Building Upgrade Finance
Building Upgrade Finance (BUF) is an innovative new way to finance building upgrades.
The BUF mechanism assists building owners access long-term finance at competitive fixed interest rates to improve energy, water and waste efficiency of existing commercial buildings. BUF is also supporting building owners to undertake restoration and upgrades of heritage buildings, including modifications to meet building rules and disability code compliance, a measure to address long term vacancy.
The City of Adelaide is proud to be one of the first SA Local Governments to offer BUF Agreements. This is helping building owners improve the environmental performance of their property assets, leading to financial savings (through reduced utility bills) and contribution to Adelaide becoming a carbon-neutral city.
As such the City of Adelaide was one of the first Councils in South Australia to establish a Building Upgrade Agreement. The relevant building is at 26 Flinders St Adelaide owned by the Culshaw Group.
Click here to hear what John Culshaw has to say about the benefits of BUF.
The City of Adelaide is also taking the lead, hosting the South Australian BUF Central Facilitator role.
Following the amendment to the Local Government Act 1999 by including Schedule 1B – Building Upgrade Agreements, which came into operation on 1 August 2017, the State Government committed to provide funding support over four years for a BUF Central Facilitator to assist with the implementation and operation of the BUF mechanism in SA.
The City of Adelaide will host the BUF Central Facilitator for a four-year period and will be a principal resource to all councils across the State to assist them with various aspects of the mechanism’s administration. The BUF Central Facilitator position is yet to be filled, however the City of Adelaide is providing ongoing engagement with the industry to help maximise the uptake of BUF.
Two Regional Industry Briefing sessions were held in June 2018 - related slides can be found here.
A third Regional Building Upgrade Finance Industry Briefing session is running on 10th September 4:30-5:30, Hallett Cove. Click invite to register:
This is the beginning of a process of helping everybody involved understand BUF as a tool for property, utility expense, business positioning, economic development and environmental & heritage improvement.
The aim of the Regional Industry Briefing sessions is primarily to inform businesses that may service BUF deals such as efficient lighting, windows, HVAC, solar, batteries, water capture, heritage builders and related consultants. Others who may wish to attend the sessions include property owners, managers and developers.
Benefits of Building Upgrade Finance
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.
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.
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 cashflow.
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
What is Building Upgrade Finance (BUF)?
BUF is a loan mechanism which helps building owners to access loans to improve the energy, water and environmental efficiency of existing commercial buildings.
BUF is an innovative way to finance a building upgrade. It allows building owners to access longer-term fixed-interest finance, as well as share the costs and benefits of the upgrade with their tenants.
In an Australian first, BUF will also support building owners to undertake restoration and upgrades of heritage buildings, including modifications to meet building rules and disability code compliance, a measure to address long term vacancy.
The mechanism can help building owners to improve the environmental performance of their property assets without the risks and negative cash flow implications of traditional finance, as well as reduce operating costs, increase yields, help attract and retain tenants, and increase asset value.
Simply put, BUF is a new tool for improving the performance of a property asset. It provides an opportunity for commercial building owners and tenants to work together to improve the performance of their buildings, realise financial savings, and achieve win-win outcomes.
How does it work?
Under the Building Upgrade Finance mechanism, the City of Adelaide enters into a Building Upgrade Agreement (BUA) with a building owner and a financier. Under a BUA the building owner agrees to undertake upgrade works in respect of their building.
The financier agrees to advance money to the building owner for the purpose of funding the upgrade works, and the council agrees to levy a building upgrade charge against the land on which the building is situated. This charge is paid by the building owner to recoup the money advanced by the financier for the upgrade works, and is passed on to the financier by the council once received from the building owner.
Under the BUF loan mechanism, a council, a building owner and a financier voluntarily enter into a BUA, where the:
- Building owner agrees to undertake upgrade works to their building
- Financier agrees to finance the upgrade works
- Council agrees to declare and levy a Building Upgrade Charge (BUC) against the land on which the building is situated
- BUC is paid by the building owner to the council
- Council passes payment on to the financier once received from the building owner, less administration fees.
The loan is tied to a property rather than a property owner and loan repayments are collected via a local government charge that is levied on the property and passed on to the financier.
As a result of the arrangement, the loan is effectively tied to the property rather than the property owner, with loan repayments collected via the building upgrade charge. In the event of the transfer of ownership of the property, the charge can remain with the property if the purchaser so agrees.
The strength of the mechanism lies within the building upgrade charge. The charge effectively secures the loan, being ranked senior to mortgages, taxes and other charges in the event of default. This provides heightened security to the financier, allowing them to offer finance to the building owner at more attractive terms.
Under many commercial leases, tenants pay local government charges. BUF provides an avenue for building owners and tenants to share the costs and benefits of building upgrades, provided certain conditions are met to ensure that tenants do not incur any financial detriment.
How to qualify and apply for BUF
To qualify for BUF, a building must be:
- Predominantly non-residential - residential properties are not eligible to access the mechanism
- At least two years’ post-construction before the BUA is made.
For further information or to apply for Building Upgrade Finance, please ring 08 8203 7203.
Other incentives and schemes you may benefit from
Heritage Incentive Scheme
The scheme reimburses owners with a proportion of the costs involved in retaining, reinforcing and reinstating the heritage significance of State, Local and Character places which meet specific scheme requirements and in accordance with the Burra Charter.
Sustainability Incentive Schemes
We offer 10 different incentives to all building owners that have properties within the City of Adelaide for works completed within 12 months of applying.
Regarding Building Upgrade Finance legislation, the agreement template and the ‘no worse off’ Methodology for estimating tenant cost savings, visit the Department for Environment and Water website.Back to Top