Blackadders Blog - Are Legal Standards for Minimum Energy Efficiency for Properties the same North & South of Hadrian's Wall? | Glasgow Chamber of Commerce
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Blackadders Blog - Are Legal Standards for Minimum Energy Efficiency for Properties the same North & South of Hadrian's Wall?

In short the answer is NO.

In England and Wales, regulations which are due to come into force on 1 April 2018 will potentially affect the ability to let out properties and the market value (and marketability) of those properties. The regulations will prevent private Landlords from letting either residential or commercial properties with an Energy Performance Asset Rating (EPAR) lower than E (unless they can point to a specific exemption).

The equivalent regulations for buildings in Scotland do not impose a minimum EPC rating requirement but other measures apply that are already in force for commercial properties.

Landlords, investors, developers and lenders should take note of the differences and not assume energy efficiency policies are the same throughout the UK.

England and Wales

It will soon be against the law to let out a property with an EPAR in the two lowest bands, F and G. 

The rules will apply to new lettings and lease renewals (commercial or residential) in England and Wales from 1 April 2018. 

These requirements will then apply to all private rented properties – even where there has been no change in tenancy arrangements – from 1 April 2020 for residential properties and from 1 April 2023 for commercial properties unless they fall within one of the exceptions* under the legislation. 

*Excepted leases: (1) 6 months or less (unless the tenant has occupied the property for more than a year) and (2) over 99 years and (3) of any properties that are excepted from the need to have an EPC. 

Landlords do not have to carry out improvements if they are not permissible, appropriate and cost effective. This means that landlords do not have to carry out the improvements if (1) they don't meet the Green Deal "golden rule" or (2) the tenant or a third party consent is required for the works - and such consent has been refused (which is a relief, as regards tenant consent, for existing leases where the drafting is unlikely to cover this issue) or (3) the works would actually reduce the value of the property by 5% or more. 

Penalties for letting in breach of the rules are (1) if the breach was for less than 3 months at the time of service of the penalty notice, a fine equal to the greater of £5000 and 10% of the rateable value of the property - with a maximum penalty of £50,000 or (2) if the breach was for more than 3 months at the time of service of the penalty notice, a fine equal to the greater of £10,000 and 20% of the rateable value of the property - with the maximum penalty being £150,000. 

For an EPC to be valid it must be stored on the appropriate EPC Register for the property’s location and type. These registers can be searched using the property’s postcode so the easiest way to determine whether or not a valid EPC exists for your property is to check online:

Non Domestic EPC Register for England and Wales

Scotland

The new minimum energy efficiency standards in England do not apply in Scotland although EPCs do exist in Scotland with some relatively minor differences in how they operate. 

Section 63 Legislation, brought in under the Climate Change (Scotland) Act 2009, in force from 1 September 2016. It applies to commercial properties with a floor area of more than 1,000m2 and will be triggered by either a sale or a lease to a new tenant. 

Where the regulations apply*, the property owner must undertake further assessments to produce an ‘Action Plan’, which identifies targets for improvement of the carbon and energy performance through physical improvements to the property. Action plans have to be produced by a registered Section 63 Adviser. If the regulations do apply then the owner will need to obtain a section 63 Action Plan before letting or selling the property. 

*Exemptions to Section 63 legislation in Scotland - in simplified terms, they are for:

  • properties with a floor area of 1,000m2 or less
  • properties that meet or exceed building standards from 2002 onwards
  • sale or lease prior to finishing initial construction
  • certain short-term leases
  • renewing an existing lease with the same tenant 

Instead of preventing a property with a poor rating from being let, the focus is on either carrying out the improvement works recommended in the Action Plan or monitoring and recording energy efficiency annually by obtaining a Display Energy Certificate.

Once the Action Plan has been produced the property owner can choose to either carry out the improvements within the mandatory timeframe or to defer these by reporting the actual energy used, which must be recorded via a Display Energy Certificate (DEC).   All Action Plans and DECs must be lodged on the Scottish EPC Register and copies made available to prospective buyers or tenants of the property free of charge. 

The building improvement measures will only be required where the energy savings over seven years would exceed the initial cost of the works or where a boiler is more than 15 years old. The works must be completed within 3.5 years, and on completion, a document of confirmation of improvement must be registered and a new EPC obtained. 

Local authorities have been charged with policing the regulations and will be entitled to impose a penalty charge of £1,000 if an owner fails to produce an action plan or fails to carry out the improvement measures within the 3.5 year time limit. 

Currently there is no minimum EPC rating or Action Plan required for private domestic properties in Scotland. However, the Scottish Government is currently consulting on the introduction of a minimum EPC rating requirement for private rented housing in Scotland. 

The consultation proposes that the minimum standard for these properties would initially be Band E and would then be raised to Band D. There is a suggestion that the minimum rating would be raised further at a later stage. The initial trigger would be new tenancies granted from 1 April 2019. 

For an EPC to be valid it must be stored on the appropriate EPC Register for the property’s location and type. These registers can be searched using the property’s postcode so the easiest way to determine whether or not a valid EPC exists for your property is to check online: 

EPC Register for Scotland 

*Non Domestic EPC Register for England and Wales *EPC Register for Scotland

Registers can be searched using the property’s postcode so the easiest way to determine whether or not a valid EPC exists for your property is to check online: Non Domestic EPC Register for England and Wales or EPC Register for Scotland.

If you have any queries regarding energy efficiency requirements for properties, please get in touch with your usual contact in the Property team at Blackadders.

By John McKie, Partner Commercial Property Blackadders LLP @LawyerJohnMcKie  www.blackadders.co.uk

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