The Energy Efficiency in Buildings Regulations 2015 requires landlords to secure an EPC certificate with an E rating or higher in order to issue a new lease for a property from 1st April 2018. Beyond this, there is an additional requirement to secure such an EPC for properties with existing leases by April 2023. With less than two years to go, the pressure on landlords is very real.by April 2018.
In recent months, banks and financiers have begun to refuse loans for purchase of properties that currently hold EPCs rated at F and G with some going further and requiring existing EPCs are repeated prior to loan approval. This is particularly the case where EPCs were undertaken prior to 2011 when a new grading system was introduced. Despite some older certificates still being valid, lenders are demanding new EPCs are completed regardless of the rating.
Property values are also being impacted as the Royal Society of Chartered Surveyors (RICS) requires that energy efficiency and sustainability measures are taken into consideration when valuations are calculated. RICS has advised that a surveyor can refuse to carry out a valuation where there is no current EPC in place.
In addition to the financial pressure, tenants are also demanding more is done. Many multi-national companies are requiring radical improvements from landlords in order to lease buildings. One major household brand is insisting on an EPC rating of D or above before it will take a lease on any premises.
The regulations have also dealt a blow to listed building owners. Whilst the legislation provides exemptions to the half a million listed buildings in the UK, it has recently been clarified that the immunity for such properties only extends to those where no EPC has been completed to date. For listed buildings with EPCs in place, the regulations apply and all improvements must be undertaken where the investment payback period is seven years or less and listed building consent is granted.
Planning is critical to future success and the essential starting point is to consult the current EPC position before planning or investing in any improvements. In order to prepare businesses need to undertake an in-depth analysis of current position and produce an action plan that is certain to lift the EPC rating of at risk properties to the required level. The aim is to keep investment to a minimum by targeting the specific improvements that will achieve compliance and meet the needs of prospective tenants. The service is guaranteed providing recommendations are followed, with an EPC at the required grade being the end result.
Properties most at risk are those built in the 1980s or 1990s with aging air conditioning units and, as is commonly the case, sealed windows. With a lack of natural ventilation, the reliance on grid electricity for heating, cooling and lighting is frequently catastrophic to the outcome of an EPC assessment. Upgrading inefficient air conditioning with more advanced technologies can immediately lift a G rated EPC to a C.
With estimations that up to 40% the commercial rented property stock will become unlettable by 2018, landlords must act now or face significant devaluation of portfolios – the effects of which are being felt now. It is therefore vital that those in the Managed property sector acts now to secure the financial viability of the buildings within their instruction and to protect the interests of the investors – many of which will be too far removed from the management of their portfolios to drive the action required. It is an essential role of FMs and Building Managers to stay ahead of the game and ensure that any capital investment planned to replace or improve the building fabric is not carried out in isolation but is driven from a robust and targeted capital investment plan that is guaranteed to succeed.