Recent media coverage of home information packs (HIPs) has brought energy performance certificates (EPCs) into common parlance. They have been in existence for some time and have been offered as a standard "add-on" service by some enlightened mortgage lenders. Indeed, you may have commissioned one for a building that you are dealing with. Government legislation for both commercial and domestic buildings means that shortly the preparation and production of EPCs will be compulsory.

What is an energy performance certificate?

An EPC is a document prepared by an accredited energy assessor for a specific building, which identifies the date, construction and location of the property, a list of the relevant fittings (such as double glazing) and the energy performance rating of the premises. Typically the certificate will provide an A to G rating for the energy performance of the property (A being the most efficient) and a list of recommendations to improve the energy efficiency of the property in light of the EPC conclusions.

Of course, not all buildings are used in the same way. Despite this, energy ratings use a “standard occupancy” assumption which may be different from the way the property is actually used. Therefore, the assessment of commercial premises will differ slightly from residential, with commercial properties being assessed using a methodology called the Simplified Building Energy Model.

Timetable for implementation

The need for EPCs arises from European Directive 2002/91/EC which was published in the Official Journal on 4 January 2003. Article 7 of the directive specifically refers to EPCs, stating that: "Member States shall ensure that, when buildings are constructed, sold or rented out, an energy performance certificate is made available to the owner or by the owner to the prospective buyer or tenant, as the case may be. The validity of the certificate shall not exceed ten years."

Through the introduction of HIPs, residential properties with four bedrooms or more will be required to have an EPC when the property is marketed. After the recent Government climbdown, this was delayed until 1 August 2007. As for smaller dwellings, these properties will not be subject to a HIP and EPC until further notice.

The introduction date for non-residential properties is still uncertain. Under Article 15 of the directive, Member States were required to bring into force the necessary laws and regulations by 4 January 2006. However, the UK took advantage of the additional three-year period allowed for implementation where the Member States currently have a lack of accredited experts. It seems likely that full use of the threeyear relaxation will be made and so EPCs are unlikely to be compulsory for all properties, whether residential or commercial, before the end of 2008.

Effect of EPCs

In the period before the compulsory introduction of EPCs, building owners of both commercial and residential property may wish to commission a report or undertake an audit of their premises, with a view to making improvements or alterations to enhance the energy performance ratings.

Once the regulations take effect for commercial premises, it seems likely that they will begin to have an impact on market valuations as prospective purchasers will be able to see at the outset how much it will cost to run the building in terms of lighting and heating. Whether the differences in property valuation are significant or not remains to be seen. Everyone involved in the property market will be affected, whether as owner, investor, developer, occupier or funder, as capital and rental values are adjusted to reflect energy performance ratings. This will be most noticeable amongst environmentally-conscious market players and ethical providers, to whom an environmentally-friendly building will be more attractive.