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Energy Certificates and their importance

Energy Certificates and their importanceWhilst Spain may be behind UK in introducing the requirement for Energy Certificates for property, it gives us to benefit from their experience. Here is a recent article that was aired on the RICS Chartered Surveyor’s website. Author is a specialist in Energy Performance Certificates in England.

The 10 years from 2008 to 2018 are seeing a profound transformation of the regulations relating to energy efficiency and, importantly, their impact on properties. Sam Parkes explains:

Imagine in the next few years having to tell a client that they cannot put a property on the market for rent because it is inefficient. This, and the requirement to make both commercial and residential properties more efficient, is a very real possibility. We are in the middle of a decade when energy efficiency and certification are becoming more important.

Energy Performance Certificates (EPCs) were introduced in 2007. Since then, many agents have seen them as simply bureaucratic paperwork – another irrelevant legal requirement of the sale and rental process. However, since October 2011, EPCs have taken on greater importance, and a poor rating will soon start to have a significant impact on property owners.

Regulations have now been tightened further. Since April 2012, all property being offered for sale or rent is now required to have a valid EPC. Owners, as well as managing and marketing agents, are all now liable to be fined for breaching the revised regulations.

The UK government clearly demonstrated its new green agenda in the Energy Act 2011. Produced by the Department of Energy and Climate Change, this set out the framework for the Green Deal which was introduced last autumn and the first of many implications, and possible restrictions, for inefficient property owners.

Under the Act, it is proposed that from April 2018 ‘inefficient properties’, both commercial and residential, would not be permitted to be let. While it remains unclear what will be defined as ‘inefficient’, it is worth noting that in England alone an estimated 680,000 private rented properties currently fall into the bottom two energy performance ratings of Bands F and G (see graph). In addition, around 18% of commercial property in England fails to meet a Band E performance rating.

Increased efficiency
When residential landlords start to consider the potential impact of the Energy Act, they should be aware that it proposes that domestic tenants are able to require landlords to make improvements to inefficient properties from April 2016. They should also bear in mind that both the proposal dates of April 2016 and April 2018 are when the legislation should have come into effect, and this may all happen much sooner.

Many insiders believe that the definition of an ‘inefficient property’ will be raised to Band E or lower by 2018. This is supported by various studies and reports, including from organisations such as the WWF and Consumer Focus. With around 50% of its carbon dioxide emissions deriving from property, it is clear that if the UK is to reach its 80% Carbon Reduction Target by 2050, properties must become more efficient. In addition, the property sector may find itself under even greater restrictions and requirements to subsidise other areas, such as transport.

Under the Act, it is proposed that from April 2018 ‘inefficient properties’, both commercial and residential, would not be permitted to be let

As far as residential properties are concerned, the works to increase efficiency may not be complicated because many homes currently do not even have the standard levels of insulation. It is estimated that around 40% of homes still have no loft insulation and only 60% of homes with cavity walls have wall insulation. Furthermore, while the recent government boiler scrappage scheme was very limited in its scope, it did highlight the fact that most properties are using inefficient non-condensing boilers.

It is very difficult to set out a list of specific requirements for every residential property to achieve a Band D rating or better. What is clear is that for a traditional home to be efficient, it will at the very least need levels of insulation and draught-proofing to meet current Building Regulations, complete control of the heating and hot water systems and an efficient hot water cylinder and boiler.

While the Energy Act and the tightening up of the EPC regulations have prompted many to start reviewing the efficiency of properties, most people with vested interests are still analysing the details and structure of the Green Deal, which was further clarified at the end of January. Among them is the provision of funding for energy efficiency works to properties, which are repaid through energy bills. One golden rule of the scheme is that any “charge attached to the bill should not exceed the expected savings and length of payment period of the lifetime of the measures”. In other words, a property’s total energy bill, including the grant repayments, should be lower after works have been carried out.

As well as making properties more efficient, land and property owners have also had to deal with the confusion over renewable energy production schemes, Feed-In Tariffs (including sudden changes to these), and Renewable Heat Incentives. The extent and complications of these schemes and incentives have given rise to a whole additional industry of energy advisors and specialists. All aspects of any renewable energy installation should be carefully considered in the context of individual properties, portfolios and whole-farm or estate strategies.

Proposed revisions
In addition to the impact of proposals restricting the letting of inefficient properties, the 2010 changes to the Display Energy Certificate (DEC) regulations came into effect on 9 January. The requirement for public buildings to display a DEC, has been reduced to cover all buildings larger than 500m². While the occupier, and not the owner or agent, will bear the burden of this requirement, it will significantly add to the amount of information held by the government.

Over the next five years, we will see the initial implementation of the government’s green agenda. Many believe that, leading on from this, a building’s energy efficiency will become linked to the level of business rates or council tax paid, and perhaps even to a significant increase in stamp duty. Apart from taxation, the inexorable rise of energy prices over the past few years has impacted on both occupiers and owners, causing all to start considering ways to reduce costs.

In the immediate future, it is vital for everyone to adhere to the current and proposed EPC and DEC regulations. This should perhaps be followed up by an initial evaluation of which buildings may be classified as inefficient, while assessing what the specific Green Deal funding offers. Overall, property owners can no longer afford not to have strategies in place for bringing buildings up to the required standards and starting to consider the new methods of energy production.