In light of the Government’s new consultation on Energy Performance Certificate (EPC), which is seeking evidence on how the scheme is currently performing and suggestions for improvements, here’s a recap on our previously issued thought piece on Minimum Energy Efficiency Standards (MEES).
“Before the 1st of April 2018, the accuracy of an Energy Performance Certificate (EPC) was considered a secondary matter. Now it is just as important as its legal requirement”
After years of consultation and debate, the Minimum Energy Efficiency Standards (MEES) legislation came into effect on the 1st April 2018. Now landlords of non-domestic private rented properties may not grant a tenancy to new or existing tenants if their property has an Energy Performance Certificate (EPC) rating of band F or G. This is only the first stage in the Government’s attempt to improve the energy performance of existing building stock in England and Wales and, as from 1st April 2023, landlords must not continue letting a non-domestic property if the property doesn’t have a minimum E rating. These regulations also apply to public sector landlords.
Many landlords and owners have yet to comply. On the day before the MEES start date, around 16% of commercial properties (>126,000 properties) in England and Wales are yet to reach the minimum E rating. With an additional 17% properties risking non-compliance should the standards improve in the future? Landlords must not underestimate this legislation seeing that nonconformity can lead to a fine of up to £150,000 for non-domestic properties.
Figure 1 – Number of Non-Domestic Energy Performance Certificates (EPC) lodged on the Register in England & Wales by Energy Performance Asset Rating (data up to 31/03/2018)
Landlords must act, but how?
Firstly, it is critical to appoint an independent EPC expert with extensive experience. Considering the fact that EPCs have been around for nearly 10 years now, landlords should first identify their F & G rated properties and re-assess them. If a property has undergone refurbishment to the building fabric or systems since the issue of their first EPC, chances are that the EPC rating will be improved.
If the property still falls short on compliance, the EPC expert will be able to identify which aspects of the building are performing poorly, and recommend measures which yield the best return on investment, such as improvement of building fabric, systems, or the inclusion of renewable technologies.This aspect is critical. To date, EPCs have been seen as a legal requirement and primarily used as an energy label required at the point of sale or lease. In some cases, the accuracy of the EPC was considered a secondary matter. Now, with MEES into full force, the accuracy of the EPC is becoming just as important as its legal requirement.
First of all, the EPC will be used to inform the extent of energy saving measures required to upgrade the rating to an ‘E’ or above. For this reason, dynamic simulation modelling (DSM), as opposed to simplified building model packages, will be essential in assessing building performance as it provides a more realistic representation of a building’s performance characteristics. DSM is a powerful instrument that can identify payback periods for any recommended energy efficiency measures.
Secondly, MEES legislation may impact the rental and capital of building. For poorly rated buildings, reductions in rent prices may be required to reimburse tenants for the cost of any improvement works not to mention any compensation requirements for the disruption suffered during these works. It is, therefore, the role of EPC experts to ensure that the data used in determining EPC ratings is sound, minimising any potential disputes between landlords, tenants and prospective buyers.
Bespoke and independent advice is also crucial to ensure the most cost-effective solutions are being proposed. Although EPCs provide an overall energy rating for the building, they are not transparent enough to provide building owners enough detail on why the building is performing poorly. EPC experts have no vested interest and can analyse the demands of all of the building’s regulated energy contributors (heating, cooling, lighting, domestic hot water, fans and pumps) and determine the building’s ‘Achilles heel’. For example, the heating and energy demand in typical commercial properties are relatively small compared to the lighting demands, therefore replacing the lighting in all or part of an office building may prove to be more cost-effective than the relatively high capital cost for the replacement of, for instance, building fabric, boiler or chiller plant. Single measures alone may also contribute to a significant improvement on the EPC rating, up to say a ‘C’. This will improve the property’s marketability and also future-proof the asset against any further tightening of the standard as noted.
Under certain circumstances, exemptions to MEES may apply. The most notable exemption is where energy efficiency measures are not costs. Should the landlord opt to rely on such exemptions, EPC experts are best placed to determine whether the installation energy efficient improvements pass the prescriptive ‘seven-year payback test’.
Landlords and property-owners, need to take these new requirements seriously so as not to be caught off-guard which puts them at risk of hefty penalties. The 1st April 2018 deadline was no April’s fool. It’s time to act!
The consultation is now open for responses and is due to close on 19th October 2018.