- Energy performance clock is ticking for landlords
Energy performance clock is ticking for landlords
Forthcoming regulations will forbid the letting of commercial buildings below a minimum energy performance rating after 2018.
David Fairley partner in our building consultancy team and accredited non-domestic energy assessor, considers the potential impact for commercial landlords and possible ways forward in improving the energy performance of their buildings.
Under the 2018 Energy Performance Certificate (EPC) Minimum Standards Regulations landlords will only be able to let properties if they have achieved a minimum EPC rating band of E. Figures suggest that 18% of commercial property in the UK currently has an EPC rating of F or G, and a further 20% has a rating of E.
Under Section 49 of the Energy Act 2011, landlords will be prohibited from letting (but not selling) any property that does not meet the minimum energy performance standard (MEPS) by 1 April 2018. The bill was introduced to try and speed up energy-efficiency upgrades in the non-domestic sector. It means landlords with properties which have an EPC rating of F or G, will only be able to let the property after they have carried out improvements to bring it up to the minimum EPC rating band of E.
It is estimated that buildings account for around 40% of the EU's total energy consumption and 43% of the UK's total carbon-dioxide emissions.
It is clear that the 2018 EPC minimum standards regulations will have significant implications for landlords and occupiers who wish to assign or sub-let space. Most notably, it will be impossible to market properties with F and G ratings unless they are upgraded to meet the minimum standards. Whilst further clarification is required on the transactional trigger for minimum energy standards, it is likely that they will apply to all lettings and re-lettings, including sub lettings and assignments.
However, there are further implications too. The impact on valuations of such properties is likely to be affected, with a significant diminution in their value. Rent reviews for properties of an F or G rating are also likely to be affected.
Although the regulations are to be brought into force from 1 April 2018, the Government is proposing several instances where a landlord may be exempt from compliance and therefore able to legally let a property with an EPC rating below the minimum requirements.
A landlord will be able to claim an exemption if third-party consent is denied from tenant, lender, planning authority or a higher landlord/ freeholder, and will have six months to comply with the regulations or register an exemption following lease renewals. The exemption is also only available if the proposed energy-efficiency improvements would have a negative impact on the value of the property. There is also dispensation if all the improvements that are possible to be undertaken at no upfront cost to the landlord, such as those that can be completed through a Government finance arrangement, still do not lift the EPC rating above the minimum requirements.
In accordance with the procedures currently in place for EPCs, the enforcement of the MEPS regulations will be via local Trading Standards Officers. The level of penalty has not yet been disclosed but is likely to reflect the rateable value of the property, with fines in the region of £5000 to £150 000, depending on the length of the non-compliance and the rateable value of the property. There will also be a penalty of £5000 for providing false or misleading information to the exemptions register.
By working with a property consultant to complete a review of their property portfolio, landlords can identify those properties with a rating below the minimum Energy Performance Standard and, crucially, establish the cause of the rating.
We can also support landlords to identify what improvements could be made to raise the energy standard of the property, assess the lease to identify where the responsibility lies and provide an assessment of the impact on maintenance life-cycle costing.
Even if a property does not meet the minimum standard, this regulation will not necessarily mean that expensive energy-efficiency upgrades are needed. In some cases the rating may be a direct consequence of inefficient tenant alterations which will be removed at the end of their term, whilst others may discover that refurbishing the external fabric of the building as part of normal cyclical maintenance could upgrade the rating.
Clearly there is still some detail to be confirmed, but with less than two years until the regulation comes into force, landlords must act sooner rather than later to ensure compliance and reduce energy bills for tenants — before it's too late.
Environmental & Sustainability ConsultancyAs qualified EPC assessors we will ensure that we prepare and produce your EPC in the shortest possible time to allow your building’s sale or letting may be arranged swiftly. Under the Energy Act and the Energy Efficiency Regulations it will soon be illegal to offer new lettings on premises with an EPC rating of F or lower. We can offer advice on not only the current energy rating, but strategy as to how any properties that do not meet that benchmark may be improved to provide a minimum EPC rating of E and therefore maintain the ability to continue letting the property. Having expert knowledge of the EPC calculations our EPC assessors can also advise on cost effective solutions in order to achieve this. Contact Us
As qualified EPC assessors we will ensure that we prepare and produce your EPC in the shortest possible time to allow your building’s sale or letting may be arranged swiftly.
Under the Energy Act and the Energy Efficiency Regulations it will soon be illegal to offer new lettings on premises with an EPC rating of F or lower. We can offer advice on not only the current energy rating, but strategy as to how any properties that do not meet that benchmark may be improved to provide a minimum EPC rating of E and therefore maintain the ability to continue letting the property. Having expert knowledge of the EPC calculations our EPC assessors can also advise on cost effective solutions in order to achieve this.
Dilapidations - as a tenant, what do I need to know?As a leaseholder of a commercial property, you will at some point be required to deal with the issue of dilapidations. Chris Eglin from our Building Consultancy department explains what dilapidations are and what as a tenant you need to know:
As a leaseholder of a commercial property, you will at some point be required to deal with the issue of dilapidations. Chris Eglin from our Building Consultancy department explains what dilapidations are and what as a tenant you need to know:[fulltext] =>
What are dilapidations?
Dilapidations are the difference in the condition of a property during its occupancy, or when a lease ends, compared with the condition it should have been in if maintained in accordance with the lease.
The condition that you have to maintain and return a property in will have been set out in the initial lease agreement with your landlord. If as a tenant you do not keep to this agreement, the landlord has the right to charge you for any subsequent reinstatement costs.
As a tenant, what do I need to know?
Before signing a lease agreement, make sure that you are aware of your responsibilities, regarding the repair and general maintenance of a property.
During a lease you need to bear in mind that any alterations made to a property may incur a dilapidations liability in the future, to reinstate a property to its original unaltered state.
Towards the end of a lease, it is important that you stay on top of any dilapidations work you are required to complete. If you do not complete the required dilapidations work then your landlord may issue a dilapidations claim, to recover their costs for undertaking the work required to return a property to the condition set out in the lease.
I have received a schedule of dilapidations, what should I do?
Unless you have completed all the building work set out in the lease and any work to remove alterations, you would expect to receive a schedule of dilapidations from your landlord.
A schedule of dilapidations is the document prepared by the landlord, or on his behalf by a surveyor, that lists outstanding repairs, reinstatement and decoration requirements to the property, often with an estimate of the final cost of the work.
You will be expected to respond to the schedule of dilapidations within 56 days of receiving it. Once your response has been sent, it is normal for your surveyor to meet with your landlord's surveyor in an attempt to reach a settlement figure that is agreeable for both parties.
Building SurveyingOur building surveying team will give you a detailed understanding of the condition of the property you are planning to buy, or rent, or already own.
Our building surveying team will give you a detailed understanding of the condition of the property you are planning to buy, or rent, or already own.[fulltext] =>
We provide several different types of building surveys, (each of which can be tailored to suit your requirements) including:
- Pre-acquisition surveys – an analysis and quantification of potential risks to the building you are about to purchase or rent
- Technical due diligence – a detailed technical analysis of the property you about to purchase or rent, currently own or rent, including full ananlysis of any related legal, statutory and construction documents;
- Pre-divestment surveys – an analysis of the existing building you are about to dispose of, which may be transferred to any purchaser that acts to speed up your property sale
When looking for a new property, a building survey will ensure you know of any defects to the building before entering into a contract and the costs of remedying any disrepair.
Working with us also allows you to plan ahead, taking into account any extra costs that may be require allocating to satisfy any key defects, repairing liabilities, legal or regulatory obligations and give you long term knowledge on the costs of the property’s maintenance during your ownership.
To find out which survey best suits you and your property, please get in touch.