Briefings
Real Estate: Energy Performance Certificates - the practical guide for commercial buildings
Real Estate
Development and Urban Regeneration
Planning and Environment
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| March 2008 |
From 6 April 2008, the rules relating to Energy Performance Certificates, already in existence for residential dwellings, will be extended to commercial buildings. In this briefing, we answer the questions being asked throughout the industry.
Which buildings are affected?
All buildings that are "conditioned", i.e. mechanically heated, cooled, or ventilated. For these purposes, a building is either a whole building or any part of a building designed for separate use such as a shop unit or a suite of offices. An obvious example of an unconditioned building would be an agricultural barn.
When are EPCs needed?
An EPC must be produced on the construction, sale, or letting of the whole or part of a building.
EPCs are not needed on either a lease renewal or a lease surrender.
When will my building be subject to the rules?
Owing to the delay in announcing what qualifications an assessor must obtain, and the consequent delay in there being a critical mass of suitably qualified assessors, the introduction of EPCs is being staggered. The dates are as follows:
- 6 April 2008 for a building with a "useful" area exceeding 10,000 square metres
- 1 July 2008 for a building exceeding 2,500 square metres
- 1 October 2008 for all other buildings.
Due to the delay referred to above, the Government has just announced that if a building is already on the market on 6 April, and remains on the market, then a sale or letting can take place before 1 October without prior production of an EPC, although an EPC must still be commissioned and handed over to the buyer or tenant as soon as practicable. This transitional concession will also apply to the buildings that become subject to the rules on 1 July, with the same deadline for disposal of 1 October.
Who is responsible for obtaining the EPC?
The EPC must be obtained by the "relevant person".
In the case of the sale of the freehold interest, the seller is the relevant person.
In the case of an assignment of an existing lease of the whole or part of a building, the seller/assignor, namely the tenant, is the relevant person.
In the case of a grant of a lease or under lease of the whole or part of the building, the grantor, which could be either the freehold owner or a tenant of the whole or part, is the relevant person.
Fortunately, a tenant of part of a building who is required to obtain an EPC can require access to relevant common parts of the building from whoever controls them.
Who is entitled to receive the EPC and when?
The EPC must be given to any prospective buyer or tenant who:
- Requests any information about the building or makes a request to view it to decide whether or not to rent or buy it, or
- Makes a verbal or written offer to buy or rent the whole or part of the building.
There are exceptions to prevent non-genuine applicants triggering the obligation to produce an EPC.
The EPC must be delivered before entry into contractual relations and on the sooner of:
- When the first written information is given in response to a request; and
- When the first viewing takes place after a request.
The only exception to this rule is in the case of an emergency letting, for instance following a fire at the tenant's existing premises, where the EPC can be commissioned after the grant of the lease and handed over to the tenant as soon as reasonably practicable.
Who will enforce compliance?
On the construction of a new building, the Building Control department of the local authority will ensure compliance by refusing to issue a completion certificate until the EPC has been produced.
In the case of sales or lettings, the Trading Standards Officers will have responsibility for compliance, although how they will be aware of transactions is not easy to see.
The sanction for non-compliance is a fine, linked to the rateable value of the building, with a minimum fine of £500 and a maximum fine of £5,000.
A statutory defence against the fine is available if the relevant person applies for an EPC at least 14 days before putting the building on the market.
How long does the EPC last?
An EPC is valid for ten years or, if shorter, until a further EPC for the building has been obtained by or provided to the relevant person, or until a part of the building has been modified.
Modification for these purposes means a change in the physical structure of the part of the building to which the EPC relates, e.g. by partitioning or amalgamation of conditioned parts, but paradoxically not a change of the heating or cooling system.
Recommendation reports
A recommendation report must accompany every EPC, setting out how the energy performance of the building might be improved. There is, however, no statutory duty on any party to implement the recommendations contained in the report and there might be good reasons, such as a proposed redevelopment in the not too distant future, why neither the landlord nor the tenant would want to incur the costs of implementation.
What should a buyer or tenant do?
Although no sanctions fall directly on a buyer or tenant who is entitled to, but does not, receive an EPC, one will be needed on any subsequent sale, on any assignment of the lease taken by the tenant, or on any subsequent underletting of the whole or part of the building. The intended recipient of the EPC therefore has a vested interest in ensuring that one is obtained and handed over as part of the transaction.
Conclusion
The new rules will initially only apply to the largest buildings, but smaller buildings will quickly be brought into the regime. It is likely that there will continue to be a shortage of suitably qualified assessors, and it is known that institutional landlords are booking the services of those who are available to service their sizable portfolios. Assessors are also letting it be known that it will take them a minimum of five weeks to issue certificates once they have been instructed.
If, as a seller or landlord, you intend to sell or let commercial premises in the near future, then now is the time to find out if you will need to provide an EPC and, if necessary, to start the process of obtaining one.