It’s now only three short years until the new energy efficiency regulations come into force when commercial properties will have to comply with new stringent legislation – at a potential cost of £29bn to the industry to refurbish 200,000 commercial properties across England and Wales, says Innes England associate director Simon Dare.
For those who are unfamiliar with the new legislation, from April 2018, it will be unlawful to let commercial properties with an EPC rating of F or G – that’s the lowest two grades of energy efficiency.
Now, after a considerable wait, The Department of Energy and Climate Change has published a consultation paper which contains detailed proposals on this legislation.
This is an important consultation for the property industry and businesses are encouraged to have their say on a number of issues, including; the scope of the regulations, cost safeguarding provisions, exemptions and timings. The consultation closed last year.
DECC also published its response to a consultation on changes to the Energy Companies Obligation (ECO) scheme, which took place at the end of last year. It has confirmed that it will extend the scheme, through which energy suppliers are required to subsidise energy efficiency measures for low-income households, for a further two years, until 2017. The scheme is expected to be worth around £520 million per year and support an average of 260,000 households annually.
Draft regulations are not yet available – having gathered views on the proposals via the consolation, the Government plans to issue its response and lay the regulations by the start of 2015, to provide clarity to the market as to what the regulations will require.
As there is still so much uncertainty over how the proposals will work in practice, these regulations should help prompt firms to plan and implement its changes ahead of the policies coming into force.
It is estimated around a fifth of non-domestic properties could be in the F and G rating brackets. Not only that but the new minimum standards could apply to all lettings and re-lettings, including sub-lettings and assignments.
Valuations and rent reviews of properties could also be affected if their marketability is diminished. Implications for dilapidation liabilities at lease ends could also exist.
Recent Investment Property Forum research suggests that, for most building types, the EPC banding can be improved by increasing refurbishment costs by only 2 or 3%.
Property owners and investors need to address two things – firstly do you know the EPC rating on your building? If you don’t, you should find out and, secondly, utilise the time efficiently between now and 2018 to take advantage of void periods and undertake planned maintenance.
The key here is preparation; property owners will put themselves under unnecessary pressure if they don’t plan well in advance of the new regulations.
