EUF is a council-based financing mechanism to help businesses access funding for building works to improve energy efficiency, reduce waste and cut water use.
EUF was previously only available for upgrades to buildings in the City of Melbourne, through the City of Melbourne Act 2001.
By amending the Local Government Act (1989) in 2015, the Victorian Government expanded that scheme, giving all Victorian councils the option of offering EUF.
Under an EUF agreement, lenders provide finance to a building owner for environmental upgrades, with the local council then collecting the repayments through its rates system and passing them on to the lender.
Use of the council rates system means that loans are more secure, allowing lenders to offer more competitive loan terms.
What is Environmental Upgrade Finance?
Environmental Upgrade Finance (EUF) is a council-based financing mechanism enabling building owners to better access finance for environmental upgrades to existing non-residential buildings. Under an EUF agreement, a lender provides finance to a building owner and the local council collects repayments through the rates system. The council then passes the property charge onto the lender.
Use of the council rates system means that an EUF loan is prioritised over other debts attached to the land, if there is a loan default. This gives lenders more security, allowing them to offer long-term loans at competitive interest rates.
EUF also provides a mechanism to address differing incentives between landlords and tenants. Tenants may elect to contribute to an EUF loan where they will benefit from the funded works through reduced utility bills. Victoria's legislation requires tenant consent before this can occur.
How have laws been changed to support EUF?
On 3 September 2015, the Victorian Parliament agreed to a Bill which amends the Local Government Act 1989 to enable all Victorian councils to offer EUF (which could previously only be offered by the City of Melbourne through the City of Melbourne Act 2001). The amendments came into effect in November 2015. They give all Victorian councils the power to offer EUF, but do not require them to do so.
What type of buildings can access finance through an EUF agreement?
EUF may be used for the upgrade of existing non-residential buildings on rateable land across Victoria.
What type of projects can EUF be used for?
EUF may be used for works that improve the energy, water or environmental efficiency or sustainability of the building. For example, this could include improving water or efficiency, installing on-site energy generation, reducing pollution or waste, or improving the efficiency of the use of materials.
Where is EUF currently available?
EUF is currently available in many local government areas across Victoria. Contact the Sustainable Melbourne Fund to find out whether your local government is supporting EUF.
What EUF projects have been undertaken in the City of Melbourne?
Examples of projects undertaken so far include:
- A $7 million investment in the commercial building at 501 Swanston Street, which upgraded heating, air conditioning and lift systems for greater energy efficiency
- A $3.2 million investment in four buildings at the business precinct at King Business Park, which upgraded air conditioning and building management systems
- A $1.3 million investment in the commercial building at 123 Queen Street, which installed a new tri-generation system and made building improvements such as double glazing
- A $720,000 investment in the commercial building at 470 Collins Street, which upgraded heating and cooling equipment
- A $400,000 investment in the commercial building at 460 Collins Street, which upgraded heating and cooling equipment.
Case studies are available at the Sustainable Melbourne Fund's website. The Sustainable Melbourne Fund facilitates the administration of the EUF program in Victoria.
What are the benefits of extending EUF across Victoria?
Upgrading buildings for greater energy, water and waste efficiency is a cost-effective way for businesses to cut energy bills, improve building value and reduce greenhouse gas emissions. However, many businesses face difficulty accessing finance for such upgrades. EUF can help businesses to obtain longer term and lower interest loans for environmental upgrades than are available under non-EUF arrangements. This is because the use of the council's rating powers means that an EUF charge is a 'first charge on the land', giving the lender greater security. The availability of EUF can therefore help businesses reduce costs and improve building performance by improving building efficiency.
Building tenants benefit from EUF through reduced energy, water and waste costs, and improved working conditions (such as increased thermal comfort). Building owners increase the value of their asset and, in some cases, reduce energy, water and waste costs (in common areas). Broader public benefits of EUF include job creation and increased access to finance in Victoria.
What is the scale of loan available under an EUF agreement?
The legislation does not prescribe a maximum or minimum loan. This will be determined by private lenders.
Can tenants contribute to an EUF charge?
Yes, if they are formally notified of the proposal and give their consent to pay the charge. It is expected that this may occur where tenants benefit from the upgrades, for example, through reduced energy or water bills. If not all tenants agree to taking on the charge, the Bill allows a repayment charge to be passed through to those tenants who have provided written consent but not others.
How does the EUF legislation affect local council liability?
Under an EUF agreement, the council is responsible for imposing EUF charges and passing these onto the lender to repay the loan. However, it is the bank (or other financier) that provides the loan funds. The council operates more as an intermediary. Accordingly, in the event of a loan default the council is not liable for the outstanding charges. The amended Local Government Act 1989 specifically provides that local councils are not liable for failure of an owner or occupier to pay an environmental upgrade charge. It also requires an EUF agreement to specify that the lending body must reimburse the council if the agreement is terminated early and the council has refunded any excess charges collected from the owner or occupier.
Visit the Sustainability Victoria website to learn more about EUF.