What is an Environmental Upgrade Agreement?

An EUA is a financing arrangement between a building owner, a finance provider, and a local council. The lender funds energy or water efficiency upgrades to a commercial building. The loan is repaid through a charge on the property's council rates, meaning the debt is tied to the building rather than the owner. If the building is sold, the repayment obligation transfers to the new owner.

Which states in Australia have EUA legislation?

Victoria, New South Wales, and South Australia have enacted EUA legislation. Victoria was first, enabling the City of Melbourne under the City of Melbourne Act 2001 and later extending to all councils. NSW amended its Local Government Act in 2010, and SA followed in 2015. Queensland, WA, Tasmania, ACT, and NT do not currently have EUA-specific legislation.

What upgrades are eligible under an EUA?

Any upgrade that delivers a measurable environmental benefit. Common projects include rooftop solar, battery storage, EV charging infrastructure, LED lighting, HVAC replacement, building insulation, building management systems, water efficiency measures, and electrification of gas systems. An independent assessment of expected savings is typically required.

How much can you borrow under an EUA?

EUA financing typically ranges from $50,000 to over $10 million, with terms of 5 to 20 years. The loan is structured so the annual repayment is less than the annual energy or water savings, making the project cash-flow positive from day one. Interest rates are generally competitive with commercial lending, typically 3-7% fixed.

How does an EUA solve the split incentive problem?

In leased commercial buildings, the owner pays for upgrades but the tenant benefits through lower energy bills. Neither party has enough incentive to act alone. An EUA solves this because the repayment is tied to the building through council rates and the energy savings offset or exceed the additional charge. Both parties benefit: the tenant pays less for energy, and the building's value increases.

Can I get an EUA for residential property?

EUAs were designed for commercial buildings. Some Victorian councils have begun exploring residential eligibility, particularly for multi-unit strata buildings, but single residential properties are generally not eligible. For residential energy upgrades, look at federal STCs, the CEFC Household Energy Upgrades Fund, and state-specific rebate programs instead.

Environmental Upgrade Agreements Australia

Most commercial building owners know they should upgrade their lighting, HVAC, or add solar panels. The business case often makes sense on paper — the energy savings exceed the cost of the upgrade over time. But the upfront capital cost, the split incentive problem with tenants, and the uncertainty about how long they will own the building stops many projects before they start.

Environmental Upgrade Agreements were designed to solve exactly this problem. They are available in Victoria, New South Wales, and South Australia, and they work differently from any other form of commercial finance.

How an EUA works

An Environmental Upgrade Agreement is a three-way contract between:

The building owner — who wants the upgrade
A finance provider — who supplies the capital
The local council — who collects the repayment through the rates system

The finance provider pays for the upgrade. The council adds an Environmental Upgrade Charge (EUC) to the property’s council rates notice. The building owner repays the loan through this rates charge — quarterly or annually, alongside their normal rates. The council collects the EUC and remits it to the finance provider.

The critical difference from a normal loan: the charge is tied to the land, not the owner. If the building is sold, the EUC obligation transfers automatically to the new owner. The outgoing owner does not need to pay out the remaining balance at settlement.

This is not a grant, rebate, or government subsidy. It is a financing mechanism — you borrow money and repay it. The advantage is in how the repayment is structured and secured.

Why EUAs exist — the split incentive problem

Commercial buildings have a structural problem that residential properties do not: the person who pays for energy upgrades is usually not the person who benefits from the savings.

In a typical commercial lease:

The building owner pays for capital works (new HVAC, solar panels, insulation)
The tenant pays the electricity and gas bills and receives the savings
The owner has no financial incentive to invest because they do not see the energy savings
The tenant has no incentive to invest in a building they do not own

This is the split incentive — and it is the primary reason Australian commercial buildings are some of the least energy-efficient in the developed world despite clear economic cases for upgrades.

An EUA solves this because:

The upgrade cost is financed and repaid through rates, not borne upfront by the owner
The energy savings flow to the tenant (or reduce outgoings passed to tenants)
The repayment is structured so annual savings exceed the annual EUC, making both parties better off immediately
If the owner sells, the obligation transfers — no stranded investment

Which states have EUA legislation

Victoria — the originator

Victoria was the first state to enable EUAs. The City of Melbourne Act 2001 (amended 2002-2003) established the framework for Melbourne, and subsequent amendments to the Local Government Act extended eligibility to all Victorian councils.

The City of Melbourne remains the most active council, with the largest portfolio of completed EUA projects. Other Greater Melbourne councils and regional Victorian councils are also enabled, though participation varies — each council must actively choose to administer the program.

New South Wales

The Local Government Amendment (Environmental Upgrade Agreements) Act 2010 amended the NSW Local Government Act 1993 to enable EUAs across the state. The legislation commenced in February 2011.

The City of Sydney has been the most prominent participant. Parramatta, North Sydney, and Lake Macquarie have also participated or indicated support. Any NSW council can enter EUAs under the legislation, but active participation requires the council to set up the administrative infrastructure.

South Australia

The Local Government (Environmental Upgrade Agreements) Amendment Act 2015 amended the SA Local Government Act 1999. The City of Adelaide has been the primary participating council.

States without EUA legislation

Queensland, Western Australia, Tasmania, ACT, and the Northern Territory do not have EUA-specific legislation. The Property Council of Australia and the CEFC have advocated for a national harmonised framework, but this has not been legislated.

If your building is in a state without EUA legislation, standard commercial finance, CEFC concessional loans, or state-specific programs are the alternatives. See the relevant sections below.

What upgrades are eligible

An EUA can fund any building upgrade that delivers a measurable environmental benefit — typically quantified as energy savings, water savings, or greenhouse gas reductions. An independent assessment or engineering business case is required as part of the application.

Common eligible upgrades:

Upgrade type	Typical saving	Typical cost range
Rooftop solar (30-100 kW commercial)	30-60% of daytime electricity	$30,000-$120,000
LED lighting retrofit	50-70% of lighting energy	$20,000-$150,000
HVAC replacement (high-efficiency)	30-50% of heating/cooling energy	$50,000-$500,000+
Building management system (BMS)	10-25% of total energy	$30,000-$200,000
Battery energy storage	Demand charge reduction, solar shifting	$50,000-$300,000
EV charging infrastructure	Tenant attraction, future-proofing	$30,000-$200,000
Insulation and glazing	15-30% of heating/cooling energy	$50,000-$300,000
Water efficiency (fixtures, recycling)	20-40% of water costs	$10,000-$100,000
Gas-to-electric conversion	Eliminates gas supply charges + emissions	Varies widely
Solar carports	Generation + shade	$100,000-$500,000

Multiple upgrades can be bundled into a single EUA. A comprehensive retrofit — solar, LED lighting, HVAC upgrade, and EV chargers — can all be financed under one agreement. Bundling improves the economics because the combined savings are larger relative to the financing cost.

For detailed costs on commercial EV charging infrastructure, see our commercial EV charging guide. For solar panel systems, see our solar panels hub.

The financial mechanics

How the loan is structured

EUA finance is typically structured as a fixed-rate loan over 5-20 years, with 10 years being the most common term. Key parameters:

Loan sizes: $50,000 to $10 million+ (some providers have financed well above $10M for large buildings)
Interest rates: Generally 3-7% fixed, depending on the provider, loan size, and prevailing market conditions
Repayment: Via the Environmental Upgrade Charge on council rates — quarterly or annual payments
Security: The EUC is a statutory charge on the land with rates-equivalent priority, giving lenders strong security

The cash-flow positive principle

EUAs are designed so the annual repayment is less than the annual energy or water saving. This means the project is cash-flow positive from day one — the building saves more money than it costs to repay the loan.

Worked example: A $500,000 LED and HVAC upgrade on a 5,000 sqm commercial office.

Annual energy saving: $80,000 (verified by independent energy assessment)
Annual EUC repayment (10-year term, 5.5% interest): $65,000
Net annual benefit from year one: $15,000
After 10 years, the loan is repaid and the full $80,000 annual saving flows to the building

Over the 10-year loan term, the building saves $150,000 net. Over the remaining equipment life (15-20 years), it saves a further $1.2-$1.6 million.

Balance sheet treatment

Because the EUC is a statutory charge on the land — not a conventional debt obligation of the building owner — there is an argument for off-balance-sheet treatment. The charge behaves more like a rate than a loan. However, accounting treatment depends on the specific circumstances and should be confirmed with your accountant. This is a genuine advantage for property owners who are constrained by debt covenants or gearing ratios.

EUA vs standard commercial loan

Feature	EUA finance	Standard commercial loan
Tied to	The building (land)	The borrower
On sale of building	Transfers to new owner	Must be repaid
Repayment mechanism	Via council rates notice	Direct to lender
Balance sheet	Potentially off-balance-sheet	On-balance-sheet debt
Security for lender	Statutory charge (rates priority)	Mortgage or unsecured
Tenant involvement	Can consent and benefit directly	Not typically involved
Split incentive	Solved	Not addressed
Eligible purposes	Environmental upgrades only	Any business purpose
Typical terms	5-20 years	3-7 years (unsecured)
Interest rates	3-7% fixed	Market variable or fixed

The main advantages of an EUA are the transferability on sale, the longer terms (which reduce annual repayments and improve cash-flow positivity), and the resolution of the split incentive problem. The main limitation is geographic — you must be in a council that participates in VIC, NSW, or SA.

How to access EUA finance

Step 1: Check your council participates

EUA legislation exists in Victoria, NSW, and South Australia, but individual councils must opt in to administer the program. Contact your council’s sustainability or rates department, or check the Sustainable Australia Fund website for a list of participating councils.

Active councils include:

City of Melbourne (VIC)
City of Sydney (NSW)
City of Adelaide (SA)
Various other Greater Melbourne and Sydney councils — participation is growing

Step 2: Get an energy assessment

You need an independent assessment of the proposed upgrades and their expected energy or water savings. This is a formal requirement — the finance provider needs evidence that the project will be cash-flow positive. An accredited energy assessor or engineering firm prepares the business case.

Cost: typically $3,000-$15,000 depending on building complexity.

Step 3: Apply to a finance provider

The dominant specialist provider is the Sustainable Australia Fund (SAF), which was established with support from the City of Melbourne and the CEFC. SAF operates across Victoria, NSW, and South Australia and has financed a wide range of projects from $50,000 to multi-million dollar comprehensive retrofits.

Major banks including Commonwealth Bank and NAB have participated in EUA financing, particularly for larger commercial projects.

The CEFC (Clean Energy Finance Corporation) has provided wholesale finance and co-investment to support EUA programs, making concessional rates available on some projects.

Step 4: Sign the tripartite agreement

The building owner, finance provider, and council all sign the EUA. The council registers the Environmental Upgrade Charge on the property’s rates record. The charge will appear in any due diligence or title search conducted by future buyers.

Step 5: Complete the upgrade

The finance provider releases funds (either upfront or in staged payments) to cover the upgrade costs. The building owner engages contractors to complete the work. The EUC repayment begins according to the agreed schedule.

Who benefits most from an EUA

Commercial office buildings with tenants. This is the core use case. The split incentive problem is most acute in multi-tenant offices where the landlord pays for capital works but tenants pay the energy bills. An EUA aligns incentives and makes the upgrade happen.

Older commercial buildings with poor energy performance. Buildings with high energy consumption have the largest savings potential. A building spending $200,000/year on energy has more room for improvement (and a stronger EUA business case) than one already running efficiently.

Property owners approaching sale. Because the EUC transfers to the new owner, the outgoing owner can invest in upgrades that improve the building’s NABERS rating and market value without carrying the debt to settlement.

Buildings requiring NABERS or sustainability compliance. The Commercial Building Disclosure (CBD) program requires energy efficiency disclosure for office buildings over 1,000 sqm being sold or leased. A higher NABERS rating directly affects lease negotiations and asset value. An EUA finances the upgrades needed to improve ratings.

Industrial buildings and warehouses. Large roof areas make solar PV highly economic. Lighting and HVAC in warehouse environments offer significant savings. EV charging infrastructure adds tenant value as fleets electrify. See our commercial EV charging guide for infrastructure details.

Limitations and considerations

Geographic restriction. Only buildings in participating councils in VIC, NSW, and SA can currently access EUAs. If your building is outside these areas, standard commercial finance or CEFC loans are the alternative.

Council participation is not guaranteed. Even in states with legislation, each council must actively opt in. Smaller and regional councils are less likely to have the administrative infrastructure in place.

Tenant consent may be required. If the tenant’s lease includes outgoings that cover council rates, they may need to consent to the EUC being added. In practice, this is usually straightforward when the energy savings exceed the charge — but it requires negotiation.

Not for single residential properties. EUAs are designed for commercial and some strata buildings. For residential energy upgrades, the relevant programs are federal STCs for solar, the CEFC Household Energy Upgrades Fund, and state-specific rebates.

Interest rates reflect risk. While EUA rates are competitive, they are not subsidised to the extent that some state rebate programs are. The advantage is structural (transferability, off-balance-sheet potential, term length) rather than rate-based.

Independent assessment required. The cost of the energy assessment ($3,000-$15,000) is an upfront expense before you know if the project will proceed. Some finance providers will roll this into the loan if the project goes ahead.

The bottom line

Environmental Upgrade Agreements are one of the most effective financing mechanisms for commercial building energy upgrades in Australia — and one of the least well-known. They solve the split incentive problem that has stalled upgrades in leased commercial buildings for decades, they transfer with the building on sale, and they are structured to be cash-flow positive from day one.

If you own or manage a commercial building in Melbourne, Sydney, Adelaide, or another participating council area, and you are considering solar, lighting, HVAC, battery storage, or EV charging upgrades, an EUA is worth investigating before committing to conventional finance.

The Sustainable Australia Fund is the main specialist provider. Start there, or contact your council’s sustainability team to confirm participation.

For the specific upgrades that can be funded under an EUA, see our guides on commercial solar, home batteries for commercial use, and commercial EV charging infrastructure.

Environmental Upgrade Agreements Explained: How Australian Commercial Buildings Get Funded