updated on 29 April 2008
QuestionWhat will the new energy performance certificate requirements mean for sellers, landlords and developers of commercial properties?
The government's objective is to improve energy efficiency and reduce carbon emissions to achieve a sustainable environment and meet climate change targets. The EU Energy Performance Directive requires that information as to the energy efficiency of a building is provided when it is constructed, sold or rented. The EPCs will allow the buyers and/or occupiers of premises to assess the efficiency of a building. The idea is to encourage businesses to understand their carbon footprints so that they can start making their buildings more energy efficient.
The timeline of change is as follows:
Before any building is advertised or viewings conducted, the EPC must be produced. Failure will result in a fine of up to £5,000 per unit. However, the fine may be lifted where evidence is provided that an EPC had been commissioned at least 14 days before it was required and all reasonable efforts have been made to obtain the EPC.
The EPC will need to be supplied by the owner of the property at the beginning of the transaction as part of the due diligence procedure. The problem here for buyers or proposed tenants is what if the landlord, seller or developer refuses the request? Trading standards officers will police the regime but, with fines of up to £5,000 compared to the cost of obtaining an EPC, there seems little incentive for landlords or sellers to comply. Coupled with this, currently there is a distinct shortage of qualified assessors, something which is likely to result in an inevitable delay in the issue of EPCs.
The result is that some buyers and tenants will be forced to take a view and proceed without information as to the energy rating of the building. It all depends on the bargaining position of the parties.
So, in a difficult market, is this just another problem for sellers, landlords and developers? The reality is that most existing commercial buildings will have a relatively bad energy rating, appearing in the E to F category. Agents are suggesting that properties will fall into two tiers, the first for new purpose-built properties with a good energy rating and the second for inefficient properties with a poor rating. First-tier properties will continue to be sold or let at the market rate, but second-tier properties may have to be reassessed. It may be that properties with poor energy ratings will be sold for reduced amounts or offered for let with large rent-free periods or other incentives to entice tenants.
Lucy Risbridger is a solicitor in the real estate team at EMW Picton Howell LLP.