of the EEGO policy and GLS, and a strong track record in implementing the policy
  • up-front inclusion of GLS at the beginning of the negotiation with the landlord;
  • careful studying and comprehensive understanding of the GLS Guidance notes is available at:
  • undertaking a thorough market test to identify suitable accommodation that provides the best value for money and energy efficiency performance
  • engaging an energy efficiency consultant to advise on the energy efficiency performance of the accommodation and potential cost effective measures to further improve the performance
  • documenting activities and evidence that create an audit trail supporting the application for exception

Failure to pre-plan accommodation needs

Exceptions are not intended to apply where the problem is caused primarily by a failure to pre-plan accommodation needs or to ensure a sufficient lead time (at least 18-24 months) for the procurement process. On such cases, the Government has little bargaining power and is likely to pay far more for energy as well as rent and other outgoings. This does not represent value for money from the government’s point of view. (Please refer to Section C9 of the Annex C, EEGO Policy).

Discourage the use of exceptions

In order to progressively reduce portfolio energy intensity levels and achieve the EEGO policy targets (i.e. 7,500 MJ/person per annum for tenant light and power; and 400MJ/m2 per annum for central services), it is stronglyrecommended that Departments and Agencies discourage the use of exceptions. Departments and Agencies also need to be aware that individual agreements to alter or remove one or more of the five essential elements of the Green Lease Schedules may erode the legal and management framework to a point where it does not provide adequate support to achieve of the EEGO policy objectives.

Department and Agencies are also encouraged to take a “whole of Commonwealth approach” in endorsing and using the EGGO policy and the GLS. Such an approach can contribute to an understanding and acceptance in the market place of Commonwealth requirements. This is particularly important when multiple Commonwealth tenants are dealing with the same landlord. If one Department or Agency unnecessarily compromises the 4.5 NABERS rating or other GLS requirements, this will significantly undermine other Commonwealth tenants’ bargaining power and, hence, their chance to comply with the EGGO Policy requirements. Therefore, a consistent approach across all Commonwealth tenancies, which will optimise acceptance of the policy and the GLS, is strongly recommended. Moreover, there are opportunities for synergy and further streamlining of the energy management framework in situations where multiple Commonwealth tenants reside in the same building. Departments and Agencies in this situation are encouraged to fully explore these opportunities and adopt a collaborative approach to achieve better energy efficiency outcomes.

Departments and Agencies are strongly discouraged to consider an exception to the entire GLS. In cases where the building owner takes a firm position against the use of a GLS and there are no alternative cost effective tenancy options elsewhere, the Department or Agency should endeavour to liaise to include the GLS elements as far as possible. It should be noted that although all the GLS elements are essential in creating a robust green leasing regime, these elements individually can still, to a lesser extent, improve the energy efficiency of the operation of the building. For example, without other GLS elements, separate digital metering can still help the tenant to better understand and manage the use of electricity. Strong justification will be required before the Department of the Environment and Energy will consider granting an exception to all of the five GLS elements.

Exercising a lease option

In accordance with the EEGO policy, if a Department or Agency exercises a lease option and they remain in the building, there is no requirement to include a new GLS as the lease agreement is already signed and terms are previously agreed. However, prior to the exercising of a lease option, the Department or Agency should:

  • undertake an NABERS Energy assessment in order to assist them to determine value for money considerations when testing the market;
  • identity and test market options to determine what the market will accept and provide; and
  • determine the best value for money lease opportunity, including energy efficiency considerations.

Moreover, agencies are expected to undertake cost effective energy efficiency measures within the exercised option term to enhance the relevant NABERSEnergy rating and report their initiative each year in their annual energy performance summary report to their portfolio Minister.

Annual Energy Performance Reporting

Under the EEGO policy, each Department and Agency covered by the policy is required to forward an annual energy performance summary report to their relevant Ministerby the close of business on the last working day of October each year.

Along with other reporting criteria, Departments and Agencies are required to clearly identify in their energy performance summary reports:

  • the number of office accommodation leases (over 2,000m2 in tenanted area and longer than two years) that specified LESS than 4.5 star NABERS Energy and/or did NOT include all five essential elements of the GLS; and the number among those with Department of the Environment and Energyendorsed exceptions;
  • the number of office accommodation leases (over 2,000m2 in tenanted area and longer than two years) that did NOT have a GLS in place; and the number among those with Department of the Environment and Energyendorsed exceptions to all five elements in the GLS;
  • the number of design and construction contracts signed for new office facilities or major refurbishments over 2,000m2 in tenanted areas or office space that specified LESS than 4.5 star NABERS Energy; and the number among those with Department of the Environment and Energyendorsed exceptions.

Case Study 2

Agency PQR currently leases 3,000m2 of office space in Building K, with the lease expiring in 12 months. The tenanted area is greater than 50% of the total building area and part of it is used for a street front Customer Service Centre. Agency PQR’s intention for the office accommodation is to remain in the same location for the foreseeable future. The rationale is that the existing accommodation was purpose built for the Customer Service Centre and the location is ideally suited for that purpose. An energy audit has been done and the building was given an unofficial Whole Building rating of 2.5 to 3 star NABERS Energy. The landlord has indicated that he will employ a number of energy efficiency improvement measures, which will potentially bring the rating up to 3.5 to 4 stars. The landlord is willing to renew the lease but refuses the use of a GLS or a commitment to any energy efficiency rating. Accordingly, Agency PQR submits a request for exception to the entire GLS.

Based on the above information, it is unlikely that Agency PQR could satisfactorily justify its request for exception to the entire GLS. This is because Agency PQR has not demonstrated that it has undertaken adequate pre-planning of its accommodation needs and allowed sufficient lead time for the procurement process. Agency PQR should also have conducted a thorough market testing to identify and test market options to determine value for money and what the market will accept and provide. Stronger evidence would also be required to justify the decision of staying in the same premises, e.g. the cost of relocation and refurbishing a new site. Agency PQR would have to convince the Department of the Environment and Energythat it has exhausted the negotiation with the building owner for possible inclusion of part of the GLS elements.