Are you prepared for the Minimum Energy Efficiency Standards?

MEES & EPCs

The Government has introduced Regulations to prohibit the letting of commercial properties in England and Wales rated F or G on their Energy Performance Certificates (EPCs) until their energy efficiency is improved and attains at least an E rating. These Regulations are called the Minimum Energy Efficiency Standards (MEES).

The actual Regulations can be read in full by visiting this link: http://www.legislation.gov.uk/uksi/2015/962/made

When do the regulations come into force?

Rather than a “soft” or “hard” start, the Government has opted for a soft start with a hard backstop date – in other words the phased introduction which it had previously indicated was its preferred option. This means:
•from 1 April 2018, the regulations will apply to new leases granted to new or existing tenants (so lease renewals will be caught), and
•from 1 April 2023, the regulations will apply to all leases, including leases that already exist on that date with tenants in occupation.

Which properties are in scope?

The Regulations apply to the non-domestic private rented sector in England and Wales, defined in the Energy Act 2011 as any property let on a tenancy, which is not a dwelling. The regulations will exclude from this definition any property which is let on a tenancy which is granted for a term of six months or less (provided the granting of the tenancy does not mean the tenant will have occupied the property for in excess of 12 months). The six month exemption will be welcomed by SME occupiers. However it cannot be used repeatedly, to prevent this exemption being used to circumvent the regulations. Any property let on a tenancy for 99 years or more will also be excluded. All non-domestic property types are in scope of the Regulations, except for those specifically excluded from existing EPC obligations such as, for example, buildings with Display Energy Certificates or buildings about to be demolished.

Furthermore, the Government proposes to review MEES in 2020 which will most likely see the standards tighten. It is thought that the minimum ‘E’ ratings will not be changed to a ‘D’ or above since EPCs are continuously being degraded as and when Building Regulations are updated. The consequences of these changes on their own mean that the same unchanged property can easily drop a band with each Building Regulation update (approximately every 4 to 5 years). Despite this there is still speculation that the Government may yet decide to raise the minimum standard and therefore commissioning an EPC sooner rather than later will naturally help with a better rating as EPCs are currently valid for 10 years, or until they are superseded by a new EPC.

Restrictions on making improvements

The regulations will include a number of safeguards to ensure that only permissible, appropriate and cost effective improvements are required under the Regulations. Landlords will be eligible for an exemption from reaching the minimum standard where they can evidence that one of the following applies:
•the measures are not cost-effective, either within a seven year payback, or under the Green Deal’s Golden Rule.
•despite reasonable efforts, the landlord cannot obtain necessary consents to install the required energy efficiency improvements, including from tenants, lenders and superior landlords.
•a relevant suitably qualified expert provides written advice that the measures will reduce a property’s value by 5% or more, or that wall insulation required to improve the property will damage the property.

Enforcement

Local authorities will enforce the provisions. In most cases the Government expects Trading Standards to undertake enforcement activity, but local authorities may choose to use other functions.

The Exemption Register

Landlords who consider that an exemption applies, enabling them to let a property below an “E” EPC rating, will need to lodge an exemption on a centralised exemptions register. This register will be available in 2016.

What are the Consequences of these Regulations?

Lenders need to understand the risks of the Energy Act within their current loan portfolio and be aware of the EPC rating of any property they are considering lending on and the potential impact on the security of the loan repayments.

Landlords need to understand the level of risk within their portfolios and the potential impact on portfolio value and return, understand where the cost (and potential recoverability) of complying with the Energy Act lies and asset manage their properties to mitigate the impact of the Energy Act over the period to April 2018 and beyond.

Landlords need to not only protect themselves before a tenant is found but also to ensure that when tenants vacate the property the EPC rating has not changed for the worse. Obviously lease clauses and/or ‘green leases’ can be established to ensure tenants leave the property as they find it but this is not always possible. Adding clauses to leases such as ‘any changes must be made according to current Part L legislation’ would help, however any changes need to be recorded (copy of invoices, manuals etc) and be signed off by a building control officer. A substantial number of lower EPC ratings are caused by lack of documentation.

The alternative is to commission an EPC each time a lease is renewed, extended, expires etc. to check the rating hasn’t changed (e.g. simply changing or removing lighting in a commercial property will make a significant difference to the EPC rating) and include the extra cost either in contracts, memorandum of understanding etc. (including ‘costs’ for any remedial work if the EPC has changed due to a tenant fit-out which may have a detrimental effect).

Tenants need to be aware of unforeseen costs associated with raising the EPC rating of a property that might be passed on to them by the Landlord and understand whether the Energy Act will restrict their ability to sublet the building in future years therefore reducing their flexibility to respond to business needs.

Financial Penalties

The fines for non-compliance are substantial with a fine of £5,000 and publication of non-compliance. Renting out a non-compliant property for up to 3 months the fine is 10% of the rateable value with a minimum penalty of £5,000, a maximum penalty of £50,000 and publication of non-compliance. Renting out a non-compliant property for more than 3 months the fine is 20% of the rateable value with a minimum penalty of £10,000, a maximum penalty of £150,000 and publication of non-compliance.

How can EPCforProperty help?

EPCforProperty has worked with asset managers, portfolio investors, surveyors and agents to develop an Energy Asset Management Report (EAMR) and bespoke strategic action plan to successfully manage MEES and to maximise capital value.

For further information on this important issue please contact:

Andrew Whelan on 07947 980543 or email him at: info@epcforproperty.com

Will I be able to let my F or G rated property?

The Government has introduced regulations to prohibit the letting of commercial properties in England and Wales rated F or G on their Energy Performance Certificates (EPCs) until their energy efficiency is improved and attains at least an E rating. Please see below my understanding of the Regulations.

When do the regulations come into force?

Rather than a “soft” or “hard” start, the Government has opted for a soft start with a hard backstop date – in other words the phased introduction which it had previously indicated was its preferred option. This means:

• from 1 April 2018, the regulations will apply to new leases granted to new or existing tenants (so lease renewals will be caught), and
• from 1 April 2023, the regulations will apply to all leases, including leases that already exist on that date with tenants in occupation.

Which properties are in scope?

The regulations apply to the non-domestic private rented sector in England and Wales, defined in the Energy Act 2011 as any property let on a tenancy, which is not a dwelling. The regulations will exclude from this definition any property which is let on a tenancy which is granted for a term of six months or less (provided the granting of the tenancy does not mean the tenant will have occupied the property for in excess of 12 months). The six month exemption will be welcomed by SME occupiers. However it cannot be used repeatedly, to prevent this exemption being used to circumvent the regulations. Any property let on a tenancy for 99 years or more will also be excluded. All non-domestic property types are in scope of the regulations, except for those specifically excluded from existing EPC obligations such as, for example, buildings with Display Energy Certificates or buildings about to be demolished.

Restrictions on making improvements

As explored in the consultation document, the regulations will include a number of safeguards to ensure that only permissible, appropriate and cost effective improvements are required under the regulations. Landlords will be eligible for an exemption from reaching the minimum standard where they can evidence that one of the following applies:

• the measures are not cost-effective, either within a seven year payback, or under the Green Deal’s Golden Rule
• despite reasonable efforts, the landlord cannot obtain necessary consents to install the required energy efficiency improvements, including from tenants, lenders and superior landlords
• a relevant suitably qualified expert provides written advice that the measures will reduce a property’s value by 5% or more, or that wall insulation required to improve the property will damage the property.

Enforcement

Local authorities will enforce the provisions. In most cases the Government expects Trading Standards to undertake enforcement activity, but local authorities may choose to use other functions.

The Exemption Register

Landlords who consider that an exemption applies, enabling them to let a property below an “E” EPC rating, will need to lodge an exemption on a centralised exemptions register. This register will be available in 2016.

There are 3 further issues to bear in mind if you are concerned by your EPC rating:

• ​The Age of the EPC. Commercial EPCs were introduced in 2009 and are valid for 10 years unless superseded by a new one. If you have an old EPC, or the property has been refurbished since the EPC was introduced, the EPC rating may not reflect the current energy efficiency of the building
• ​​Doubts about the accuracy of any existing EPCs. Because the property industry has historically viewed EPCs largely as a licence to transact, they have generally been procured on a lowest-cost basis. This has meant that the rigour applied to the assessment process is often below the standard that should be expected, sometimes significantly so. The liberal approach to the accreditation market has further exacerbated the problem.
• The New Building Regulations. The new Building Regulations were introduced in April 2014 with tougher regulations as regards energy efficiency. If, for example, a building was previously “E” rated and was re-assessed using the same data within the new version of the software that processes the EPC (SBEM) there is a strong possibility that it would now fall into the lower “F” category. We completed an EPC on a building using the new and older versions of SBEM and the rating fell by 9%.

What are the Consequences of these Regulations?

Lenders need to understand the risks of the Energy Act within their current loan portfolio and be aware of the EPC rating of any property they are considering lending on and the potential impact on the security of the loan repayments.

Landlords need to understand the level of risk within their portfolios and the potential impact on portfolio value and return, understand where the cost (and potential recoverability) of complying with the Energy Act lies and asset manage their properties to mitigate the impact of the Energy Act over the period to April 2018.

Tenants need to be aware of unforeseen costs associated with raising the EPC rating of a property that might be passed on to them by the Landlord and understand whether the Energy Act will restrict their ability to sublet the building in future years therefore reducing their flexibility to respond to business needs.

EPCforProperty has worked with asset managers, portfolio investors, surveyors and agents to develop an Energy Asset Management Report (EAMR) and bespoke strategic action plan to successfully manage the issue of MEPS and to maximise capital value.

For further information on this important issue please contact Andrew Whelan on 07947 980543

An Easy Way to Improve an EPC Rating

Tungsten filament lights are being phased out and one of the main reasons is that they do not last as long and use significantly more energy than CFLs. Compared to tungsten filament lightbulbs, CFLs use less power (one fifth to one third) and have a longer rated life (eight to fifteen times). In addition more modern CFLs warm up much quicker and therefore only take a few seconds to reach full luminosity.

Apart from the energy savings itself, another major benefit will be the EPC rating. The lighting source for a building is one of the major inputs for an EPC calculation and generally the smaller the building the more affect it has on the rating. I have recently prepared a commercial EPC for a small retail unit. It has a poor rating so I ran the calculation again, making one change across the property, replacing the tungsten bulbs installed throughout with CFLs and the property changed from a G rating to an E rating.

The rating change is remarkable and obviously a cheap and easy way to improve an EPC. With the Government’s current proposal to make it illegal to let properties with F & G ratings from 2018 landlords and owners should be looking at the EPC rating of their portfolio now and should contact their EPC provider for advice if their properties have poor ratings.

Andrew Whelan, EPCforProperty

The Energy Act and “F” & “G” Rated Properties

The Energy Act 2011 sets in stone the legal framework for the Green Deal that will be launched in October 2012. However it also made it unlawful from April 2018 to rent out a house or business premises which has less than an “E” energy efficiency rating. Research suggests that 18% of all buildings with Energy Performance Certificates (EPCs) are “F” and “G” rated, and so fall below the “E” rating threshold contemplated by the legislation.

Landlords, tenants and investors should not wait for detailed legislation before identifying which properties are at risk and designing strategies to reduce the potential impact on the future performance of their assets. Dealing with compliance is a challenge for both landlords and tenants and will put a strain on the workings of the standard commercial lease. Investors in property portfolios should start planning for this now, rather than putting things off until nearer the time or hoping that the Government abandons or delays the implementation of this policy.

For example under leases of whole buildings, the burden of statutory compliance will in most cases fall on the tenant, However, conversely, where buildings are let to multiple tenants research suggests that around 40% of service charges prevent the Landlord from recovering statutory compliance costs from the tenant. As soon as potential liabilities crystallise, it is likely the value of these buildings will fall in comparison with similar properties where the cost of compliance falls to the tenant or is recoverable through the service charge. New leases are likely to pick up on this issue but currently many standard commercial leases do not establish a framework within which these matters can be resolved easily or amicably. Instead either the landlord or the tenant, depending on the type of building, is basically the loser.

As such tenants should now be considering energy improvement costs when taking new leases of poorly rated buildings whilst Landlords with poorly rated buildings in their portfolio, in order to minimise and spread the cost, should try and put in place energy efficiency improvements from now on during works of repair, replacement, refurbishment or refits.
However there is no need to rush into these works as many buildings are likely to benefit from energy improvement changes as part of their general maintenance before 2018 and all you may need is an up-to-date EPC as currently Commercial EPCs are valid for 10 years.
In addition if your EPC is more than 12 months old speak to your EPC provider as it may be that simple improvements such as supplying a modern heating system or even just installing more energy efficient light bulbs may be sufficient to help you improve the rating from an “F” to an “E” for example.

For further information on EPCs please contact Andrew Whelan at EPCforProperty on 07947 980543 or visit www.epcforproperty.com

Delays to the EPC Regulations and the Green Deal

It is widely assumed that the changes in the EPC Regulations have been delayed:

• To ensure the arrangements for the Green Deal are finalised.

• To allow the training of energy assessors whose work producing EPCs will be the key in determining if Green Deal funding can be made available to households and businesses.

However a major concern for Energy Assessors is that the training requirements have still not been finalised. According to the Department for Energy and Climate Change (DECC) the full details of the Green Deal will be made known in Spring 2012, once the necessary secondary legislation has been approved by Parliament. Therefore full and comprehensive training cannot be offered until after this date. Despite this many commercial companies are already using the term ‘Green Deal’ in their promotions and Energy Assessors are already being offered training courses to prepare them for the new initiative.

As the training requirements have not been finalised there will be no fully accredited Green Deal Assessors until after the Spring of 2012. In addition companies already offering Green Deal products and services are acting precipatately and may not actually be offering a “Green Deal” product at all. Members of the public, Energy Assessors and other would-be Green Deal Advisors should therefore exercise extreme care before paying for any “Green Deal” service or product before the secondary legislation is finalised.

EPCforProperty complies with all existing and proposed Regulations, they are closely monitoring the Green Deal legislation and its implications to households and businesses, if you require an EPC or require any energy advice ring Andrew Whelan on 07947 980543 or visit http://www.EPCforProperty.com

Latest up-date on the delayed proposed EPC Changes

As you are probabaly aware the DCLG have confirmed the EPC changes due to be introduced in October have ben delayed AGAIN until April 2012. The DCLG say there have been few concessions in the much-delayed changes, but further guidance will be issued before next spring.

In the case of both sales and lettings, the requirement to attach an EPC report to all particulars has been toned down so that only the first page of the EPC will now have to be attached. However, this is unlikely to please critics who point out that it will still mean having to produce and print another sheet of paper, and it will be almost immaterial as to whether it is printed on one or both sides.

Otherwise, agents will have to prove they have ordered an EPC before marketing, and will have seven days to produce an EPC – or a further 21 if they haven’t managed to do so, despite trying.

The changes in regulations will also mean that Trading Standards officers will have new powers to get agents to prove that they have commissioned an EPC when marketing a property without one. A number of ‘consequential changes’ to the role of Trading Standards, allowing them to enforce their new duties, will be made.

Where the property’s address has been omitted from the particulars, it will not be necessary to put the address on the EPC.

As I have previously mentioned it is not a surprise that there is a further delay in the introduction to these changes as they have become caught up with the Green Deal secondary legislation. However the Energy Bill and the Green Deal timetable are already behind their original schedule which means these changes could be delayed even further!

Delayed EPC changes due to be laid before Parliament this month.

EPC Assessors should hear shortly if they are going to have a busy Autumn. It will soon become clear how much longer they will have to wait for badly-needed new Energy Performance of Buildings regulations. With MPs returning to Westminster from their summer break today the Department of Communities and Local Government has promised that it will seek to lay the regulations before Parliament as soon as possible.

They have already been delayed for six months from their original date of 1 April, and repeated further delays and uncertainty over the schedule for introduction have exposed chaos within DCLG, as ministers with conflicting agendas fight over the content. The new regulations, introduced by DCLG junior minister Andrew Stunell to boost dire levels of commercial EPC compliance, have fallen foul of Housing Minister Grant Shapps’ preparations for the Green Deal. We were told early in July that the regulations would definitely be placed before Parliament prior to the summer recess, which began on 21 July, but that did not happen. The Energy Performance of Buildings Regulations are classified as a Statutory Instrument, a form of secondary legislation, and have to be placed before Parliament before they can take effect.

If the regulations are now finally ready to be laid before Parliament they could take effect on 1 October, but there is no certainty that they will not be delayed further, and 1st November or even 1st January 2012 could be the effective start dates.

EPC Changes October 2011

Following the delay of the introduction of revised regulations on marketing of properties and increased powers for Trading Standards, which were due to be effective from 1st July 2011, DCLG have announced that the revised date is now set for 1st October 2011.

The Proposed changes are summarised below:

PROPOSED CHANGES TO THE ENERGY PERFORMANCE OF BUILDINGS (CERTIFICATES AND INSPECTIONS) (ENGLAND AND WALES) REGULATIONS 2007 (THE EPB REGULATIONS)

1. Summary of the changes to the EPB Regulations
The changes to the EPB Regulations can be summarised as follows:

• the changes will extend the current requirements to commission an EPC that apply to residential buildings to all buildings sold or rented out;
• the requirements for the provision of an EPC with written particulars are extended to all buildings sold or rented out and the option to attach the asset rating is removed; and
• the regime for lodgement of EPCs and DECs on the Register is extended to air conditioning inspection reports.
The following summary details the main changes made in relation to EPCs.
2. Commissioning an EPC before marketing
A number of changes are made to regulation 5A of the EPB Regulations. In general, the onus remains on the ‘relevant person’ (i.e. the seller or landlord) to commission an EPC before marketing. The main changes are as follows:
• the duty to commission an EPC before marketing is extended to the sale and rent of residential and non-residential buildings;
• the current 28 day period within which an EPC is to be secured using ‘reasonable efforts’ is reduced to 7 days;
• if after that 7 day period the EPC has not been secured the relevant person has a further 21 days to do so.
3. Power to Require the Production of Documents
TSOs currently have the power to require the ’relevant person’ (i.e. the seller or landlord) to produce copies of the EPC for inspection and to take copies if necessary. The power to require the production of documents will be extended to include persons acting on behalf of the seller or landlord – e.g. estate agents and letting agents. This means, for example, that TSOs will be authorised to require estate agents to produce evidence showing that an EPC has been commissioned where they are marketing a building without one.
4 Clarifying when an EPC is required
This technical amendment to Regulation 5 is intended to remove the erroneous belief that the provision of the EPC can be delayed until shortly before the parties enter into a contract for sale or rent. This will be achieved by deleting the words “before entering into a contract to sell or rent the building or, if sooner” in Regulation 5(2)(b) of the EPB Regulations.
5. Consequential changes
A number of consequential changes have been made to enable TSOs to enforce the new duties.
6. EPC Information in Written Particulars
Currently, for residential sales only, the relevant person or his agent is under a duty to either attach the EPC to written particulars or include the asset rating on those particulars. The amendments to the EPB Regulations require the EPC to be attached to written particulars in relation to buildings sold or rented out. The option to include the asset rating will no longer apply.
The existing definition of ‘written particulars’ has been expanded to ensure that particulars produced for rented out buildings and commercial properties are captured by the new requirements.
7. Commencement
The changes described in paragraphs numbered 2 to 4 will have effect in relation to properties marketed after the expected coming into force date of 1st July 2011.
The change described in paragraph 6 will have effect in relation to properties marketed after of 1st October 2011.
Home Buying, Selling & Energy Performance Division
DCLG
12 April 2011

EPC changes still expected to come into force on 1st October

Proposed changes to Domestic EPCs have been watered down – but will not save agents on extra paper.The requirement to attach a double-sided extract of the EPC has been amended, to just the first page of the EPC.

A source at CLG said that the change had been made in response to concerns about the original proposal. Agents had pointed out that most particulars are produced on a double-side A4. The new requirement will still double the existing paperwork, but there will be less printing. From next April, when the EPC is redesigned to flag up the Green Deal, the first page will also show the key recommendations and their cost implications. In addition, the CLG source revealed that the department is working with Landmark to provide a solution that will enable agents to download copies of the EPC from the register free of charge, and without the need for them to invest in new software.

Changes to the EPC regulations were due to come into force on July 1, but the regulations failed to get clearance in time.The CLG source also says that although Parliament is now in recess and the amendments should have approved prior to the recess, it is likely that the regulations will now be laid within the next few weeks, with the aim of bringing them into force on October 1. However at least one accrediting body is not expecting the changes until 2012.

The Green Deal, Energy Assessors and EPCs

There is mounting concern over the commercialisation of the Green Deal, with fears that DIY firms, utility companies and supermarkets will exploit it to sell their own products.

The Energy Bill, which should have been debated before Parliament’s summer break, has now been delayed. Whilst energy secretary Chris Huhne has denied that the postponement will make any difference to the Green Deal coming into force in October next year, the delay means that the flagship scheme will not make it on to the statute books for many months.

Jim Gillespie, chief executive of the Institute of Domestic Energy Assessors, said: “Having met several weeks ago with members of the Green Deal team within the Dept of Energy & Climate Change, the Green Deal itself was so light on detail that I knew they could never achieve the roll-out timetable they put before me.

“The elephant in the room with the Green Deal is the prospect of ‘impartial advice’.

“To myself and many others within IDEA there is only one way to ensure advice and recommendations are impartial and that is to have the Green Deal Assessor, who conducts the ‘before and after EPCs’, as being a truly independent person.

“DECC however seem quite content to let huge market players control every step of the process and therefore rendering impartiality almost impossible to achieve, let alone
demonstrate or police.

“Scottish & Southern Electric have made 800 doorstep sales staff redundant and closed down the entire operation after it was discovered that their sales force were allegedly using dubious sales tactics to elicit new business. “Are government ministers really so naive that they don’t think exactly the same will happen if the utility companies employ staff who both conduct the EPC and then go on to give advice, recommendations and sell the eco refit measures to the end users?

“Equally worrying is the announcement that the Kingfisher Group, owners of B&Q, has taken over the National Energy Services, which includes the DEA accreditation body NHER, and also SAVA, the body originally set up by HIP enthusiast and one-time government adviser Christopher LeGrand.

“In short, the shopkeeper who will be selling Green Deal products now own the company which will train, accredit and pass on Green Deal inquiries to Green Deal Advisers through their business panel. “How can this possibly be impartial?”

Gillespie is advising energy assessors not to fork out for Green Deal training, fearing a repeat of the fiasco when far too many assessors signed up for training on the
promise of work on a scale which has never materialised.