Industry experts within corporate real estate gathered in Central London last week to discuss the Minimum Energy Efficiency Standards (MEES) for privately-let commercial and domestic properties passed through parliament earlier this year. Hosted by the energy consultants Carbon2018 Limited, the governing body DECC joined the forum to answer questions and address any concerns.
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 require that from 01 April 2018, private commercial and domestic property landlords must upgrade their properties to an Energy Performance Certificate (EPC) rating of at least grade ‘E’ before they can grant a lease to new or existing tenants, unless certain prescribed exemptions apply. The requirement will extend to all private rented properties – including occupied properties – from April 2020 in the domestic sector and, from April 2023 in the non-domestic sector. The regulations help work towards the UK’s legally binding target to reduce greenhouse gas emissions by at least 80% below 1990 levels by 2050. However during the forum concerns were raised around whether an EPC is the right model to use to drive energy reduction in buildings.
An EPC measures the fabric of a building assessing its capability to perform efficiently. The general consensus was an EPC is not enough as it does not look at actual energy usage. A property might reach an EPC ‘C’ rating, but it wouldn’t reflect the behaviour of the property occupants. This is contrast to Display Energy Certificates (DECs) that are required for large public buildings and are designed to promote the improvement of the energy performance of buildings as they are based upon actual energy usage. The consensus was there needs to be some recognition for driving down energy usage and discussions developed around whether a model similar to DECs was a better measuring tool. The lack of focus on actual performance by EPCs means that the tenant’s behavioural changes are not reflective and both landlords and tenants should be held accountable for the energy use in the building. As energy costs only typically represent around 5% of the property service charge, it is often not a tenant’s primary concern.
Interestingly there is a consultation currently being considered by Government to streamline the DEC regime and one option being considered is to scrap them altogether as the requirement for DECs goes ‘above and beyond’ EU requirements. It was agreed that this option was not supported by the Forum.
There was even talk around the Private Rented Sector Energy Efficiency Regulations potentially creating a North South divide. As rents in London are much higher than other parts of the country, landlords will have more scope to demand higher rents to cover the cost of capital investment to improve the rating of their EPCs. It was also suggested the 10-year period the EPC is valid for should be reduced as much can change during that time; technologies improve, building works are undertaken and the EPC rating will cease to be reflective.
Overall, there was a lot of positivity around what the government is trying to achieve. However it was felt that the regulation was disjointed with too many separate requirements monitoring and managing the delivery from different perspectives. It was the general consensus that one cohesive set of regulations with one Government department taking responsibility for the delivery of this would be a far more productive and effective approach streamlining the administrative and reporting burden at the same time. Concerns were raised around investors who would require projections from the government on what the changes to this and other energy legislation would be and by when in order to mitigate risks. The operations and effect of the Private Rented Sector Energy Efficiency Regulations will be reviewed at no less than five yearly intervals and the first review is intended to be carried out in 2020.
As an outcome of the event, Carbon2018 will be feeding back to both the UK and EU Parliaments. The EU is currently asking for comments from member states on whether the current Directives go far enough to facilitate meeting emissions targets. Carbon2018 will also write to Amber Rudd, Secretary of State for Energy and Climate Change to share the views of the Forum on future legislative developments.
Melanie Kendall-Reid, Director of Compliance at Carbon2018 Limited commented:
“We will be feeding back to the EU that the directives to member states do not go far enough. Current legislations require energy use to be monitored, measured, paid for and potential savings to be identified, but there is no requirement for action. Without regulations driving behavioural change, the less environmentally aware users will not change behaviours. Whether the model is based on the current EPC or DEC regime, assessments of energy use should be carried out more frequently, take into account actual performance, require behavioural change and reward positive results.”