04 Oct 2016
It is estimated that up to 35% of properties in the UK could be unlettable by 1st April 2018 if action is not taken to improve the property's energy efficiency rating.
The Energy Act 2011 contains a provision for minimum energy standards, and from 1st April 2018 it will be unlawful for a landlord to lease a non-domestic property with an EPC Rating of less than ‘E'.
An Energy Performance Certificate (EPC) is required before a property is marketed for sale or rent in the UK. An EPC gives a property an energy efficiency rating from A (most efficient) to G (least efficient).
It is not just those properties that are currently rated F/G that will be impacted by these new regulations. EPCs have a validity of 10 years. A property with an EPC from 2008 may last through three building regulations updates before the owner is legally required to produce another. In which time, the EPC could have dropped by a whole three rating bands. It is possible for a ‘C' rated building to decline dangerously close to, or below, the ‘E' threshold by 2018.
As building regulations continue to set more challenging minimum efficiency standards for the building fabric and services, those buildings with inherent problems with the building construction will find it increasingly difficult to achieve compliance. As such, early action is key to keep the costs of compliance low and maintain rental income.
Properties with an EPC Rating of F/G may still be marketed post 2018. However, the prospective tenant and landlord must agree on measures to improve the efficiency of the building prior to the lease being granted. This provides an additional level of risk to landlords, with tenants potentially being able to demand that more expensive works are carried out at the landlord's expense.
From 2018, only new tenancies and renewals will be affected. However, from 1st April 2023 all existing tenancies will be subject to Minimum Energy Performance Standards, with F&G rated building phased out of British building stock. This could lead to landlords losing tenants, and tenants business operations being heavily disrupted as they look for new premises.
Exemptions to the rule
Buildings that do not require an EPC:
- Places of worship, temporary buildings, building with <50m squared floor space etc.
- Leases under six months subject to a maximum of two consecutive leases agreements with the same tenant.
- Leases of more than 99 years.
- Where consent is not granted from planning, building control, lenders, superior landlords, or sitting tenants to undertake the necessary works.
- Where energy efficiency measures are proven to cause a material net decrease in property value.
- Where the property does not qualify for any measures which satisfy ‘The Golden Rule‘ under the Green Deal.
- Where the property remains an F/G but all feasible work has been undertaken.
How can Delta-Simons help?
Delta-Simons' experienced environmental and property consultants can:
- Assess the implications for your individual assets or entire portfolio.
- Produce a risk management plan for your buildings and the actions required to ensure compliance.
- Provide Energy Performance Certificates (EPCs).
- Recommend a programme of cost-effective and practical energy-efficiency measures.
- Liaison with landlords, tenants and other stakeholders during assessment and/or energy improvement programmes.
- Record tangible outputs including carbon reductions, cost-savings etc.
- Assist in the marketing of your properties to retain and attract good tenants.
Tips to keep your properties lettable
1. Ensure the building's EPC is based on accurate data
Many existing EPCs can be completed quickly and cheaply using conservative assumptions and without an assessor actually visiting the building. Simply reassessing the building can, in some circumstances, improve the EPC rating.
2. Early assessment is key
Waiting until the next update of Building Regulations Part L in 2016 will mean the building will be assessed against stricter carbon targets. Early reassessment may make it easier for a building to maintain a higher EPC rating and continue to be leased post 2018.
3. Quick wins and short paybacks
Upgrading a building's EPC rating does not have to be expensive: converting lighting to more efficient types, replacing old boilers and heaters or adding more effective control systems can all have a substantial positive effect on the EPC, with relatively quick payback periods.
4. Split up or combine buildings
In some cases, changing the activity or configuration of a building may help to increase the energy performance rating. Splitting a whole building into separate units (or vice-versa) for the purposes of energy assessment may prove beneficial.
5. Do not assume your asset is compliant
EPCs are valid for 10 years. A property with an EPC from 2008 will last through three updates to Building Regulations before it is legally required to be renewed. It is possible for properties with an EPC Rating as high as ‘C' to decline dangerously close to, or below, the ‘E' threshold by 2018.