The Energy Act 2011 sets in stone the legal framework for the Green Deal that will be launched in October 2012. However it also made it unlawful from April 2018 to rent out a house or business premises which has less than an “E” energy efficiency rating. Research suggests that 18% of all buildings with Energy Performance Certificates (EPCs) are “F” and “G” rated, and so fall below the “E” rating threshold contemplated by the legislation.
Landlords, tenants and investors should not wait for detailed legislation before identifying which properties are at risk and designing strategies to reduce the potential impact on the future performance of their assets. Dealing with compliance is a challenge for both landlords and tenants and will put a strain on the workings of the standard commercial lease. Investors in property portfolios should start planning for this now, rather than putting things off until nearer the time or hoping that the Government abandons or delays the implementation of this policy.
For example under leases of whole buildings, the burden of statutory compliance will in most cases fall on the tenant, However, conversely, where buildings are let to multiple tenants research suggests that around 40% of service charges prevent the Landlord from recovering statutory compliance costs from the tenant. As soon as potential liabilities crystallise, it is likely the value of these buildings will fall in comparison with similar properties where the cost of compliance falls to the tenant or is recoverable through the service charge. New leases are likely to pick up on this issue but currently many standard commercial leases do not establish a framework within which these matters can be resolved easily or amicably. Instead either the landlord or the tenant, depending on the type of building, is basically the loser.
As such tenants should now be considering energy improvement costs when taking new leases of poorly rated buildings whilst Landlords with poorly rated buildings in their portfolio, in order to minimise and spread the cost, should try and put in place energy efficiency improvements from now on during works of repair, replacement, refurbishment or refits.
However there is no need to rush into these works as many buildings are likely to benefit from energy improvement changes as part of their general maintenance before 2018 and all you may need is an up-to-date EPC as currently Commercial EPCs are valid for 10 years.
In addition if your EPC is more than 12 months old speak to your EPC provider as it may be that simple improvements such as supplying a modern heating system or even just installing more energy efficient light bulbs may be sufficient to help you improve the rating from an “F” to an “E” for example.
For further information on EPCs please contact Andrew Whelan at EPCforProperty on 07947 980543 or visit www.epcforproperty.com