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andilee et al – It sounds to me like you’ll be in somewhat of a quandary while you sort out the conflicts that exist between what your State’s sustainability regulations require (or more accurately, prohibit) and what your Body Corporate will consent.
You will also have some issues that I’ll bet the plumbing contractors haven’t considered, like how the ≈40 year old hotwater pipework in your townhouse will cope with the transition from the around 20 kPa that it now handles from the ceiling -mounted gravity system to the average 500 kPa that it will need to cope with from a mains-pressure system?
Have you considered refurbishing the existing hotwater system, which is probably on the now redundant / cheap off-peak tariff (or would be in NSW), and having the hotwater plumbing checked and upgraded to accept a new system post resolution of the conflicts?
At least in that way your tenants won’t move out in the interim, and you’ll be assured that whatever new hotwater system you finish up with will just be a plug-in.