Building Upgrade Finance
Building Upgrade Finance (BUF) is a finance product that commercial building owners can access for improving energy, water and waste performance in existing buildings, as well as the restoration and upgrades of heritage buildings.
What is Building Upgrade Finance (BUF)?
Building Upgrade Finance (BUF) is a finance product provided by commercial finance providers for commercial building upgrades.
BUF enables building owners to access long-term fixed interest finance to improve the energy, water and waste performance of existing commercial buildings. In South Australia, BUF also allows building owners to undertake restoration and upgrades of heritage buildings, including modifications to meet building rules and disability code compliance.
Unlike conventional finance, a BUA is registered against the land and is transferrable between property owners.
BUF also enables landlords to secure financial contributions from tenants for upgrade works, through outgoings provisions in existing or new leases.
How does BUF work?
Source: Department for Environment and Water
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
- the council agrees to levy a Building Upgrade Charge (BUC) against the land on which the building is situated.
This BUC is paid by the building owner to the council (via quarterly direct debit payments) and these payments are passed on to the financier by the council.
The loan is tied to the property rather than the property owner. In the event of the transfer of ownership of the property, the BUC can remain with the property if the purchaser so agrees.
BUF also enables landlords to secure financial contributions from tenants for upgrade works. Tenant contributions, are made through outgoings provisions in existing or new leases, using operational savings arising from building performance improvements.
How is BUF different from traditional finance and what are the benefits?
The strength of BUF lies within the building upgrade charge (BUC) that is levied quarterly by council to recover principle and interest payments for the financier.
The BUC effectively secures the loan as payment due to a council. This elevates the BUC as debt that is senior to all other mortgages and non-local government 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.
BUF provides the following benefits and advantages over conventional commercial finance for building owners:
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
How to qualify and apply for BUF?
To qualify for BUF, 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 before the BUA is made.
The proposed upgrade works must meet the definition of environmental upgrade works or works in relation to a heritage building as listed below.
Environmental upgrade works means works that improve the energy, water or environmental efficiency or sustainability of a building, for example:
- 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; or
- works that reduce the use of materials or enable the recovery or recycling of materials.
Works in relation to a heritage building (State or local heritage listed building) including:
- 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 of the Commonwealth; or
- 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 municipal area, the building owner or manager should:
- Scope and cost the proposed building upgrade works.
- Check with your existing lender whether they offer BUF and/or approach other financiers who are known to offer BUF. For possible financier contact details contact the BUF Central Facilitator.
- Inform BUF Central Facilitator, Lara Daddow (08 8203 7884) of your interest in using BUF and discuss the BUF application process.
- Seek in-principle finance approval from one or multiple financiers.
- Complete and submit a BUF application form to the City of Adelaide.
- If approved, the BUA 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 BUA’s and is paid in full at the time of the first repayment.
The City of Adelaide was one of the first Councils in South Australia to establish a Building Upgrade Agreement.
In 2018, building owner, John Culshaw, shared his experience in utilising BUF 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 BUF.
“It’s 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
BUF Central Facilitator
The State Government is providing funding support over four years enabling the City of Adelaide to host the BUF Central Facilitator. The BUF Central Facilitator assists with the implementation and operation of BUF across South Australia.
BUF Central Facilitator contact details:
Phone: 8203 7884
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.
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.