What is an Energy Performance Certificate?

Energy Performance Certificates (EPCs) are being introduced throughout the UK in implementation of the European Directive 2002/91/EC. An EPC provides information about the carbon dioxide emissions from a building and its energy efficiency. An asset rating will be given, similar to that which applies to domestic appliances such as washing machines and freezers.

EPCs in England and Wales

It is now only a matter of days before the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007 commence their impact on buildings which are non-dwellings in England and Wales. The commercial property industry has had a timely reminder of this imminent change with the discussions of Energy Performance Certificates (EPCs) in relation to dwellings and Home Information Packs (HIPs). August 2007 saw the arrival of HIPs for properties with four or more bedrooms and September 2007 saw the extension of this to three bedroomed properties. The phasing in of HIPs is now affecting one bedroomed properties and the requirement for EPCs for dwellings is already a requirement. For non-dwellings the timetable is set out below.

The Impact of the Regulations for Commercial Premises

The impact will affect commercial premises in three ways:

By 1 October 2008, EPCs will be required on the construction of all "non-dwellings". The Building Regulations 2000 are amended and the building control inspector cannot issue a certificate of completion unless an EPC and recommendation report have been provided to the owner. Even if buildings are not governed by the 2000 Regulations, in terms of the 2007 Energy Performance Regulations the builder must supply this information within five working days of the building being finished. EPCs are also required for the sale or renting out of non-dwellings subject to a small number of exceptions. The meaning of sale or renting out have been clarified and include any assignment or sub-letting (but not any renewal, extension or surrender).

Recent regulations have provided transitional arrangements in some instances. Where a property is on the market prior to the relevant commencement date for that size of property and remains on the market after that date, the obligations to obtain and provide an EPC (free of charge) is "as soon as reasonable practicable" rather than to produce the EPC at the earliest opportunity in the marketing process. This concession is available until 1st October 2008 when the regulations take full effect.The regulations also introduce from 1 October 2008, an obligation for Display Energy Certificates (DECs) for a category of building generically called public buildings. These are buildings with a usable floor area in excess of 1,000 square metres occupied by public authorities and other institutions providing public services to a large number of people, where the public regularly enter the building. The obligation to display is on the occupier.

In addition the regulations set out provisions relating to the inspection of air conditioning systems. The effective dates are 4 January 2009 for systems with an output in excess of 250kW and 4 January 2011 for those with a output in excess of 12kW.

The energy assessors certifying the performance of buildings and systems must be accredited with an approved scheme and they have an obligation to register the findings in a central register. The accreditation scheme must be approved by the Secretary of State. The government confirmed approval for 12 such schemes earlier this year.

EPCs

An EPC is a certificate of the rating of the energy efficiency of a building and also records the environmental impact of that building from carbon emissions. The regulations require the certificate to be produced to a potential purchaser or tenant at the time of providing initial information about the building; at the time a potential purchaser or tenant is viewing the building or at the time of exchange of contracts, whichever is the earlier. The EPC is required along with the asset rating of the building and a benchmark value for reference to what the average type of building should have as a rating, along with a list of recommendations.

It is clear that the regulations will apply to mostly all buildings that are non-dwellings in time and this will include parts of buildings. Where the property being sold or let is part of a larger building generally the obligation is to produce an EPC for the space being sold or let. The variations to this depend on whether the heating system is contained in all parts of the building or separate for each unit or part. In addition, if the building has other parts, these are attributed to each part based on floor area. The named exceptions where an EPC is not required at all, include small non-residential buildings with a floor area of less than 50 square metres, places of worship and buildings of a temporary nature and intended for short term use (two years or less), industrial sites, buildings to be demolished, workshops and non-residential agricultural buildings with "a low energy demand".

The main concerns include the costs associated with the new regulations and also the expenditure of time. The EPC will have a life of ten years, (subject to the position that changes or improvements have been made and a new certificate is required) and must have at least twelve months before expiry for a certificate still to be valid at the point of sale or letting. There is also likely to be discussion between landlords and tenants as to whether or not the costs of providing EPCs for common parts of buildings will be stipulated as a monetary obligation of the tenant in a lease, whether it forms part of the service charge or whether it is a matter to be excluded from the service charge and wholly met by the landlord. In the case of a sale of property it is likely that the practice follows that of the residential market whereby it is the seller who is obliged to produce the EPC to the potential purchaser. Currently that is in line with the guidance for the regulations and it is not possible to alter this obligation on the seller so as to impose it on the purchaser even if the purchaser waives its right to receive the EPC. As regards the time impact, it is estimated that it will take twelve to fourteen days to produce an EPC and it is also widely known that there is currently a shortage of energy assessors and further delays may be incurred in securing the services of an assessor in the first place. Generally, the number of assessors is increasing but issues may still arise for example in the case of sales of portfolios of properties where there is insufficient time to obtain EPCs for all properties.

DECs

The list of buildings which appear to be captured by the DEC requirement under the banner of public authorities include central or local government offices, NHS Trusts, places of education, the police stations, courts and prisons and institutions providing public services including museums, art galleries and swimming pools. It is envisaged that the regulations should not impact on hotels and retail outlets. The buildings must display their DEC in a prominent place and this should include (1) a note of the asset rating detailing the energy performance of the building and its services and (2) the operational rating of the building based on actual statistics of the previous few years, if available. The intention is for the general public to be able to compare the energy performance of public buildings and also to promote improving energy use.

As in the case of EPCs, the DEC inspection reports will include a list of recommendations for increased energy efficiency. The recommendations will range from low cost improvements to wholesale replacements of particular systems if required. The DEC will be valid for a period of seven years.

Inspection of Air-Conditioning Systems

The time of first reports must comply with the time limits in the regulations as mentioned above. The reports are valid for five years and again will include a list of recommendations of repair or replacement to improve the overall energy efficiency of the system. The intention is to provide an assessment of both the efficiency of the system and the size of the system compared to the cooling requirements for the building. Again, the assessors require to be accredited.

Compliance

Compliance with the regulations will be monitored by Trading Standards Officers. Failure to produce the requisite certificate will render the seller, landlord or building contractor to be liable to pay a fine. The current maximum charge for non-compliance is £5,000.

Timetable for introduction in England and Wales

The latest timetable for introduction and the requirement for EPCs in England and Wales is:

  • 6 April 2008 - Buildings over 10,000 m2
  • 1 July 2008 - Buildings over 2,500 m2
  • 1 October 2008 - All remaining buildings (with very limited exceptions)
  • 4 January 2009 - Deadline for inspections and reports on air conditioning systems with an output 250kW
  • 4 January 2011 - Deadline for inspections and reports on air conditioning systems with an output 12kW

Further Information

Further information on energy performance certificates in England and Wales is widely available on numerous government websites and additional informative sites regarding circumstances where a DEC is required and outlining the accredited assessor scheme. The main regulations are the Energy Performance of Buildings (Certificates Under Inspections) (England and Wales) Regulations 2007 and the Energy Performance of Buildings (Certificates Under Inspections) (England and Wales) (Amendment) Regulations 2008.

EPCs in Scotland

The introduction of EPCs in Scotland is being coordinated by the Scottish Building Standards Agency (SBSA), whose approach is different to the way in which EPCs are being introduced south of the border. EPCs are being introduced in Scotland under the statutory framework of the Building (Scotland) Act 2003 and various Building (Scotland) Regulations.

In Scotland there will be a single type of Certificate – the Energy Performance Certificate. It is already a requirement to obtain an EPC for all new buildings, both residential and commercial, and in due course the requirement for an EPC will apply to virtually all domestic and non-domestic buildings, if at any time in the future they are sold or rented out. Public buildings over 1,000 square metres will also be required to display the EPC in a prominent position. In other cases the EPC must be affixed to the building - somewhere accessible, but protected, for example beside a gas or electricity meter.

Most buildings will be affected one way or another – only stand-alone buildings of less than 50 square metres are excluded from the requirement, along with conversions, alterations and extensions to such stand-alone buildings, unless they would increase the area of the building to 50 square metres or over. Buildings intended to have a life of less than two years are also excluded. The requirement for an EPC only applies to buildings that use fuel or power to control the internal temperature. This provision also applies in England.

A "building" for these purposes includes a prospective building and references to a building, structure or erection include references to a part of the building, structure or erection. Again this is also the case in England.

What does an EPC certify?

The non domestic EPC expresses the building energy performance and provides recommendations for cost effective improvement of the energy performance of the building in question. This may involve suggestions such as the installation of additional insulation, or fitting low energy lighting and other measures designed to help save energy, reduce bills and cut carbon dioxide emissions.

Who will provide EPCs?

Article 10 of the Directive requires that the certification of buildings be carried out “in an independent manner by qualified and/or accredited persons”. In Scotland, for existing buildings these independent assessments can be undertaken by recognised professional and trade organisations. The SBSA will enter into protocol arrangements with such bodies and has already entered into a protocol arrangement with the Chartered Institute of Building Services Engineers, Scotland in May this year, with the intention that CIBSE Scotland will accredit their members to be able to provide EPCs for existing buildings. EPCs will be produced as part of the building warrant and completion certificate process for all new buildings.

Before being awarded accreditation status CIBSE Scotland members will be provided with training on the use of the relevant software for calculating the energy rating of a building (for example the Simplified Building Energy Model (SBEM) calculation tool – or an approved alternative). They will also receive training on energy efficient design and energy audit survey techniques.

Broadly there are two approaches to establishing the energy performance of a building – the operational basis in which the actual amount of energy used by the building is established, and the asset rating of a building which calculates the notional energy performance of a building. In Scotland an asset rating will be used for all certificates. This is the ratio of the predicted CO2 emissions arising from the actual building when subject to a standardised set of activities to that of a notional building with the same size and shape and used in the same way, but with defined elemental standards for fabric and building services systems. Software is available for calculating the asset rating of a building on this basis.

Who is liable to produce the EPC?

The EU directive requires that EPCs are to be made available to prospective owners and tenants when buildings are constructed, and the EPC must form a fixture within new buildings to this end. Scottish Ministers will make it a requirement to affix an EPC to an existing building when it is sold or rented out. It appears that the requirement to produce or affix an EPC to an existing commercial building that is already let would arise on the occasion of an assignation of the lease to a new tenant. Guidance leaflets are going to be produced explaining to owners the action that they need to take to comply with the requirement. The requirement is on the owner to produce the EPC and the expectation therefore is that the cost of obtaining an EPC would be borne by the owner of the building. The production of an EPC is an integral part of the construction of new buildings, but for existing buildings, it will involve getting an energy assessment carried out.

For multi-occupancy buildings with fire separating elements between units, the EPC to be obtained can either cover the entire building, or separate certificates can be obtained for each individual unit, at the option of the owner.

The requirement to display an EPC

While all new buildings and existing buildings that are sold or rented will have to obtain an EPC, only public buildings have to display the EPC in a prominent place. Public buildings for this purpose are buildings with an area of over 1,000 square metres occupied by public authorities and by institutions providing public services to a large number of persons and accordingly frequently visited by the general public, who have a right of access to the building or those parts providing services directly to the public. Generally such buildings would also be characterised by the fact that public funding is used to some extent in the operation of the building or in the general upkeep of the building or in funding costs of staff.

Commercial or professional offices, shops and the like are not public buildings in this connection, but public buildings could include premises such as colleges, schools and universities, theatres, hospitals, law courts, railway stations and airports.

Inspection of Air-Conditioning Systems

The EU Directive also requires there to be regular inspection of air conditioning systems which are over 12kW, with an inspection report to be produced, and an assessment made of the capacity of the system, with recommendations for its improvement or replacement. The form of the report has not yet been decided, although it is thought that it may take the form of a checklist with a "traffic light" system telling the user of the air-conditioning system what matters need attention.

There is likely to be an element of flexibility allowed on how frequently systems require to be inspected, with more efficient systems requiring inspection less frequently than those that are poorly maintained, and the period is likely to be between three and five years.

The intention is that for new buildings, the inspection of air-conditioning will be a part of the Scottish building regulations’ compliance process. A new standard will be introduced to the Building (Scotland) Regulations 2004 that makes it necessary for air-conditioning systems to be installed in such a way that allows them to be inspected.

For existing air-conditioning systems, the arrangements are less onerous than for new buildings, as there is only a requirement for inspection and advice on existing systems. SBSA will enter into protocols with organisations that are able to provide training to their members on the legal requirement to conduct inspections of air-conditioning systems, the technical and procedural process of inspection, and drafting reports.

Enforcement of the requirements is expected to be on a reactive basis, although local authorities can decide to carry out spot checks on buildings with air-conditioning, and failure to comply with an enforcement notice will constitute an offence. For persistent offenders, it is possible that the local authority will arrange for the inspection work to be carried out and recover expenses from the owner.

Compliance

Failure to obtain an EPC will be governed by the enforcement powers of local authorities contained in sections 25 and 27 of the Building (Scotland) Act 2003. Section 25 will be used for non-provision of EPCs for existing buildings and section 27 for non-provision in respect of newly constructed buildings.

Timetable for introduction in Scotland

The timetable for introduction of the requirement for EPCs in Scotland is:

  • Buildings being sold: From approximately Autumn 2008 to tie in with the introduction of the proposed Single Survey and Purchasers Information Packs in Scotland. It appears that this deadline applies principally to domestic properties, but that for commercial properties being sold, the 4 January 2009 deadline will apply.
  • Buildings being leased: 4 January 2009
  • Public buildings over 1000 square metres: Must be in place by 4 January 2009
  • For air conditioning systems, it is proposed that inspections will start once the protocol and training has begun, which should be no later than January 2009. There will be a phased programme of inspection according to the effective rated output of air-conditioning systems, with the largest systems being dealt with first.

Further information

For further information on energy performance certificates in Scotland please click here.

For an example of the dewllings EPCs approved for use in Scotland please click here.

For an example of other building types EPCs approved for use in Scotland click here.

Practical Implications

It is anticipated that the Government may consider providing financial incentives to assist in the exercise of working towards improving the performance of efficiency of buildings. It may also be that there is an increase in grants for homeowners and commercial enterprises. In some publications it has been commented that there may be preferential interest rates from lenders for energy efficient buildings. In addition, some local authorities in England have piloted schemes whereby there are council tax rebates. There are also many ideas emerging in the market place as to methods of reducing carbon emissions by adjusting current practices. Simple examples of this include switching off lights in unoccupied areas, reducing the average temperature setting out heating controls and reusing and recycling materials. The immediate benefits manifest themselves as financial savings, though it is the case that this alone will not suffice to meet the targets set by the Government. Investment in renewable energy sources is needed too.

Some larger commercial organisations are preparing in advance for the introduction by engaging energy assessors who specialise in the larger commercial sector now, to ensure that they are in a position to comply with the regulations from the relevant commencement date. Property Consultants are being employed to prepare the information used to calculate the efficiency of buildings, namely, floor layout, heating, ventilation and air conditioning, energy consumption, control systems and also the age and location of buildings. This, however, may not be possible for many small or middle sized commercial organisations who will also be affected by the need for an EPC.

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There is also speculation that it may be too difficult for auction vendors to comply, particularly in the case of portfolios of properties. Compliance may be a concern. The regulations however have provided additional rights for local authorities. The regulations permit disclosure by registered EPC's to local authorities, which will assist in the enforcement of the building regulations in relation to EPC's.

There are still ongoing discussions between the Government and the commercial property sector prior to the commencement of the regulations. It is widely known that the ongoing consultations will take time and the guidance and training of sufficient number of assessors is also behind schedule.

Practical Implications

The regulations have been introduced to comply with the European Parliament and Council Directive from 2002. This is part of an overall programme to control the impact of climate change particularly given the high carbon emission from buildings. It is an essential part of the control of this major contributor to global warming for the future. This first stage of regulations deals with reporting and recommendations. An institutional awareness of the regulations has led many organisations to make the protection of the environment a priority as part of their corporate and social responsibility strategy. Although there are no sanctions for buildings which are of an inefficient rating, it is anticipated that the marketplace may determine some penalty as buildings with a better energy efficiency rating may be selected above those falling below recommended standards.