If you are involved in a property transaction that will complete on or after 6 April 2008 you should be considering the need for an Energy Performance Certificate (EPC).

Background

Energy efficiency is an essential part of the EU’s comprehensive strategy on climate change and energy. The EU has implemented its commitment to energy efficiency through various directives whose objective is to promote the improvement of the energy performance of buildings within member states.

The Building and Approved Inspectors (Amendments) Regulations 2006 (already considered in our Alert of April 2006: “Energy performance of buildings – are you ready for part L?”) and the Energy Performance of Buildings (Certificates and Inspections) (England & Wales) Regulations 2007 (the Regulations) implement much of the Energy Performance of Buildings Directive into UK legislation.

The 2007 Regulations

The Regulations introduce EPCs for buildings when they are constructed, modified (refurbished), sold or let. There are some types of buildings and transactions which are exempt under the Regulations.

The Regulations apply to both commercial and residential properties, but this Alert is confined to the application of the EPC provisions to commercial property only.

What is an EPC?

An EPC is a certificate issued by an accredited energy assessor that expresses the ‘asset rating’ of a building. Its purpose is to indicate how energy efficient a building is. It does not assess how the building is actually used by the occupier. (This will be covered by Display Energy Certificates, dealt with below). The EPC will provide an energy rating for the building on a sliding scale from A (very efficient) to G (least efficient). The higher the rating, the more energy efficient the building is, the lower the fuel bills are likely to be, and the less work (and expense) will be required to bring the building up to an acceptable standard.

A Recommendation Report, containing recommendations for the improvement of the energy performance of the building, will accompany the EPC. There is no compulsion to action the recommendations at present, although their implementation is likely to improve the energy efficiency of the building, reduce fuel bills, cut its carbon emissions and could make the building more attractive to potential buyers or tenants in the future.

Provided the building is not subsequently modified, an EPC (and Recommendation Report) is valid for ten years from the date of issue and will be kept on a central register for 20 years. The ability to inspect the register will be limited to accredited assessors, who are responsible for registering the EPC before it is issued.

When is an EPC required?

An EPC must be commissioned if you are constructing, refurbishing, selling or letting:

  • a ‘building’ with a floor area greater than 10,000m² from 6 April 2008.
  • a ‘building’ with a floor area greater than 2,500m² from 1 July 2008.
  • any remaining ‘building’ from 1 October 2008.

A ‘building’ is defined as a roofed construction having walls, for which energy is used to condition the indoor climate, and includes a part of a building, which has been designed or altered for separate use, eg units within a shopping centre.

Who has to provide an EPC?

In the case of a new build or refurbishment (whether or not building regulation consent is required), the EPC must be obtained by the person responsible for the construction (invariably the builder) and be given to the owner of the building within five days of completion.

Where building regulation consent for the works is required, a ‘final certificate’ will not be issued by the local authority unless the EPC has been provided to the owner of the building.

In the case of a sale or rental, the EPC must be obtained by the owner/landlord of the building. Subject to some exceptions, the duty arises either as soon as:

  • a request for information is made for the purpose of deciding whether to buy or rent the building.
  • a request is made to view the building for the purpose of deciding whether to buy or rent the building.
  • an offer is made to buy or rent the building.
  • the building is in the process of being offered for sale or rent.

Sanctions

Local authorities (probably trading standards officers) are responsible for enforcing the Regulations. Although there are defences available, as a general rule, failure to comply with the duties imposed under the Regulations may result in a civil penalty charge notice imposing a fixed penalty of no more than £5,000 per notice. There are review and appeal provisions available.

Under the Regulations it is a criminal offence to:

  • disclose an EPC or a Recommendation Report (and any information gathered in preparation of these) except in circumstances permitted by the Regulations.
  • obstruct or impersonate an enforcement officer.

A conviction for one of these offences will leave one liable to a £5,000 fine.

Practical considerations 

In order to avoid a fixed penalty notice or suffering a delay when you want to sell or let your building, you should consider the following:

  • commissioning an EPC as soon as the decision is made to sell or let a building.
  • EPCs will increase the cost of transactions. Costs for an EPC are estimated in the region of £5,000 for a ‘simple’ office building and £40,000 for a shopping centre.
  • the Regulations provide that you cannot ask a prospective buyer or tenant to meet the cost of the EPC.
  • whether the cost of an EPC for a building can be recovered from existing tenants is a matter of some debate, and will depend on a number of factors.
  • on a sale, the cost will need to be factored into the sale price.
  • in relation to a construction or a refurbishment, builders will probably include the cost of providing an EPC in the contract price.
  • the need to take into account the time necessary to arrange the EPC, as only accredited assessors can provide a valid EPC. This may increase lead-in times for disposals by a number of months if all relevant information is not available. In the short term, there is concern that there will be insufficient accredited assessors available.

The future

Display Energy Certificates (DECs) are also introduced by the Regulations. DECs will show the energy performance of a building based on actual energy consumption as recorded, whereas EPCs reflect the energy performance of a building as designed.

DECs will be a requirement for buildings occupied by public authorities or public institutions with a floor area of over 1,000m² from 1 October 2008.

It is highly likely that DECs will be extended to all commercial buildings in due course. The Government has plans to introduce the so-called “carbon reduction commitment”. This is a measure aimed at reducing carbon emissions by large energy-using businesses, and is likely to take the form of a mandatory cap and trade scheme.

This proposal could have a major impact on the property industry and is currently the subject of intensive lobbying by the British Property Federation. According to the Carbon Trust, non-domestic buildings account for 18% of the UK’s carbon footprint. Therefore, Government perceives the commercial property sector as having a key role to play in enabling it to achieve its carbon reduction objectives.

EPCs and DECs are the Government’s wake up call. If you own or occupy an energy inefficient building, now is a good time to start taking steps to make it more energy efficient, before the Government considers imposing fiscal measures to obtain compliance.

The chances of this happening are made all the more likely with the EU now taking legal action against the UK for poor implementation of the Directive and also proposing a further shake-up of existing energy performance legislation.