The Energy Act 2011 contains provisions which directly affect owners and occupiers of buildings that are not energy efficient. Regulations that will make it unlawful for landlords of both commercial and residential properties to lease them out unless they achieve a certain EPC rating are to be brought into force by 1 April 2018.
The Government initially announced that the minimum EPC rating would be E but, as the regulations detailing the required rating are yet to be drafted, this threshold could be raised in the future.
The Government introduced new rules on 1 April 2012 making a solar PV system’s eligibility for Feed In Tariffs conditional on the host building having an EPC rating of D or above. Whether or not this is indicative of higher energy efficiency expectations in general remains to be seen.
The regulations, when implemented, could apply to existing as well as new lettings. This raises the possibility that landlords will have to carry out works on their properties or be in breach of the regulations.
The Government had initially hoped that its commercial “Green Deal” initiative would help owners finance any necessary energy improvements. However, uptake of the domestic “Green Deal” has been poor and there is no sign of the commercial “Green Deal” being launched. It appears that this once potential solution may not ultimately be available to the property industry.
The regulations to be implemented by the Secretary of State are to be brought into force by no later than 1 April 2018, but the Secretary of State could decide to implement them sooner.
The regulations are likely to have significant implications for landlords and occupiers who wish to sublet. These implications include:
- Marketability of some properties would become impossible unless they were upgraded to meet the minimum standards.
- Valuation of properties could be affected if their marketability is diminished.
- Rent reviews could be affected.
- Dilapidation assessments could be affected.
- Existing as well as new leases could be affected.
What Should Affected Landlords Do?
Most landlords have a good understanding of the energy efficiency of their portfolio. However, if this is not the case, a full understanding of the energy efficiency of their property assets should be obtained.
Where the EPC Rating is “F” or “G” (or is at risk of becoming so) a plan should be put in place to improve the energy efficiency of the property.
Landlords will then need to assess the cost and viability of undertaking retrofit or refurbishment works prior to 2018 and weigh these options up against options to market the property and/or to re-gear the lease.
How Can Kingspan Energy Help?
We appreciate that this is largely about risk management. It is important to note that the secondary legislation is yet to be drawn up and there is a chance that there could be delay and change before 2018.
The Government is, however, keen to push this through and there is now increasing pressure to maximise the potential of commercial and industrial properties, following the publication by DECC of the UK Solar PV Strategy Part 2 in April 2014.
Kingspan Energy can provide a range of solutions tailored to the needs of landlords and occupiers who wish to sublet, including:
- Undertaking energy efficiency assessments across property portfolios and individual assets.
- Producing bespoke energy efficiency and risk management plans to implement any necessary energy efficiency improvements, aligned with the building life cycle.
- Carrying out energy efficiency improvements during void periods, lease breaks and/or be included as part of the on-going maintenance and plant renewal programme.
- Providing a range of turn-key management, design and construction solutions using solar PV, LED lighting and/or high thermal performance building envelope technologies.
- Liaising with occupiers regarding the completion of renewable energy and energy efficiency projects.
- Providing a range of financing options, including landlord or occupier funded investments and programmes of renewable energy and energy efficiency works that are funded entirely by Kingspan Energy.
- Helping ensure thier assets meet regulatory and market requirements.
- Providing energy performance reports and ratings.
By Alex Cooke, Legal Counsel, Kingspan Energy.
For further information please contact us at:
Kingspan Energy Limited
Greenfield Business Park No. 2, Holywell, Flintshire, CH8 7GJ, UK
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