What you need to know

Commercial properties have, until now, escaped the controversy that surrounded the introduction of Home Information Packs (HIPs). However, from 6 April 2008, all commercial buildings of more than 10,000 sq m will require an Energy Performance Certificate (EPC) whenever they are constructed, let or sold. Although the regulations currently only apply to larger premises, sellers or landlords of smaller properties will soon need to start making arrangements for assessment as the Government’s timetable states that EPCs will be required for buildings over 2,500 square metres from 1 July 2008, with certificates for all other commercial properties to be obtained by 1 October 2008

What will the new regulations mean for owners, buyers and tenants of commercial buildings? Chris Taylor, Assistant Solicitor and commercial property law specialist at independent Midlands-based solicitors, Brownings, explains:

Q: What is an EPC and why are they been introduced?
A: The new regulation is part of the Energy Performance of Buildings Directive, which requires all EU countries to establish minimum energy performance standards for buildings. The certificates, which will last for ten years, are designed inform potential buyers or tenants about the energy performance of a building, cut carbon emissions and help the Government achieve its energy objectives.

EPCs are expected to provide energy ratings based on a number of factors including heating and hot water systems, air conditioning, artificial ventilation, built in lighting installations and characteristics of the building itself including position and orientation, natural ventilation and indoor climactic conditions.

Q: Are there any exemptions?
A: Yes, places of worship, temporary buildings to be used for two years or less, buildings with a low energy demand – for example, barns – and some buildings to be demolished are exempt. An EPC is also not required for any off-plan sales or letting before the construction has been completed.

Q: Who is responsible for obtaining the certificate?
A: If the building is newly constructed, the onus will lie with the contractor. For buildings that are to be sold, the property owner will be responsible, and in the case of buildings to be let, it will be down to the landlord to ensure there is a valid EPC.

Q: How much will the certificates cost?
A: The cost will largely be market driven and dependent on the size and complexity of the building. However, as the assessment process is more complex than that of HIPs, there is speculation that there will be a lack of qualified assessors, which could lead to inflated prices and an increase in the time it takes to obtain a certificate. The Government’s predictions of a cost in the region of £1,790 may prove to be a significant underestimate, and a more realistic figure for larger commercial buildings may well be up to £10,000.

Q: Who will have to pay?
A: The guidelines state that an EPC and recommendation report must be made available free of charge to prospective buyers or tenants so contractors, owners or landlords will have to foot the bill. The Government suggests that they will be compensated for costs incurred with the reward of higher rents for more efficient buildings. However, it is also argued that improving performance will merely preserve rates, with tenants or buyers pushing strongly for reductions where the energy efficiency of a building is poor.

Q: What will happen if there is a change of tenants?
A:If there is a change of tenants but an existing and valid EPC exists, a new certificate will not be required. However, although guidelines currently state that lease renewals or extensions do not require an EPC, if one tenant in a multi-let building decides to assign or sublet its premises the whole of the building will need to be assessed. Other tenants who have no interest in the proposed assignment or subletting are unlikely to welcome an invoice that calls for a contribution towards the cost of an EPC so extremely clear drafting will be required to establish EPC costs as recoverable expenditure.

In cases where part of a building is being sold or let, the resulting assessment will depend on whether or not there is a common heating system for the building. For buildings with separate units and heating systems, an EPC must be prepared for each individual part. However, if a common heating system is shared then the seller or landlord has a choice of obtaining an EPC for the whole building or one for each separate part.

So, while attempts to cut the country’s energy consumption are welcomed by many, there are a number of questions arising from the new regulations and how smoothly the introduction of EPCs will go remains to be seen.