Navigating EPC Changes

EPC changes header image

With over 15 years’ experience in the built environment industry, Mike is becoming an established expert in assessing and producing Energy Performance Certificates (EPCs).

Following the recent changes in EPC assessments, and Government, Mike explores the implications this has for landlords and developers and how you can put measures in place to navigate the changes.

As part of meeting the challenge of achieving the UK’s ambitious target for net-zero greenhouse gas emissions by 2050, Energy Performance Certificates have a role to play in providing consumers, building owners, occupiers and third parties with information on the performance of the building stock and support effective decisions on improving the energy efficiency of buildings. [1]

An EPC measures a properties energy efficiency by providing a rating from A (most efficient) to G (least efficient) and are a vital tool in promoting energy efficiency in the UK. An EPC assessment takes in to account a property’s construction, insulative properties, aspect, current use and the property’s heating, ventilation and air conditioning (HVAC) systems.

Whilst EPCs are required for both domestic and commercial properties, the way they are assessed and scored is significantly different.

Most people are now aware of The Minimum Energy Efficiency Standards (MEES) Regulations and the restrictions they place upon building owners and landlords of commercial property which is to be let or continue to be let.

From April 2023, landlords are prohibited from granting new tenancies and, from continuing to let existing tenancies of commercial properties which have “sub-standard” energy performance ratings i.e. a rating of ‘F’ or lower, so, a commercial property must have an EPC rating of at least an ‘E’ or else it cannot lawfully be let or continue to be let. Non-compliance could potentially result in landlords being fined.

But the MEES are not expected to stop there, even tighter standards are set to be rolled out over the next few years.

The expected milestones are:

  • By April 2025, all commercial properties (that are not exempt) must have a valid EPC.

  • By April 2027, the government intends to raise the minimum EPC rating from an ‘E’ to a ‘C’.

  • By April 2030, the government intends to raise the minimum EPC rating even higher, to a ‘B’.

The above indicates a huge increase which must be achieved, and leaves landlords and building owners with a relatively short amount of time in which to make improvements. They do however aim to engage with property owners and users to help positively identify and reduce areas of higher energy consumption to a particular demise. The above does however come with some uncertainty, devised under the previous administrations, it has been unclear if the above targets will remain, in addition to the over arching national target to achieve net-zero greenhouse gas emissions by 2050. That being said, the new Labour Government do appear to be holding the net zero goal in high regard and have already begun to relax planning laws surrounding renewable energy developments, so we would expect the above targets to remain in place.

The impact this has on landlords and developers is potentially huge not least of all in terms of capital costs but also to other metrics such as their own commercial reputation. So, whilst some degree of expenditure may be required to upgrade the energy performance of a property in the short term, this may then lead to increases in rental income alongside building a positive reputation in the commercial sector for the landlord in question, potentially attracting bigger and more prestigious tenants.

The subject of ESG is hot, and has been for some time, so highly efficient properties are more attractive to those tenants that may have their own ESG targets for example.

We’re seeing more commercial clients taking note of the energy performance of a building much earlier than usual, for example at the dilapidations stage when the previous tenancy is coming to an end. In conjunction with the exit works, more clients are starting to carry out improvements in energy efficiency in readiness for the next incoming tenant and looking to future proof their asset not just for the term of the new lease, but also for the years that follow. Energy efficiency is becoming much less of an afterthought, and rightly so.

By ‘over improving’ now and not just aiming to achieve an ‘E’ rating as legislation currently requires, landlords are protecting themselves against tenants that may come out of a tenancy agreement early and will have a property which is ready to be immediately re-let without the need to undertake further improvement works.

EPCs are not without their limits.

During 2021, the previous administration held a consultation with a view to introducing a national performance-based policy framework for rating the energy and carbon performance of commercial and industrial buildings above 1,000m² in England and Wales. Whilst only 7% of commercial and industrial buildings are larger than 1,000m², evidence has suggested that these buildings use over 53% of all the energy used by commercial and industrial buildings which is more than a significant portion.[2]

The first step of this process is to introduce mandatory ratings and public disclosure on the energy use of industrial and commercial buildings like that of the National Australian Built Environment Rating Scheme (NABERS) which is considered by many experts to be world leading. This is generally because the EPC does not measure metered energy consumption and associated carbon emissions. That all depends on how well the building is being maintained and how effectively regulated and unregulated energy is used in the building. Therefore, a high EPC score is no guarantee that a building will use less energy and emit less carbon as a result.

It’s important to note that the above process, whilst in theory will provide more detailed information relating to the energy use of a building, may lead to unexpected results when the EPC is undertaken. The same building would return very different ratings if assessed against two different uses. Other factors such as good maintenance and management of the premises will also come into play.

As we understand, the consultation process is ongoing, whether it will be rolled out is in the hands of the current Labour administration. The same can be said for MEES and the overarching net zero target in general, whilst we currently await further clarification from the current Government moving forward, we believe such targets will remain in place.

Mike’s advice

Our advice to building owners, landlords and developers would be to undertake a draft EPC assessment of the current property well ahead of a change in tenure. AG can undertake an initial assessment and advise where that particular property is falling short and what effect individual improvements would have on the EPC rating if they were undertaken before the next lease begins. Not only does this help keep buildings compliant with legislation, it also elevates the reputation of the landlord within the industry.

In addition, as part of ongoing planned preventative maintenance, we would urge landlords to consider any large-scale maintenance and how improvements would affect the rating.

  • A recent example was assisting a building owner in re-waterproofing the roof of a commercial unit. Initially this was intended to be a new coating to prolong the life of the existing roof sheets, however we undertook a simulation which showed that installing a new insulated roof would not only reduce the rating of the EPC enough to become compliant on its own (without the need for further works) it also inherently futureproofed the roof for the application of a small PV array, which the landlord was potentially looking to implement in the coming years.

We also work in conjunction with a range of clients with a view to proactively improving the energy ratings of their building stock in preparation of the 2027/2030 step up in minimum ratings. Following a draft EPC inspection and rating, we work with our clients to understand their requirements and how the building is to be used, we then provide a ‘shopping list’ of improvements that they may look to undertake with minimal cost/disruption to the building and its occupants (if any), which shows incrementally what package of works will lead to what improvement in the rating.

This then allows the property owners to prioritise and plan long term for the required works to keep them the right side of the law!

In need of EPC advice? Let’s talk.

[1] ENERGY PERFORMANCE CERTIFICATES FOR BUILDINGS Action Plan

[2] Large commercial/industrial building energy performance rating framework (energyadvicehub.org)

Previous
Previous

Marking 17 years… a reflection from Jonathan Shaw, CEO

Next
Next

A consultants guide to Housing 2024