Oct

Property advisory firm warns about urgent energy efficacy improvements

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National property consultancy Vail Williams, has issued a warning “call to arms” over the energy efficient energy standards of buildings in the capital.

Too much complacency

Many small to medium enterprises (SMEs) are being accused of “dragging their heels” in the Government’s quest for all UK businesses to cut their carbon emissions in half by 2030 and achieve net zero emissions by 2050.

London office landlords in particular are being warned by Vail Williams that they urgently need to get their buildings’ energy efficiency standards up to scratch or they will quickly become unlettable.

Simon Moffatt, London-based partner at the consultancy has issued his “call to arms” over efficient energy usage in the capital.

The highly experienced Moffatt advises corporate and occupier clients on landlord and tenant lease advisory, agency acquisition, business rates and valuation plus asset management strategies as part of Vail Williams’ London Occupier Advisory team.

He says:

“The Government’s White Paper on minimum energy efficiency standards (MEES) in privately-rented commercial buildings was published in March and confirms the previously stated policy that an EPC rating of B or above will be required from 2030.

“We await the results of consultation on this but fully expect this to become law so only questions of implementation, enforcement and delivery remain to be answered, thus investors, landlords and portfolio holders have a little over eight years to react.

“More pressing in the earlier deadline for compliance on EPC ratings of C or above which is April 2025, less than four years away. Decisions will have to be taken as to whether or not premises stand even a chance of making this rating.

“Many commercial offices in London still have large gas fire central heating boilers, fluorescent tube lighting and old double glazing and will require significant works just to meet 2025 C compliance, and realistically may never reach 2030 B rating without a complete strip out and refurbishment.

“Without substantial investment in refurbishment and redevelopment, the new regulations will depress or negate the letting potential, valuation, rent and investment hold decision strategies for older stock.

“So, stakeholders need to make decision now on how to get their letting stock in order. Like it or not, landlords and owner-occupiers need to take advice on how to reduce their buildings’ carbon footprint by improving energy efficiency to ensure the ROI is protected and enhanced.”

Sleep walking to disaster

Clearly landlords of office premises up and down the country need to be planning now their schedules for bringing their premises up to the correct EPC standards by the target dates being set by Government. This will involve tying-in with occupier tenants and in some cases when leases end and when premises become vacant.

Vail Williams’ London based Property Asset Manager Steve Hull is currently discussing with some larger office clients how they will improve their buildings’ energy efficiency to meet the government’s proposed stringent EPC minimum rating C standard for 2025. Steve Hull believes it will get significantly more difficult to organise trades to get the work done once the implications of the changes are fully realised

Hull with more than 35 years of commercial property experience says that the vast majority of SMEs may be “sleepwalking to disaster”.

The Department for Business, Energy and Industrial Strategy, based on its analysis of the latest Building Energy Efficient Survey (BEES) has estimated that commercial premises account for 31 per cent of carbon emissions nationally.

Simon Hull says:

“If we are to reach net zero emissions by 2050, large scale action in all sectors of the economy will be required. Unfortunately, SME businesses, the bulk of the UK business base, just aren’t tackling how they’ll reduce their carbon footprints and that is worrying.

“According to new research from the British Chamber of Commerce, only 11 per cent of SME’s currently measure their carbon footprint.

“If so, how can the UK businesses commit to cutting carbon emissions in half by 2030 or even hope to reach ‘net zero’ by 2050 when they’re not even measuring it.

“I suspect they are not putting enough amps behind this due to several reasons, such as it looks too complicated, costly, and frankly unnecessary at this precise moment to develop.

“Business may feel they have more important issues staring them in the face, such as supply and transportation delays, price inflation, gas and electricity hikes and continuing Covid-19 and Brexit implications.

“The trouble is that doing nothing is not an option. You have to start somewhere and that could be a long hard look at your energy and efficiency usage via your EPC rating.”

The current regulations

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 establish a minimum level of energy efficiency for privately rented property in England and Wales.

Minimum Energy Efficiency Standards (MEES) requirements in force from 1 April 2018

From 1 April 2018, landlords of privately rented (including non-domestic) property in England or Wales must ensure that their properties reach at least an Energy Performance Certificate (EPC) rating of E before granting a new tenancy to new or existing tenants.

These requirements will apply to all private rented properties in England and Wales, even where there has been no change in tenancy arrangements from 1 April 2023 for non-domestic properties.

The National PRS Exemptions Register

If a landlord believes that an EPC F or G rated property, they let qualifies for an exemption from the minimum energy efficiency standard, that exemption must be registered on the PRS Exemptions Register – a self-certification database.

Future requirements

The Government has confirmed in its Energy White Paper that it intends to make it unlawful to continue to let commercial property with an EPC rating of below B by 2030. It has issued its proposed framework to reduce carbon emissions which it estimates will bring 85% of commercial buildings into scope.

By April 2025 landlords of all commercial rented buildings in scope of MEES must present a valid EPC.

By 1 April 2027 all commercial rented buildings must have improved the building to an EPC rating of equal to or greater than C, or register a valid exemption.

By 1 April 2028 landlords of all commercial rented buildings in scope of MEES must present a valid EPC and have improved the building to an EPC rating of equal to or greater than B, or register a valid exemption.

This is an incremental pathway that landlords but landlords must follow and at each enforcement stage in 2027 and 2030 landlords will need to demonstrate that the building has reached the highest EPC band that a cost-effective package of measures can deliver.

In addition, the Government intend to require landlords to present a valid EPC two years before the relevant enforcement date for each EPC target. This will involve submitting the current EPC to an online PRS compliance and exemptions database. It will trigger and set a clear time period within which landlords will be expected to undertake improvements if they have not already done so.

Possible delays to the Government’s schedule

The Minimum Energy Performance of Buildings Bill, which aimed to advance the government’s energy efficiency commitments, is in doubt following the tragic death of David Amess MP.

He was the presentation bill’s main sponsor in the Commons, launching it at the same time as Lord Foster introduced a parallel bill in the House of Lords in July.

It called for all new tenancies to have an energy efficiency performance of at least EPC band C from 2025 and all existing tenancies to reach this by 2028 “where practical, cost-effective and affordable” but currently has no second reading date. The government’s energy white paper had previously set a target of 2030.

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