English government ramps up energy performance requirements of private rental sector

Non-residential landlords in England and Wales will soon have to make their properties meet minimum standards. They can apply for an exemption – but are the arbitrators of these appeals properly qualified?

New guidelines issued by the English government state that from April 2018 private non-domestic landlords must ensure properties they rent in England and Wales reach at least an Energy Performance Certificate (EPC) rating of “E” before granting a tenancy to new or existing tenants. This will extend to properties where there has been no change in the tenancy arrangements from April 2023.

Landlords who believe they should be exempted from this legislation will have to register their property, with proper professional documentation, including an Energy Certificate (indicating an “F” or “G” rating).

Stuart Fairlie, head of technical at energy assessment company Elmhurst, believes fund managers of portfolios of property are taking this very seriously.

“We have seen lots of anecdotal evidence to suggest that many landlords, especially the fund managers of portfolios, are taking this regulation extremely seriously and looking at the viability of their portfolios moving forward,” he said.

“This is a good opportunity for energy assessors to advise these clients and create good business opportunities.”

He also said it was “extremely likely” that the same guidance would come out for domestic minimum energy standards and therefore be “a similar good news story for domestic energy assessors”.

The guidance has also been welcomed by the UK Green Business Council. John Alker, its campaign and policy director, said: “The regulations have already had a galvanising effect on the commercial property industry.

“This guidance provides vital clarity to commercial landlords about compliance and enforcement ahead of the regulations coming into force next April.”

He also called for the speedy publication of similar guidance for the domestic sector to reduce energy bills for tenants.

The only exceptions to the law are properties with short, flexible leases often used by small and medium-size enterprise (SME) occupiers, and very long tenancies where the tenant’s long-term possession of the property makes them more akin to a buyer than a tenant.

How much energy could be saved?

According to the latest figures only four per cent of the 16,620,494 buildings that have had Energy Performance Certificates issued (as of December 2016) are non-domestic properties – 664,820.

Given that on 31 March 2015 there were 1.94 million rateable nondomestic properties in England and Wales, that leaves 1,275,180 yet to be assessed. This means only one third of non-domestic buildings have had assessments.

The number of EPCs being issued for the domestic market peaked a few years ago, but in the non-domestic sector it has remained constant.

 

But the potential for energy saving is huge. The last Building Energy Efficiency Survey (BEES) report on the non-domestic building stock in England and Wales (for 2014–15) found that the sector consumed 161,060 GWh/year of total energy. This was broken down to space heating (66,940 GWh/year), internal lighting (21,260 GWh/year), catering (13,270 GWh/year) and cooled storage (10,790 GWh/year).

Of this it estimated that 39 per cent of energy could be saved – that’s a staggering 63,160 GWh/year (or 14,750 ktCO2e/year). Over a third of these savings could be paid for in three years or less and save a total of £1.3 billion (AU$2.1b) a year, the report says.

But do Energy Performance Certificates help?

Energy Performance Certificates have been around since 2008. Landlords, when they sell, build or lease a property, have had to have an energy efficiency survey completed and offer the results to any prospective buyer or tenant.

A rating of “A” is the most efficient (or ‘“A+” for a non-domestic property). The higher the rating, the more energy-efficient the building is and the lower the fuel bills are likely to be.

Caption: assessments. Many more are poorly performing (E,F,G) than well performing (A+,A,B). Source: DCLG.

 

EPCs are always accompanied by a report setting out recommendations for any energy efficiency measures.

But does this make a difference? A 2013 EU-wide analysis of property transactions and listings from residential property markets, for both sales and lettings, found that use of the EPC “overwhelmingly points to energy efficiency being rewarded by the market”. In other words, more efficient properties fetch higher prices.

But a more recent study, from 2016, found that “the impact of EPCs in respect of triggering improvements in the energy efficiency of multiple occupancy buildings is seen as very limited”.

“This is because the overall understanding of the content as well as the quality of recommendations are viewed as major weaknesses.”

In other words, landlords don’t always understand what needs to be done and are also sceptical of the “tick box” process and accuracy of the calculations involved in producing a valid EPC.

Inaccurate assessments

Here is a case in point. A classic 16-storey 1960s office block in Cheltenham, England, was originally given an EPC rating of G. This would have let it fall foul of the new legislation. The assessor recommended substantial work to get it up to a rating of E.

The owners thought they would get the rating checked by somebody else and called in another consultant. They took a more “strategic” view and found that it wasn’t so bad after all.

After they had spent some time going through “every page and drawing of the O&M to glean additional information” and looking in detail at many other aspects of the way the building was actually designed and used in practice, rather than basing an evaluation on default assumptions build into the EPC modelling, the building ended up, astonishingly, with a D rating.

Speaking for the second company, Sustainable Construction Services (SCS), director Matthew Edis said this was not a criticism of the previous EPC assessor and the work it carried out; it was more a comment on the difficulty that companies tendering for this kind of work have when pricing for large buildings.

If the “chosen assessor is appointed on the basis of lowest price”, they are not going to take such a strategic approach, he said.

But how many assessors will be prepared to do this kind of work for the fee?

One can imagine, once the legislation kicks in in April next year, there will be more than a few landlords appealing against their low energy performance rating.

The adjudicators – a local council’s Weights and Measures Enforcement Authority – is typically engaged in trading standards work, not highly specialist energy performance assessment.

All of this raises the question: are they really going to be up to this kind of reassessment job, or have the necessary budget to commission a suitably qualified assessor? Especially when this guidance offered by the government is purely procedural and not technical?

David Thorpe is the author of a number of books on energy, buildings and sustainability. See his website here.

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