We provided a briefing note to clients in March 2008 on the Energy Performance Certificate (EPC) requirements introduced by the Energy Performance of Buildings (Certificates and Inspectors) (England and Wales) Regulations 2007 (Regulations). Since that time, the Regulations have been amended, including by the implementation of transitional provisions. These transitional provisions came to an end on 4 January 2009 and an EPC must now be made available for most commercial property (regardless of size) that is put on the market or continues to be on the market after that date.
This note is an update of the March 2008 briefing, commenting on the Regulations (as amended) in relation to commercial buildings only and is a reminder of the commercial impact of the requirement to obtain an EPC for those buildings.
WHAT IS AN EPC?
An EPC is a certificate that contains information about the energy efficiency of a building, rating the building on a scale from A to G (similar to the rating system for white goods). The EPC must also be accompanied by a recommendation report for the possible improvement of the energy performance of the building. The EPC and recommendation report are to be issued by a qualified assessor. There is currently no requirement to implement the recommendations in the report.
WHAT COMMERCIAL BUILDINGS REQUIRE AN EPC?
Any commercial building for which energy is used to condition the indoor climate (including fixed heating, mechanical ventilation or air conditioning) requires an EPC. Buildings that only have hot water or electric lighting do not require an EPC.
Certain types of buildings are exempt from the requirement to obtain an EPC, including temporary buildings with a planned use time of two years or less, industrial sites and workshops with low energy demand and buildings that are to be demolished (provided such building is being sold or rented with vacant possession, the building is suitable for demolition, the site is suitable for redevelopment and there are reasonable grounds to believe the prospective buyer or tenant intends to demolish the building).
WHEN MUST AN EPC BE MADE AVAILABLE FOR A COMMERCIAL BUILDING?
Subject to the above exceptions, when a commercial building is sold or leased an EPC must be made available to prospective buyers/lessees if the property is put on the market or still on the market after 4 January 2009. Government guidance (Guidance) indicates that the assignment of a lease and the grant of a sub-lease respectively are considered to be sales or lettings. However, lease renewals, extensions, compulsory purchase orders, lease surrenders and the sale of shares in a company where buildings remain owned by that company, will not amount to a sale or letting.
The EPC should be made available at the earliest opportunity when a building is to be sold or leased, and in any event before the earlier of:
- written information about the building being first provided as a result of a request by a prospective purchaser;
- the building being viewed; and
- a contract for sale or let being entered into.
A seller or landlord will be liable to a penalty if any of the above actions occur without an EPC being made available. However, if the seller or landlord has ordered an EPC from an appropriately qualified assessor at least 14 days before the seller/landlord undertakes any of the above actions, and the EPC has not been provided, then the seller/landlord will not be liable for the penalty charge and may proceed to allow viewings, provide written information or enter into a contract. The seller/landlord must make (and continue to make) all reasonable efforts and enquiries to obtain the EPC in time and the EPC must be given to the relevant buyer or tenant when it is obtained. It would appear that this exception was incorporated into the Regulations to avoid problems with a bottleneck for obtaining EPCs when they were first required due to a limited number of accredited energy assessors being able to provide them. The Guidance does not indicate whether this exception will be removed from the Regulations at a later date.
Although the Guidance is still fairly unclear on the exact deadlines as to when an EPC is 'required' (before there will be a penalty imposed), it would appear that in practice to avoid a penalty an EPC should be ordered as soon as possible and in any event at least 14 days before the earlier of any intended viewings, provision of information and exchange of contracts.
An EPC is also required in respect of a newly developed or redeveloped commercial building. Where a building is constructed or converted (into more or fewer units where the services are modified), the building control inspector cannot issue a completion certificate for the works unless an EPC and recommendation report have been given to the owner by the developer.
EPCS FOR MULTI-LET BUILDINGS OR PROPERTY PORTFOLIOS
If a part of a commercial building is being offered for sale or rent, whether an EPC is required for the whole building or that part is dependent on whether there is a common heating system. If the separate commercial units share a common heating system then an EPC can be prepared for either the whole building (and used when any part of the building is let or sold) or just for the part of the building that is being sold or let. If there is no common heating system, an EPC is required for each part of the commercial building that is offered for sale or rent.
HOW AND AT WHAT COST IS AN EPC OBTAINED?
The EPC and recommendation report must be produced by an accredited energy assessor. The Government keeps a register of accredited energy assessors which can be searched to commission an accredited energy assessor to provide an EPC (www.ndepcregister.com).
There is no set cost for an EPC and energy assessors are not required to scale or limit costs in any way. In practice, energy assessors' costs appear to vary depending on the size, location and age of the building. By way of example, one energy assessor has advised that current costs for a level 3 or 4 building (buildings are rated levels 3,4 or 5 depending on their output and complexity of the heating/ventilation systems) can vary from £450 for the smallest and simplest building to £6,000 for a complex building.
HOW LONG IS AN EPC VALID?
An EPC is valid for 10 years from the date it was issued. An EPC for a building will be revoked if a new EPC is issued. If an EPC is prepared for part of a building, this will not revoke an EPC previously produced for the whole of the building and vice versa.
REGISTER OF EPCs
Landmark Information Group Limited operates the register of EPCs on behalf of the Government. It is the energy assessor's responsibility to register the EPC when issued. Once the EPC is registered it cannot be altered and must remain on the register for at least 20 years.
Enquiries may be made at the register as to whether an EPC exists for a property and the date of the EPC. However, a copy will only be provided if the EPC reference number is provided therefore limiting public access to the document.
ENFORCEMENT AND PENALTIES FOR FAILURE TO OBTAIN AN EPC
The Guidance states that it is the duty of the relevant local weights and measures authority to enforce the EPC regulations in its area. There appears to be little information available about the enforcement of the EPC requirements to date and whether any penalties have in fact been imposed.
The Regulations provide that enforcement officers can request a copy of an EPC from the person required to have obtained it up to 6 months after the EPC was obtained. It is therefore important to keep a record of the EPC and reference number in case such an enquiry is made.
The penalty for failure to provide an EPC when selling or renting a commercial premises is, in most cases, 12.5% of the rateable value of the building. However, the penalty is subject to a minimum of £500 and maximum of £5000 limit. Where no formula can be applied, the default penalty is £750.
Simply paying the penalty will not work as an alternative to obtaining an EPC, as once the penalty has been imposed, if an EPC is not produced further penalties may be imposed until one is produced.
THE FUTURE OF EPCs
There remains a degree of uncertainty as to whether the EPC requirements will continue to develop beyond the current need to simply obtain an EPC on sale, lease or construction of a building. It is possible that, in the future, the rating given to a building in an EPC may be linked to a levy on Business Rates and that a requirement (or incentive) may be imposed to undertake the recommendations in the report to improve the energy efficiency of the buildings. For now though, it would seem the focus will be on the implementation of the Regulations, the accreditation of assessors to increase the speed within which EPCs are able to be obtained and the enforcement of the Regulations.