A Burning Issue

Jeffrey Belk
The UK’s Energy Act 2011 demands compliance with new minimum energy standards. This brings important implications for commercial property owners and landlords.

A focus on sustainability through the production of cleaner energy and its efficient use is becoming embedded in everyday life for businesses and individuals alike. Various government initiatives have been developed to support the UK's positive contribution to climate change. The property industry is no stranger to sustainability. Over the past decade, a host of new policies and legislation has emerged, aimed at reducing energy use. In 2003, the UK government's Energy White Paper set out ambitious targets to cut carbon emissions by 60 per cent by 2050. The UK Green Building Council reports that approximately 45 per cent of the UK's CO2 emissions derive from buildings, so tackling energy use in buildings requires continued commitment.

The UK Green Building Council reports that approximately 45 per cent of the UK's CO2 emissions derive from buildings, so tackling energy use in buildings requires continued commitment.

Receiving royal assent in October 2011, the Energy Act 2011 is expected to have a far-reaching impact on the UK’s property market, specifically the commercial and private rented housing sector. The Act requires the Secretary of State to make ‘non-domestic energy efficiency regulations’, ensuring that landlords do not let property that fails to comply with certain energy efficiency improvements. Various commentators have highlighted a widely held view that the Act will prohibit private landlords from leasing residential and commercial properties with an Energy performance Certificate (EPC) rating of 'F' or 'G' from April 2018, unless energy improvement works are undertaken to secure a minimum acceptable rating of 'E' or above. Some reduction in this standard may apply if the maximum package of measures that can be funded under the Green Deal has been implemented. In reality, the exact requirements will not be known until the regulations have been issued, although it's certain that significant improvement to poorly performing property will be required.

Property owners and landlords are encouraged to be proactive and avoid future situations where properties become unmarketable and vacant, due to inadequate energy performance ratings. A full understanding of the energy efficiency of estate portfolios, with plans for meeting future targets, will avoid these risks. To determine the responsibility, identification and programming of energy related building improvements, consider these steps:

  • Review property portfolios to identify those buildings with poor EPC ratings and, if no EPC is available, consider commissioning one to establish current building performance.
  • Using the EPC’s recommendation report as a basis, assess which improvements can be made to the energy and thermal performance of low-rated properties, including building fabric and mechanical and electrical services.
  • Assess and identify building elements that could be upgraded during a planned refurbishment or during replacement of dated and inefficient building services, with an emphasis on programming.
  • Review lease documents in detail and establish the liability of both landlord and tenant for making 'statutory improvements'.
  • Under the future restrictions, landlords need to establish the extent of any energy improvement works to enable re-letting of premises following the expiry of an existing lease. They also need to identify whether undertaking this work affects the dilapidation liabilities of outgoing tenants. This could create situations of supersession and the need to exercise limb 2 of Section 18 (1) of the Landlord & Tenant Act 1927, where no damages can be recovered if, shortly after lease termination, major alterations are undertaken by the landlord, rendering tenant repairs covered by lease covenants valueless.
  • Consider the option of major building refurbishment.

Cost is a major factor for building owners and landlords. To help finance energy improvement works, a funding mechanism has been developed. The Green Deal is the UK government’s initiative to help home and business owners undertake the approved works. In summary, the cost of carrying out such works are met through a Green Deal Finance Plan, whereby a loan covers the cost of the work, repaid over time through the property’s future energy bills.

Faithful+Gould offers constructive advice on upgrading the energy efficiency of buildings. Our dedicated building and M&E surveyors, sustainability consultants and qualified EPC assessors provide detailed building assessments to ensure statutory compliance in relation to energy use and building efficiency.