Scotland’s commercial property market is about to be hit with stringent requirements as compulsion looms on energy efficiency. Sometimes the effects of property legislation only becomes apparent many years down the line – this is certainly the case for the EU Energy Performance of Buildings Directive. Whilst legislation has already been enacted in England, Scotland is somewhat lagging behind as the deadline for compliance gets closer. The Scottish Energy Performance Certificate (EPC) regulations are soon to reach consultation stage and it is vital that property owners understand the implications.
EPCs have been with us for six years and are now entrenched in commercial property transactions. In 2011 the assessment was reviewed and tightened up making a greater contribution in requiring property owners and occupiers to consider energy efficiency when buying, selling and letting commercial property space. The Scottish Government has driven the message that property professionals need to embrace the principles behind EPCs and the first regulatory requirements to do so are imminent.
Embedded in the Climate Change (Scotland) Act 2009 are provisions that require the Scottish Government to regulate the assessment and improvement of energy efficiency within commercial buildings. The decision to adopt earlier and broader legislation, in contrast to the enabling legislation contained within the Energy Act for England and Wales, is notable.
The approach adopted in England will see a property with an EPC rating of F or below be deemed energy inefficient and will be unlettable. In Scotland a different approach has been taken. If enacted, properties that fail to attain energy efficiency standards in line with 2002 building regulations will be required to be improved through the implementation of Energy Action Plans (EAP). The EAP will require property owners to carry out the energy efficiency recommendations contained within the EPC.
There are some exemptions: at first, buildings of less than 1000 sq m would not be required to be assessed and improved initially although the size is expected to be decreased over time. EPCs would still be required for sale or letting for smaller properties. Buildings that currently meet energy standards equivalent to those introduced by the 2002 Building Regulations will also be granted an exemption as they are deemed to be efficient and buildings which have implemented the Green Deal improvements would also be exempt.
The regulations are scheduled for introduction in June 2016, but have not been fully drafted nor published by the Scottish Government. Due to this, there remains some uncertainty as to how this will be managed in practice. An EPC will still be required at the point of sale or lease, but owners will also be required to prepare the action plan which will identify a target and set out how the objective will be achieved. It is expected that the improvements will be undertaken in full over a set period of time – expected to be three and a half years – or deferred during which time annual records of actual energy use will be taken.
The timetable for implementation is currently expected to see parliamentary approval in the autumn of 2015 with implementation in June 2016 at which point the Scottish Government plans to introduce Energy Action Plans (EAPs) for commercial premises. The implementation of the regulations will have an immediate impact on the property sector and the property owners and occupiers who operate in that sector. Whilst the regulations will initially only affect larger buildings, it is widely anticipated that the scope of the regulations will be widened to enable delivery of the Scottish Government’s overarching aim to dramatically decrease the country’s carbon emissions.
Much of the commercial stock in Scotland was constructed prior to 2002 and as such will currently fall short of the energy efficiency standards required under the building regulations. The concern is landlords of buildings constructed with dated building materials, poor or non-existent insulation, single glazing and obsolete heating plant would not find it financially viable to spend the capital required to bring the building up to the new regulatory standards which will lead to many properties becoming unmarketable. With some of the earliest EPCs coming up for renewal in less than four years and the new regulations imposing improvement to buildings due next summer, property owners must take action now to make sure that their assets do not fall below the minimum standard.