Building upgrade finance

Providing finance for non-residential building upgrades.

Building Upgrade Finance is a finance product provided by private sector financiers to eligible building owners to fund environmental improvements to existing non-residential buildings, as well as the restoration and upgrades of heritage buildings.

“It’s (Building Upgrade Finance) opened my eyes to a whole new world on how to design, how to manage and how to continually upgrade significant assets at a top standard. And it’s all paid for by energy savings. You’re getting it for free.”

John Culshaw | Building Owner and Chairman - Culshaw Group

An overview

Building upgrade finance:

  • is long-term, fixed interest finance for environmental and heritage upgrades to non-residential buildings
  • is registered against the land and is transferrable between property owners on the sale of the property (if agreed to by all parties)
  • enables landlords to secure financial contributions from tenants for upgrade works (where tenants realise utility bill cost savings or consent to contribute), through outgoings provisions in existing or new leases.

In addition to being used for works that improve the energy, water or environmental efficiency of existing non-residential buildings, in South Australia, Building Upgrade Finance assists building owners to undertake restoration and upgrades of heritage buildings (State and local heritage listed). This includes modifications to meet building rules and disability code compliance.

The City of Adelaide enters into a Building Upgrade Agreement with an eligible building owner and a financier. Under the agreement:

  • the building owner agrees to undertake upgrade works to their building
  • the financier agrees to advance money to the building owner to fund the upgrade works
  • the council agrees to declare a Building Upgrade Charge against the land on which the building is situated, collect repayments from the building owner (via quarterly direct debit payments) and transfer them to the financier

As the loan is tied to the property rather than the building owner, in the event of the sale of the property, the remaining repayments can be transferred to the new owner (if all parties agree).

Flowchart building finance upgrade

The key to Building Upgrade Finance lies within the Building Upgrade Charge that is levied on the building owner quarterly by council. This recovers principle and interest payments for the financier.

The Building Upgrade Charge effectively secures the loan as a payment due to a council. This provides heightened security to the financier, allowing them to offer attractive loan terms to the building owner.

Building Upgrade Finance provides you (the building owner) the following benefits and advantages over conventional commercial finance:

  1. No upfront capital or security
    Upgrades can be made at zero upfront cost to the building owner, and with no additional security required. Traditional finance often requires additional security, and will usually not cover all project costs.
  2. Reduced re-financing risk
    Competitive interest rates are available, fixed for 10 years or potentially longer. This reduces the re-financing risk and allows building owners to plan with more certainty. Traditional finance is generally only available for terms of 2-5 years.
  3. Improved cash flow
    Longer finance terms mean lower annual repayments, delivering immediate cash flow benefits to the owner. Under short term traditional finance, capital intensive upgrades may be unattractive due to the significant impact on cash flow.
  4. Win-win for owner and tenants
    Both owners and tenants benefit from building upgrades, through lower operating costs, a better working environment and a more valuable asset. Building Upgrade Finance provides a secure and transparent mechanism for owners and tenants to share the costs in proportion to the benefits they receive. Without this mechanism, it can be difficult for upgrades to be negotiated until the end of a lease.

Source: Sustainable Melbourne Fund

To qualify for Building Upgrade Finance both the building, and proposed upgrade work must meet certain criteria.

The building

To qualify for Building Upgrade Finance, a building must be:

  • primarily for commercial, industrial or other non-residential purposes (residential properties are not eligible); and
  • at least two years’ post-construction.

In addition, upgrade works must meet the definitions described below.

Environmental upgrade

Environmental upgrade works mean works that improve the energy, water or environmental efficiency or sustainability of a building. Examples include:

  • works that increase the efficiency of the energy or water consumption of a building or reduce its energy or water consumption
  • works that prevent or reduce pollution or eliminate or reduce the discharges of wastes or other substances harmful to the environment
  • works that reduce the use of materials or enable the recovery or recycling of materials.

Heritage buildings

A heritage building is one that has State or local heritage listing. Eligible works in relation to a heritage building include:

  • 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 Rules (within the meaning of the Development Act 1993) or the Disability Discrimination Act 1992(Cth)
  • works for the purposes of facilitating the ongoing occupation of the building.

Once upgrade works have been identified for a building within the city of Adelaide, as the building owner or manager you should:

  1. scope and cost the proposed building upgrade works.
  2. inform the Building Upgrade Finance Central Facilitator of your interest in seeking finance and discuss the application process.
  3. check with your existing lender whether they offer Building Upgrade Finance and/or approach other financiers who offer the product. (The Building Upgrade Finance Central Facilitator can provide financier contact details).
  4. seek in-principle finance approval from one or multiple financiers.
  5. complete and submit a Building Upgrade Agreement application form to the City of Adelaide (the financier may assist with this process).

If approved, the Building Upgrade Agreement will be prepared by the financier and will need to be executed by all parties.

An application and administration fee is charged by the City of Adelaide on a cost recovery basis for all Building Upgrade Agreements. This is paid in full at the time of the first repayment.

For further information about Building Upgrade Finance legislation, the agreement template and the ‘no worse off’ methodology for estimating tenant cost savings, please visit the Department for Environment and Water website.

Building Upgrade Finance – a success story

In 2017 building owner, John Culshaw, entered a Building Upgrade Agreement to make energy-saving improvements to 26 Flinders Street, Adelaide. The net result over one year was a $52,000 saving in energy bills.

Watch John's video to hear more about the benefits of Building Upgrade Finance.

Need more information?

The State Government has provided funding support to enable the City of Adelaide to host the Building Upgrade Finance Central Facilitator over four years. The Central Facilitator assists with the implementation and operation of Building Upgrade Finance across South Australia.

If you have any questions or are considering applying for Building Upgrade Finance, please contact the Building Upgrade Finance Central Facilitator:

Lara Daddow

08 8203 7884

Send an email