A look back at where it all began

The Energy Act 2011 is a wide-ranging piece of legislation containing a number of energy-related measures including possible restrictions on letting a property. It is important to note that the actual framework detailing how the legislation will work is still uncertain and leaves many unanswered questions about implementation.

 

Restrictions on Properties with ‘F & G’ Rated EPC’s


This is the key provision in the Act for real estate owners and investors. Once in force, a property which falls below a prescribed level of energy efficiency, anticipated to be below an ‘E’ rating, will not be able to be let until certain energy efficiency improvements (again, to be prescribed) have been made. The restriction relates to lettings, not sales and may apply to lease renewals, although this is still unclear.

The rule must be brought into force by 1st April 2015 in Scotland and 1st April 2018 in the rest of the UK. Note this is a long-stop date and it could be earlier than this, particularly it is thought, in Scotland.
The restriction on letting properties which do not meet the required energy standard will be enforced by local authorities (probably through Trading Standards Officers). Civil penalties may be imposed although the Act does not stipulate a limit in relation to commercial properties.

 

Risk Analysis


Whilst we await further clarification, property investors can – and should – start preparing now. The first step is to review all EPC’s currently held and to identify any properties where forthcoming sales or lettings will necessitate an EPC being produced. Any properties with low ratings should be identified and prioritised for further investigation. The leasing structure may also influence this, for example an FRI lease with 5 years unexpired will be less of a priority than a multi let office building with a high vacancy rate or forthcoming lease expiries.

It would also be prudent to examine any EPCs produced before 2010 as the regulations became more stringent after 2010. Hence a property assessed as grade D in 2009 could be downgraded on the production of a new EPC in 2018. On the other hand it may be possible to achieve a better EPC by re-running it using actual criteria rather than the default assumptions that many cheaper EPC’s are based on.

An EPC is accompanied by a recommendation report which sets out measures which may improve the energy performance of the building and the impact that such measures would have on a building’s rating. Athough these tend to be rather generic, they could be useful indicators of how buildings which may fall below the prescribed threshold could be brought up to standard.
However, landlords may prefer to wait for the detail of the regulations to see what sorts of improvements will be prescribed before carrying out work. Where an EPC relates to a tenanted area it should be remembered that these regulations impose no obligation upon, or incentive to tenants to take steps to improve the EPC ratings. In situations where the ratings are poor Landlords may have to wait to recover vacant possession before any action can be taken.

Where new properties are acquired into a portfolio between now and the implementation date, investors should ensure that they receive a copy of the EPC and carefully review it. Where it shows that the property may not come up to the required standard without works being carried out, purchasers should consider whether this may affect the investment value of the acquisition.

 

When is a new EPC required?


As part of EPC strategy, it is important to consider the possibility that a new EPC might produce a poorer grade and the implications that this mayhave on the value of a property. Please note that a new EPC is ONLY required in the following instances:

  • When a building being constructed is physically complete.
  • If a building is modified to have more or fewer parts than it originally had and the modification includes the provision or extension of fixed services for heating, air conditioning or mechanical ventilation (i.e. those services that condition the indoor climate for the benefits of the occupants)

An internal refit with new heating, hot water, air conditioning or mechanical ventilation etc., would not trigger the requirement for an EPC, unless the building were also converted so as to comprise more or fewer parts for separate use.

 

Displaying EPC’s – Jan 2013 Legislation


New legislation was introduced on 9th January 2013 on which there remains little practical guidance however there appear to be two main changes:

1. All publically accessed commercial buildings now have to display an Energy Performance Certificate, if the occupier or their landlord has an EPC on file for their building.

  • This requirement applies to all commercial buildings larger than 500m2 and frequently visited by members of the public. This could apply to shops/shopping centres, restaurants, hotels, transport hubs but not multi let offices however we continue to seek advice on the intended definition of “public”.
  • There is no requirement to obtain a new EPC but if your building has a certificate, then there is an obligation to display this now.
  • Landlords only have a responsibility to display EPC’s, where relevant, to common parts. Tenants have responsibility in all qualifying let premises.
  • Enforcement is likely to be through Trading Standards, but these changes have been put through so quietly that we think there is less likelihood of enforcement in the short term.

2. Marketing material no longer requires the full EPC.  Instead a copy of the A-G  graph  is suggested, but as a minimum, detail of the asset rating (e.g. ‘C’) must be included. However, the EPC must be made available at the earliest opportunity e.g. when a person requests information about the building or a viewing.

We will continue to update our advice once practicalities are better understood and further definition is provided. Should you require any further information, please contact Vicky Cotton on 020 7227 6211 or email her at vicky.cotton@workman.co.uk.

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