The Grass is Not So Green on the Other Side of the HIP: The Commercial EPC

WHAT IS A COMMERCIAL EPC?
Most commercial property owners should have now heard about the Energy Performance Certificate (EPC) with its full roll out having taken place on 1st October 2008.

An EPC is required when a building is constructed, sold or rented out. It provides an energy rating for a building which is based on the performance of the structure and its existing services. Very similar to its residential counterpart, the EPC will rate the commercial building from A-G depending on its energy efficiency; ‘A’ being very efficient and ‘G’ being very poor.

The EPC is accompanied by a recommendation report which will contain suggestions to improve the energy performance of the building, but there is no legal obligation to carry out the suggested recommendations.


WHOSE RESPONSIBILITY IS IT?
It is the responsibility of the seller or landlord to produce an EPC during the marketing process for the building. On the construction or modification of commercial buildings, it is the responsibility of the person carrying out the construction or modification to produce the EPC and notify building control that it has been done.

A lease assignment is considered a sale and it is the assignor’s responsibility to make an EPC available to the prospective assignee. There are some exceptions where an EPC will not be required, such as on lease renewals.

There is however no need to provide a new certificate if a valid one already exists. All EPCs are valid for 10 years from the date of issue.

WHEN DO I HAVE TO PROVIDE AN EPC?
When a building is sold or rented out a landlord or seller must provide an EPC at the ‘earliest opportunity’. In relation to commercial property which was on the market before 1st October and remains on the market; sellers and landlords will not need to commission an EPC until contracts for sale (or rent) have been exchanged. However, once contracts are exchanged the landlord or seller will need to produce an EPC as soon as possible.

DO I HAVE TO DISPLAY A DEC?
You only have to display a Display Energy Certificate (DEC) if your building is occupied by a public authority or provides a public service to a large number of persons and the total useful area is greater than 1,000 square metres.

DECs are based on the energy consumption of the building and are valid for 1 year. They must be displayed at all times in a prominent place clearly visible to public. They are accompanied by an Advisory Report that lists cost-effective measures to improve energy rating of the building.

The European Commission has just published a draft directive which, if adopted, will require DECs to be displayed in buildings over 250 square metres where members of public regularly visit. This means private sector premises such as retail premises and cinemas could be caught by this requirement.

WHAT ARE THE PENALTIES FOR NON-COMPLIANCE?
Enforcement is to be undertaken by the Trading Standards/Weights and Measures Department of the local council. Fines are payable for non-compliance calculated at 12.5% of the rateable value (subject to a minimum of £500 and maximum of £5,000) and £1,000 for not displaying a DEC or for not having a valid report.

WHAT ABOUT THE INSPECTION OF AIR CONDITIONING UNITS?
From 4 January 2009 all air conditioning systems of more than 250KW will need to be inspected every five years. It is intended that this will then apply to units of more than 12KW from 4 January 2011. Advisory reports must be produced and these must be registered with the local authority.

WILL COMMERCIAL PROPERTIES BE GREENER?
The impact of these regulations is yet to be seen. On the basis that the recommendations provided in the EPC reports are not yet mandatory; there is certainly some doubt whether these regulations will reduce our carbon emissions or assist towards meeting the Government’s initiative to make all new homes zero carbon by 2016. While the credit crisis continues to squeeze the property sector, we imagine commercial property owners are simply frustrated at yet another expense to incur when selling or renting their properties.

It is important however for all commercial property owners and occupiers to consider the implications of the EPC and the effect these new regulations could have on the future saleability of their buildings. For example, it has been suggested by experts that energy-efficient buildings may start to attract a premium or higher rent and lesser energy efficient buildings may suffer discounts. It would appear the current climate would certainly accommodate the latter.

Some are already considering drafting Green Leases which originated in Australia. Green Leases are in the simplest form leases with additional clauses for the landlord and tenant to cooperate with each other in meeting energy efficient standards by incorporating obligations in the lease user and repairing clauses.

When offering new leases, landlords may wish to consider whether they want to set targets for the tenants to improve the energy efficiency rating of their building during their occupancy and to ensure adequate provisions are in place to avoid the premises having a lower value on rent review by reason of a bad energy efficiency rating.

Tenants may wish for landlords to run the building in an energy efficient way and may wish for obligations in their leases for landlords to provide copies of the existing EPCs obtained by the Landlord should they later come to assign or sublet their lease.

There are some important considerations to take into account in regard to the recent introduction of EPC regulations.