News

July 2008

Energy Performance Certificates - New Rules - and Concern over Lack of Assessors

Background

The government’s Home Information Pack scheme was launched at the end of 2007, a major part of which was the introduction of Energy Performance Certificates (‘EPCs’) - a vital part of the government’s attempt to reach target reductions on CO2 emissions. Recent research suggests that commercial properties and public buildings create nearly a quarter of Britain’s total carbon emissions.

New regulations

Since 6 April 2008, EPCs have been required on the construction, sale or rental of commercial buildings with a floor space of over 10,000m2. However, from 1 July these provisions were extended to buildings with a floor area of over 2,500m2 and as of October, they will become compulsory on the sale or rental of all commercial buildings.

Exemptions

Tenancies in place before the deadline are currently exempt. However, once these properties are put up for sale or letting, an EPC will be required.

There are a few exemptions from the regulations which include:
. Small non-residential buildings with a floor area of less than 50m2
. Buildings used primarily or solely as places of worship 
. Temporary buildings with a planned time of use of two years or less
. Industrial sites, workshops and non-residential agricultural buildings with a low energy demand

Who is responsible?

Where a building is being sold, it is the seller, and if rented, the prospective landlord who are responsible for obtaining a certificate. However, commercial tenants will still be affected, as every person with an interest in a building, or in occupation of it, must allow energy assessors access for the purposes of inspection. This is to ensure that commercial landlords have a right of access for the purpose of obtaining an EPC even where a lease does not contain sufficient entry rights. Consequently, commercial tenants may have to suffer the inconvenience of an energy assessor on the premises.

How do they work?

EPCs assess the energy performance of buildings and certificates grade the energy efficiency of a building on a scale of A to G, calculated based on the asset rating of the structure of the building.

An EPC is valid for 10 years and comes with recommendations on how the energy efficiency of the building could be improved and a rating that could be achieved if all the recommendations were implemented. However, the recommendations are not requirements, consequently a landlord or seller can choose whether to carry them out or not.

EPCs must be available to prospective buyers or tenants before they enter into a contract for sale or a lease and by the time of issue of marketing materials.

Cost

Only an approved commercial energy assessor is able to issue commercial EPCs. The Royal Institution of Chartered Surveyors has expressed concern over the lack of assessors for the market and their ability to meet demand - many commercial property owners are likely, therefore, to experience inflated prices and a delay in obtaining certificates.

There is also huge uncertainty over the cost of compliance. Policy costs vary according to the size and type of building - and the provider. According to some sources, estimates for complex commercial buildings vary from £1,800 to a staggering £10,000.

It is the property owner or landlord who will bear the cost of compliance; however it seems likely that commercial landlords will ultimately seek to recover the cost of assessments from their tenants.

Multi-let properties

Multi-let properties pose particular problems. The definition of “building” in the regulations includes “a reference to a part of a building which has been used separately”. This definition is so broad that when one tenant seeks to assign or sublet its interest in a multi-let property this might trigger the requirement for an EPC for the whole building. Tenants with no interest in the assignment will not welcome calls for them to contribute to the cost of obtaining an EPC. Careful consideration needs to be taken when drafting a lease to cover this eventuality adequately.
 
Glovers has already seen attempts by some commercial landlords to extend alienation rights to cover Energy Performance Certificates. Commercial tenants should ensure that they understand their position with regard to Energy Performance Certificates and the consequences this may have upon an assignment.

It remains to be seen how Energy Performance Certificates will affect multi-let properties in practice and who will ultimately bear the cost of a smaller carbon footprint.

Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.

For further information please contact:

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