Bills

Local Government (Building Upgrade Agreements) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 3 December 2015.)

Ms CHAPMAN (Bragg—Deputy Leader of the Opposition) (15:13): I rise to speak on the Local Government (Building Upgrade Agreements) Amendment Bill 2015. This bill was introduced by the Hon. Ian Hunter as Minister for Environment in another place and has come to us as a result of successfully passing that house. Essentially, it is a bill which provides for the introduction of a building upgrade finance mechanism in South Australia.

In short, it makes provision for improving the environmental performance of buildings, primarily in commercial areas. To facilitate that, the upgrading of the existing buildings requires, if they are to introduce renewable energy, energy efficiency, sustainable water projects and the like, the owner to spend money. The benefit that has been identified is for both building owners and occupiers because, as occupiers or tenants, it provides the means to manage their utility costs, or at least reduce them.

The model of a building upgrade agreement varies in Australia. In New South Wales, they have a model which has operated for some time. In Victoria, they have a model which provides for a voluntary agreement to be entered into between the landlord and tenant or tenants. That has been so successful that it has recently expanded from the Melbourne metropolitan area to the whole of Victoria under the Victorian Labor government. Indeed, they have a Sustainable Melbourne Fund which, as I understand it, operates under the stewardship of the Melbourne City Council. As I said, it has been a model which has been implemented, assessed as favourable and expanded in the state of Victoria.

So when the government introduced this bill in another place in February this year, obviously the opposition were and remain committed to supporting initiatives that would enable a win-win situation, including making buildings more tenantable and cost efficient, assisting with sustainability, and providing for both our energy costs and environmental impacts to be appreciated and shared. We have been and remain committed to supporting projects that do just this.

When we consulted on the bill, Business SA made it very clear that the interests of small business tenants, under the model proposed in the bill, would not necessarily be protected. Essentially, introducing this model and imposing it on tenants without their consent could result in it not being a win-win, as championed by the government, but a win for the landlord, who would have the benefit of the improvement to the property, the likely consequential increase in value of the property and perhaps even the effect of increasing the rent recoverable, on review, from the tenant. The tenant may have some marginal decrease in a utility cost as a result, but they may carry a huge financial burden in either financing costing and/or rental. We looked at this very carefully and Business SA alerted us to the vulnerability of small business operators in tenancy situations.

To ensure there is no undisclosed conflict of interest, I advise the house that I am an owner, with an entity, of a commercial property in metropolitan Adelaide which has a tenant. Hence, I am a landlord. A bill in the model that has been proposed is more than likely to be of great benefit to people like me.

However, we are here as members of parliament to ensure that when we introduce initiatives, as good as they might sound at the outset, we are doing so for the benefit not just of any vested interest or any small secular group. The test for us is, 'It sounds like a good idea in the first place, but does it stack up and assure us that it gives a win-win to landlords and tenants?' and, in theory at least, a flow on economic benefit to other South Australians who rely on there being a viable enterprise occupying these premises, wherever they take advantage of this type of financing upgrade.

Having looked at the matter, and having seen that there was not necessarily a benefit for tenants, mid this year we set about preparing amendments to the bill in another place to effectively replicate the Victorian model. What is interesting is that when the government instituted this proposal, it actually referred to Melbourne as being a jurisdiction that has taken up this type of financing option. However, I do not think it was clear, full and frank in relation to the legislative model it was actually adopting.

Be that as it may, we were. We did the homework and we identified that there was a potential problem. For the record—because I have read the most appalling press release issued by the Hon. Ian Hunter, Minister for the Environment, suggesting that the opposition was sitting on its hands on this issue—the opposition, via the Hon. Michelle Lensink, tabled amendments to this bill to invite the government and others to support a model which would in fact replicate the Victorian model. They have been sitting on the table in another place since July this year. It is the government that has control of government business, and it has failed to do anything about this for months and months.

About three weeks ago I was asked to have a look at this bill (the Hon. Michelle Lensink is on maternity leave, as members know). For the benefit of members, she has delivered a beautiful baby boy, Mitchell Oliver, whom I have visited; not all babies are beautiful, but I can tell members that he is a beautiful baby. However, I got this call to have a look at the bill and was asked if we would agree to meet with representatives from Mr Hunter's office to discuss the progress of the bill. I said I was more than happy to, that I had temporary responsibility for it, and within 48 hours we had a meeting with the representatives of the government, in particular Department of Environment representatives. They were ably supported by Ms Julia Grant and other members of the Climate Change Unit (as I think it is now called) from the Department of Environment.

I pointed it out at the time, and I still maintain, that I am bitterly disappointed that whole unit has been downgraded into the Department of Environment after holding status under former premier Rann in the Premier's Office, given its importance. It is incredible to think that as we are here debating this bill, which helps to support energy initiatives and things which, in the long-term, will hopefully help address man's influence on climate change, we have the Premier on the national stage dealing with what was described as subnational government leaders.

I place on the record that I totally object to that; South Australia is not a subnational government. South Australia is a state government and any department people, whether federal or state, who want to refer to the South Australian government or parliament as some kind of subnational group ought to be severely reprimanded. It is totally unacceptable.

Anyway, I digress from that and come back to say that while we have the Premier of the state and the minister racing around the world to say how fabulous we are on climate change, we are back here with a unit of hardworking people in this area who have been demoted and flicked off to the Department of Environment, notwithstanding the high status that it had under the previous premier.

Let's get back to specifically what happened. So we were there, we had a meeting, and I said, 'I have had a look at the bill, I have had a look at the representation that was made to us of various stakeholders. I am happy to discuss that further, if there has been any change.' 'Well, look, there is a change. We are happy to keep the New South Wales model in our bill, but we want to add a no worse off set of clauses for tenants.' Accordingly, I said, 'Fine. Have you discussed this with Business SA because on the face of it they appear to be the main group who are concerned about the benefits, or lack thereof, and vulnerability of further costs being placed on small business proprietors as tenants.' They said, 'No, we have not. You can.' I said, 'It is your bill, but if you want I will convene a meeting with them, have a talk to them and see whether they might be interested.' 'What about the others? Yes, there is a whole list of other people we say on behalf of the government who are supportive of this. You can ring them, talk to them and whatever.' I said, 'That is fine. I am happy to do that.' So, I did.

It was clear at that point. The very next business day I had a meeting with Business SA. Their view was very clear. It is not the way to go and in fact we need to maintain the position of the opposition as outlined, namely to replicate the voluntary Victorian model. That was fine. I rang all these other people that the government said were supportive of their position. It was pretty clear to me pretty early on in that consultation that they were not actually talking about one model or another. They were supportive of a building upgrade finance model. They did not get into the detail of it. In fact, when I spoke to the Property Council, they said, 'Why don't you have a talk to X at the Melbourne City Council who is involved with the Sustainable Melbourne Fund and they can give you some advice about how it works?' So, that was fine, and I did that. Of course it is a good fund, as it appears from the inquiries I made, and so good that it fits within a model which has now been replicated across Victoria which is consistent with the model that we proposed.

Far from the government actually moving this bill along, far from it being positioned as set out by the Minister for Environment suggesting that we are sitting on our hands, for the record, we have done everything possible to advance the progress of this bill and we are still here and happy to support it today, notwithstanding that in the other place the government was successful in pressing ahead with their amended model, which is what I would call a sort of tacked on New South Wales model. I think it improved it. I do not think it is as good as Victoria's. I think there is a level of vulnerability there; however, from our side of the house, we are supportive of the project getting going in the sense of having it available.

However, there are two things I want to say about that. One is I note that it appears the government intention is to operate a sustainable Adelaide fund which would be run under the direction of the Adelaide City Council, so unsurprisingly the Lord Mayor the Hon. Martin Haese is supportive of that occurring—well, why wouldn't you? Of course you would want to be in charge of a whole lot of money that could be available. Nevertheless, it is one which is going to be introduced—and this is the second point I make—in a market which is far different from Melbourne or Sydney.

Those who might want to take up the opportunity to improve their property in concert with the tenants, which will be able to occur under this bill and, indeed, even if they do not all agree they will be able to progress this, are doing so in a market which is vastly different to the Melbourne and Sydney markets. Members only have to walk outside this door and walk down King William Street to see row after row of empty buildings and 'for lease' signs.

The situation is not good out there and, again, it is hardly surprising in that environment that stakeholders, as they are often called, on behalf of the property industry are saying, 'Let's just get something like this through so that we have a chance to be able to get some financing, upgrade our building and get some tenants.' It is not a question of having a better arrangement for landlords and tenants under a financing model, here it is the issue of whether you can get a tenant at all.

I am not as confident that it will be as easily able to be replicated here, but what the government has done is introduce in its amended form—which has gone through the other place—a model which allows for, if I can paraphrase, a way of clawing back the costs or lack of benefit that a tenant has not achieved. In other words, they have been signed up to this arrangement and they have a commitment to pay, but the new model or the amended model will enable, after a certain period of time of expected revenue return or reduced cost benefit in the upgrade if it has not been achieved, the capacity to be able to claw it back.

I think that is a clumsy way to deal with it and I think it is going to be a model which is going to be difficult for tenants to navigate without significant cost and time or paying some professional person to do those calculations. I think trying to get a small business to have the time, money or energy to apply for some refund arrangement is going to have little take-up. I might be wrong. I hope I am.

I hope that whenever these financing agreements are entered into and they are progressed that they are successful and that we have some chance of helping both the property owners and the tenants out there who are trying to get a reasonable tenancy for their business with reduced, or at least maintained, costs of utility prices, usually in energy and water.

With that, I will say to minister Hunter when he gets back that we have fixed this matter through the passage of the parliament here today, no thanks to him. Next time he wants to set out some accusatory claim that the opposition is sitting on its hands to try to justify his failure to do anything for five months then he should have a look at the file and get a briefing.

The Hon. P. CAICA (Colton) (15:33): I always love listening to the member for Bragg rewrite history in her own terms. At its heart, this bill is about correcting a market failure and, in doing so, creating a vibrant and modern CBD and state. I do have some history in this area and I think I may well have been at the Premier's Climate Change Council when that recommendation was made to go to government to establish this fund.

This bill seeks to upgrade our existing buildings and do so in a sustainable way that delivers environmental benefits, comfort for occupants but, more importantly, cost savings. It will most certainly add to the construction demand in this state and create jobs.

The modelling that has been undertaken, as I understand, has shown that thousands and thousands of jobs could be created through this initiative, and almost $60 million worth of capital investment could be unleashed just in the CBD over an eight-year period.

At the moment, it is the case that such upgrades are difficult because of barriers and those barriers include, amongst other things, financing of the projects and a split incentive between tenants and landlords where the former receives benefits through utility costs and better accommodation and the latter incurs the costs of the upgrade. That is why this bill is specifically designed to overcome these particular barriers.

It will allow building owners to access financing on more attractive terms than traditional forms; for example, over a longer term and at a fixed rate. The bill also allows costs of the upgrade to be shared on a reasonable basis with the tenants. Upgrades under this mechanism have seen tenants in other jurisdictions reduce their overall costs, even after accounting for the charge levied for the cost of the upgrade.

On the subject of other jurisdictions, the deputy leader spoke about her views on how we have arrived where we are, but it is clearly my understanding that we have looked at what occurs in other parts of Australia. We have actually pulled pieces out of each of those jurisdictions to make sure we have something that we believe has properly built upon what already exists in other parts of Australia. To that extent, this bill is a win-win for tenants, landlords and the state.

The member for Bragg also talked about North Terrace and I think there are a lot of reasons why, for an extended period of time, buildings there have stood vacant. That begs the question as to whether or not we build on this and look at issues in the area of heritage and some impediments that might arise in that area. That is a different subject and I will leave that for the government to deal with as it sees fit.

With respect to the passage of this bill in the other place, I might remind the deputy leader that this was welcomed by the Lord Mayor as well as the South Australian Property Council and the Local Government Association. The member for Bragg also said, 'I might be wrong,' and the truth is that it would not be the first time. She said she hopes she is wrong and I know she will be wrong in this regard. It was the head of the Property Council who said:

The Building Upgrade Finance mechanism makes economic sense, not only for building owners and occupiers as a means of managing their utility costs, but for the businesses that can provide the clean technologies and solutions that lift building performance.

Financing such upgrades through Building Upgrade Finance may offer a number of benefits compared to other forms of traditional finance—the potential is limitless and could be applied to offices, shopping centres, hotels, healthcare facilities, university buildings, factories and warehouses.

I am quoting there someone who is well known to the Liberal Party—Daniel Gannon, who heads the South Australian Property Council.

In concluding my remarks, this bill is an example of the government's job creation efforts and job creating efforts. We do not see jobs and the environment as opposites. This government understands that you can protect the environment and create jobs at the same time. In fact, we will see many thousands of jobs in the future come from ensuring that we treat our environment as the asset it is. We will achieve this, and there is no doubt about that.

For example, have a look at what we have achieved in the area of waste and resource recovery. Our efforts to reduce waste and improve recovery rates have been decisive—as decisive as in any jurisdiction in Australia. It has seen the emergence of a $1 billion industry employing almost 5,000 South Australians in the effort to ensure that we properly recover resources to be used again.

This bill is a sensible regulation that corrects a market failure. It will help create jobs, attract investment, improve our city and, potentially, reduce greenhouse gases by 32 per cent. I commend the bill to the house.

Mr TARZIA (Hartley) (15:38): It is said that there are no bad people, only bad incentives. Time will tell whether this bill provides a good incentive or a bad incentive. Much has been said about the current government's credentials when it comes to sustainability and improvement of energy and water use, as well as environmental performance. My message to the government is: focus on what you have so far and focus on the problems you have created thus far.

What comes to mind is the plethora of problems that exist in a part of the world in my electorate which the former minister for water would be aware of—Lochiel Park. Lochiel Park was promised to be one of the best environmentally friendly and sustainable zones in South Australia, but, unfortunately, the people of Lochiel Park, after years and years, do not have the recycled water that they were promised. Many people bought land solely on the premise that they would get these sustainability features and still, under this government's watch, same government, these measures have not been delivered.

So it is a bit rich for this government to come in and want more when it cannot get these things right, time and time again after seven or eight years. There are people in my electorate who have absolutely no belief in this government when it comes to their environmental credentials. My message would be: get what is existing right before you go onto these sorts of things.

As has been put, the Local Government (Building Upgrade Agreements) Amendment Bill 2015 is part of the government's previous election commitment to drive investment in this sort of area, especially in sustainable commercial buildings through, amongst other things, the retrofitting of improved energy, water and also the environmental performance of existing commercial buildings.

I note that a number of stakeholders have been engaged in speaking about this bill, and the member for Bragg alluded to some of the concerns that exist at the moment on this bill, especially from Business SA and the Property Council of Australia (SA). Obviously Business SA has supported the bill to some extent, but they have also highlighted some flaws, and I am of the belief that they have suggested that the clause in the bill which allows for the Retail and Commercial Leases Act 1995 to be overwritten be removed.

I understand that the Property Council of Australia (SA), whilst they have highlighted issues, support the bill in principle. We have suggested certain amendments in another place, and I would encourage the government to consider these because, as the member for Bragg has said, this bill can certainly be improved.

Whilst I can appreciate that the government is trying to create positive social change and environmental change through investment and through incentives, I am not sure whether this is the silver bullet and whether this is the right way to do it. It seems inefficient, there seems to be many weaknesses which have been highlighted and time will tell exactly how this bill will pan out. I encourage the government to look at these flaws—which many on this side of the chamber as well as in the other place have highlighted—before the bill progresses.

The Hon. S.W. KEY (Ashford) (15:42): I rise to support the Local Government (Building Upgrade Agreements) Amendment Bill, but I should point out to the house that my husband and I, by virtue of a rental house and property are landlords, so I put that on the record so that people are aware of it.

I would like to make some brief remarks. Others have already noted in this debate that the bill has the potential to unlock thousands of jobs for our state and attract tens of millions in capital investment, so that cannot be all bad. This will be achieved by overcoming market failures through the creation of this new mechanism. Under the building upgrade finance mechanism, a commercial loan is tied to a property rather than a property owner (that sounds like good news to me) and loan repayments are collected via a local government charge which is levied against the land and passed onto a financier by a local government.

If there is a transfer of ownership of the property, the charge can remain with the property if the purchaser so agrees. BUF helps building owners to access loans to undertake capital upgrades. Also under many commercial leases, tenants pay local government charges. Therefore, by entitling a building owner to recover a tenant's contribution to a building upgrade charge, the mechanism helps to address the split incentive between landlords and tenants in leased buildings, where the building owner incurs the cost of the upgrade but the tenant receives the benefits through reduced utility bills and improved accommodation.

The mechanism therefore helps to unlock investment in building retrofits and realise the associated economic and environmental benefits. The mechanism is beneficial to tenants, as the projects can improve indoor amenity, result in improvements in staff productivity, contribute towards corporate social responsibility goals; for example, energy efficiency, carbon and water targets. The mechanism can also unlock previously unrealised savings to tenants; for example, in circumstances where the reduction in utility costs is greater than the contribution to the building upgrade charge, or when the building upgrade charge has been fully repaid, the tenant can benefit from the net reductions in the operating costs. I am told that this is the experience with similar schemes in New South Wales and Victoria, and I am also informed that no tenants' outgoings have exceeded their cost savings.

The government has recognised the importance of tenants' rights, and I understand the minister in the other place has provided assurances around this. I must say in another life as a campaigner for the tenants association in South Australia, I certainly support this initiative and this proposal. These assurances include that the regulations made as a result of the successful passage of the bill are proposed to be drafted to require building owners to report regularly on the actual cost savings to tenants using the approved methodology. This will be developed by the state government unless otherwise agreed. The subsequent regulations, I am told, are also anticipated to provide for make-good provisions in the event that the tenant's contribution has exceeded their cost savings.

My understanding is that the bill has come about as a result of substantial consultation and review over quite some time. I commend the bill to the house.

Mr TRELOAR (Flinders) (15:45): I rise to make a brief contribution to the Local Government (Building Upgrade Agreements) Amendment Bill on this the last day of sitting for 2015—

The Hon. J.R. Rau: We're sitting next week.

Mr TRELOAR: Don't go there, John—on what should be, what is intended to be, the last day of sitting for 2015. Firstly, I would like to mention the work of my colleagues in the other place for their time and effort in dealing with the government and stakeholders in this bill. I would like to commend the work of the Hon. Michelle Lensink, who is the shadow minister for sustainability, environment and conservation, and her staff. They do a great deal of work on behalf of the opposition when it comes to dealing with legislation such as this, seeking briefings and stakeholder feedback. So I put on the record my thanks for that.

Members would be aware that the Hon. Michelle Lensink is currently on maternity leave, and I congratulate her on the record for the birth of Mitchell Oliver. I hear that both mother and son are doing particularly well, so congratulations to them. I would also like to thank the Hon. John Dawkins for handling the legislation in the other place on behalf of the Hon. Ms Lensink.

The Local Government (Building Upgrade Agreements) Amendment Bill 2015 is part of the government's election commitment to drive investment into sustainable commercial buildings through retrofitting improved energy, water and environmental performance of existing commercial buildings. It seems, through extensive consultation, that all stakeholders support the concepts behind the bill in principle at least. Stakeholders have voiced concerns in relation to the no disadvantage test for tenants and the location of the administrative unit. Consultation particularly engaged Business SA and the Property Council of South Australia.

The minister indicated in his summing up speech in the other place that the LGA is still being considered as the location of the administrative unit, so we will see how that unfolds. Proposals for this scheme were promoted first by the Premier's Climate Change Council, which endorsed advice to the former environment minister way back in April 2012. The draft bill was released in January 2014 for a 10-week consultation process. The current bill was tabled in February 2015.

As the lead speaker for the opposition, the member for Bragg has indicated this legislation was very much shaped around other similar models that have been operating in Victoria and New South Wales both. In both those jurisdictions, a bipartisan approach was taken, and every attempt has been made to do that here also, although I do remind this house that amendments that the opposition put in the other place were defeated, albeit narrowly, and we still believe that the bill as it is now is not as good as it could be. However, we will be supporting it in its current form.

During the debate in the other place, the Liberal Party indicated that we had some concerns with the bill, particularly in relation to the imbalance between the power of tenants (which in most cases are small businesses) and landlords, and we put amendments to that effect. Those concerns relate to the potential negative effects on small business and the government's apparent unwillingness to address the reasonable concerns of this important sector.

As members would be aware, there were some sensible amendments proposed by the opposition, which I will not go over in great detail but which were dealt with in the other place. Suffice to say, they were geared towards creating a more equitable system whereby landlords would be required to gain tenant consent to the payment of financial contributions towards environmental building upgrades—a very reasonable proposition I would have thought—whereas the government's approach will force tenants to make financial contributions to building upgrades, even if they genuinely believe the upgrade will not deliver any cost savings. Ultimately, that particular amendment was not agreed to, but I wanted to put on the record in this place that that particular amendment would have been a reasonable and sensible proposition as part of the approach to building upgrades.

On my reading of the debate in the other place, it would appear that the government has not necessarily had adequate negotiation with key stakeholders in relation to this bill, particularly the small business sector. Most of the tenants, as we have said already, are small businesses. Obviously, small businesses are a significant employer in this state, so any additional costs and financial pressures placed on small businesses as a result of the government's proposal will be a regrettable outcome for the business sector.

Since the bill was introduced way back in February this year, the opposition has expressed a willingness to work with the government to improve the bill based on stakeholder input. For example, Business SA has sought to discuss alternative ways of striking a balance between the interests of tenants and landlords. They have sought those discussions with the government and the opposition both. Indeed, there was a suggestion from Business SA where, if 75 per cent of existing tenants provide approval, that would enable a landlord to recover costs from tenants. The government has been unwilling to countenance that suggestion, and it illustrates that they have simply ignored reasonable suggestions and proposals from the business sector, other stakeholders and also the opposition, which is disappointing.

Unfortunately, it seems to be a recurring theme when it comes to this government: come up with a proposal, feign consultation, ignore industry experts' advice and suggestions, and then push ahead with an imperfect proposal. That is no way to govern; in fact, it shows a level of arrogance and results in poor outcomes. I would echo the remarks of the Hon. John Dawkins in the other place, where he stated that the Liberal Party remains committed to our position that any building upgrade agreement should not override tenants' existing lease agreements and should not override the Retail and Commercial Leases Act 1995.

Having said that, we are at a point now where the bill has passed through the upper house. It is about to pass through the lower house with support from the opposition, even though we acknowledge that the bill is imperfect. If ultimately it comes to pass and it can be made to work properly, then it will result in a good outcome.

The Hon. S.E. CLOSE (Port Adelaide—Minister for Education and Child Development, Minister for the Public Sector) (15:54): I would like to thank all the staff involved in the preparation of this bill and I would like to thank all members for their contributions.

Bill read a second time.

Third Reading

The Hon. S.E. CLOSE (Port Adelaide—Minister for Education and Child Development, Minister for the Public Sector) (15:54): I move:

That this bill be now read a third time.

Bill read a third time and passed.