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ENERGY PERFORMANCE IN COMMERCIAL BUILDINGS (A subject to thrill or if not to thrill, have careful regard to)

In the world of valuing, buying, selling and letting non-domestic property it is increasingly important to understand the energy performance of commercial buildings and to understand the trend of where regulations are going. (Stay awake at the back there).

The commercial property world has been relatively sleepy both before and since the Energy Act of 2011 but as of 1st April 2018 the game has changed.

The new legislation is known as the Minimum Energy Efficiency Standards (MEES). It applies to all investment buildings (domestic and non-domestic). It is now illegal to let buildings on new leases (and that includes lease renewals) that score “F” or “G” when assessed for an Energy Performance Certificate (EPC) on the scale of A – G.

The problem lurking in the background is that early EPC’s were not undertaken to a consistent standard and as properties EPC’s come to be updated now (they only have a life of 10 years), previously judged “C” or “D” properties could now be “E” or “F”. The point is that the standards are getting tougher and this trend is only increasing. It is also quite clear that whilst a pass is currently “E” or better, this will, over time, be likely to be “D” or even “C”.

This grade degradation comes about as the calibration of EPCs becomes more rigorous.

Some property owners have the mistaken belief that once let, they can forget about the issue. If an EPC is valid but of an age it may be worthwhile commissioning a new one because of grade degradation and come 1st April 2023 it will be unlawful to let a building which is “F” or “G” even if it was “E” or better when let. Enforcement will apply to all existing leases. So all non-domestic property which is let and occupied must have a valid EPC certificate by 1st April 2023.

Whilst there are exemptions it may be better (and sometimes easier) to obtain a valid EPC. A common misconception is that Listed buildings don’t need EPCs. To qualify under the exemption rule (which is a temporary measure anyway) any Listed building has to show that by satisfying the requirements of a valid EPC the reasons for the listing would be compromised. However, in order to prove that the reasons for the listing would be compromised, an EPC (albeit a failure) together with recommendations would need to be undertaken.

It is just as important for tenants to be aware of the rating at the beginning and during their occupation. An EPC rating will become (if it isn’t already) one of the dynamics in the negotiation of Heads of Terms for a lease. Who, for example, landlord or tenant, is responsible for keeping the building within the legal threshold? Can a landlord rely upon the standard statutory provisions clause of most commercial leases?

In short, the MEES regulations are a game changer and anyone playing a part in the commercial property world, be they investors, tenants or advisors would do well to brush up on them but certainly not ignore them. What was a box ticking exercise in the noughties and up until fairly recently is now an issue just around the corner waiting to bite.

Mark S Hanson BSc FRICS
RISC Registered Valuer
Hanson Chartered Surveyors
A Walker Singleton Group Company

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