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Commercial Question

Building performance anxiety?

updated on 29 April 2008

Question

What will the new energy performance certificate requirements mean for sellers, landlords and developers of commercial properties?

Answer

April 2008 marks the introduction of energy performance certificates (EPCs) for business premises. The certificates are similar to their domestic counterparts, which are now incorporated into home information packs. The certificate will look the same as the residential certificate and will carry the same ratings, from A to G, with G being the least efficient.

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:

  • From 6 April 2008 the construction, sale or rent of any non-dwelling over 10,000 square metres requires an EPC. There are transitional arrangements for buildings already on the market at 6 April, whereby if they remain on the market, they will need an EPC by 1 October 2008. In the interim, if the property is sold or rented out, an EPC must be commissioned and supplied as soon as reasonably practicable.
  • From 1 July 2008 buildings over 2,500 square metres will also require an EPC. Transitional arrangements similar to the above apply to these properties also, expiring on 1 October 2008, by which time an EPC must be produced.
  • From 1 October 2008 EPCs will be required for the construction, sale or rent of all remaining non-dwellings. All public buildings will be required to have a display energy certificate.

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.