Energy Performance Certificate (EPC) Factsheet for Landlords The EU Energy Performance of Buildings Directive has been translated into national law through Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007. The main aim of the legislation is to improve the energy performance of buildings by requiring energy performance to be made explicit upon the sale or rental of any domestic or commercial property. This will be achieved by the introduction of an Energy Performance Certificate (EPC). Under this system the building is issued with one of these certificates, which is made available when it is constructed, rented out or sold. The certificate makes suggestions of cost effective actions to improve the energy performance of a property but more importantly for landlords it will allow prospective tenants to compare buildings on energy performance. The certificate will give each building a SAP (Standard Assessment Procedure) rating, which will equate to an energy rating from A-G, similar to those seen on white goods such as refrigerators and washing machines. The current market price for producing the certificate is estimated to be between £100- £150 and will be the property owners’ responsibility. Each certificate may last for ten years, unless major renovation work is carried out on the property (this is yet to be confirmed). If a property owner installs energy efficiency measures they can voluntarily obtain a new certificate to demonstrate the improvement in energy rating. Home Information Packs (HIPS), which include the EPC, became mandatory on 1st August 2007 for anyone marketing a home for sale in England and Wales. Please note the need for an EPC will be introduced on a phased basis by building sector and tenure. EPCs will be required for domestic rental properties from 1 October 2008 See the table below for the implementation stages (these are subject to change). 1 June 2007, deferred to: 1 Aug 2007 and 10 Sept 2007 EPCs required for marketed sales of existing homes where a HIP is required (other than dwellings built to 2006 standards) 1 August 2007: four-bedroom properties 10 September 2007: three bedroom properties
1 October 2007
EPCs required on construction of all dwellings. EPCs required on the sale of dwellings built to 2006 standards. Construction, sale or rent of non-dwellings with a floor area over 10,000 M2. EPCs required for the construction of all dwellings. EPCs required for construction, sale or rent of non-dwellings with a floor area of 2,500 M2. EPCs required for domestic rental properties consisting of self-contained units, and other non-marketed residential sales. EPCs required for the construction, rental and sale of all remaining non-dwellings. Display Energy Cerficates (DECs) required for all public buildings with a useful space over 1000m
6 April 2008
1 July 2008 1 October 2008
What is an EPC? When any building is built, sold or rented, an EPC showing the ‘Asset Rating’ of a building expressed on a scale of A (very energy efficient) to G (the lowest rating) must be made available: • • in the case of a newly constructed building, by the building contractor to the owner of the newly constructed building; and in the case of a sale or rental, by the owner/landlord to the prospective buyer/tenant.
The Asset Rating is a numerical indicator of the amount of energy estimated to meet the different needs associated with a standardised use of the building. EPCs can only be produced by individuals with an approved qualification or competence, an accredited Energy Assessor. Recommendation Report An EPC must be accompanied by a Recommendation Report setting out recommendations (these are not requirements) for measures, typically these will be cost effective alterations which can be put in place in order to improve the energy performance of the building. All EPCs and Recommendation Reports will be recorded on a central register. Importantly, the EPC will also contain information on the ‘potential’ energy rating of a building, being the improved rating that could be achieved if the recommendations in the Recommendation Report are acted upon.
Exceptions There are some exceptions to the need to obtain an EPC. These include buildings used primarily or solely as places of worship; temporary buildings with a planned time use of less than two years; certain types of building with low energy demand including industrial sites, workshops and non-residential agricultural buildings and stand alone buildings with a total useful floor area of less than 50 m2. In certain limited circumstances buildings to be demolished are exempt from requiring an EPC. An EPC is not required for any (off-plan) sales or lettings before the construction of the building has been completed. EPC requirements in the social and private rented sectors will only apply to self-contained dwellings which are let. This means that landlords will not need to provide EPCs for new lets (after 1 October) of a room or rooms in: - A bedsit/ bedsit HMO - A shared house (let on multiple tenancies) - A hall of residence - A boarding house - A residential home - A hostel - An hotel Validity An EPC is valid for 10 years from the date of issue. When construction of a new building is completed, the builder or person responsible for the construction must obtain an EPC. This is a duty under the Building Regulations and a building control inspector will not issue a completion certificate unless the EPC and Recommendation Report have been provided to the new owner of the building. What action do landlords need to take? A full energy audit of your buildings will be required. It is recommended that owners and occupiers of buildings start to collect background data now, for exmple:• • Identify what form of energy is being used and where. Develop an ongoing energy reporting system e.g. collecting bills and taking meter readings.
This information will enable an energy assessor to: • Take account of the forms of energy being used and convert this into equivalent carbon dioxide emissions;
Calculate performance indicators for energy efficiency and carbon dioxide emissions.
At the present time there is a national shortage of energy assessors so it is recommended that you book assessments for stock/portfolios as early as possible in order to prevent transactions/valuations being held up. Landlord's Energy Statement The British Property Federation and the Usable Buildings Trust (with funding from the Carbon Trust) have developed a Landlord's Energy Statement, a tool which helps landlords to draw together energy data, understand and report on the energy used by the common services (such as heating, ventilation and lifts) in their buildings and the resulting carbon dioxide emissions. A Tenant's Energy Statement is also being produced. Visit the British Property Federation's website at: www.bpf.org.uk/. WSP Environmental is developing a new Sustainability Index for Property (SIP). Over time, it is likely that sustainability and energy efficiency benchmarks will be adopted across the property industry for different types of building. Such benchmarks are likely to be incorporated into lease provisions in order to assess whether landlords and tenants are complying with their obligations to meet and improve the Asset Rating of the property. What will be the effect of EPCs/DECs on Lease Grants, Rent Reviews and other Lease terms? The market is still reacting to the imminent changes so the effect is uncertain. We can probably expect that EPCs will impact upon and will need to be considered on new leases, lease renewals, rent reviews, sales and leasebacks, intra-group transfers (including large property portfolios), surrenders and dilapidations claims and right to buy transactions. There will also be implications for repair and service charge obligations. It is recommended that legal advice is sought. What will be the effect of EPCs on the property market? The actual effect of the new certificates on rental and capital values can only be assessed once the system is fully established. In the the long term the EPCs are likely to change the way properties are valued, with energy efficient buildings potentially attracting higher premiums and ‘inefficient’ buildings seeing a reduction in capital value. The potential impact on value is driving the current development of ‘Green Leases’, where Landlords and Tenants may insist that obligations to maintain efficiencies, and the costs of making
alterations/adopting energy efficient equipment, to improve the energy ratings of buildings, are taken into account in the lease provisions. This note does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered. For further information visit: www.homeinformationpacks.gov.uk or telephone The UK Department for Communities and Local Government on 020 7944 4400.