Don’t Wait To Meet The New EPC Requirements For Commercial Buildings
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Future EPC regulations could significantly impact commercial property owners, making it essential to review portfolios and improve energy efficiency before new standards take effect.
This year’s scorching summer, and the many wildfires which have resulted, have concentrated headline-writers’ minds on climate change, but policymakers have been rightly focussing on the issue for a long time.
Given that around 40% of carbon emissions emanate from buildings, it is not surprising that attention is being paid to making the UK’s real; estate – commercial and residential – more energy-efficient.
In practical terms, that means that already most buildings have to have an Energy Performance certificate (WEPC) rating of at least ‘E’ to be lawfully let. That means that unless there is an exemption, buildings with an ‘F’ or ‘G’’ rating are no longer in the market. Inevitably the prospect of non-compliance has focussed minds within the sector.
The government’s initial aim was to tighten the rules still further, mandating a rating of at least ‘C’ by 2030 across the majority of let properties. As often happens, this initial proposal has evolved during the consultation process, and a more targeted approach will mean that buildings in excess of 1,000 square metres (approx. 10,760 sq ft) will require an EPC rating of ‘B’ before they can be let, with the caveat that it must be cost-efficient to bring a building up to that standard. Buildings smaller than this will still be able to be let provided that have a minimum ‘E’ rating’.
This focus on larger buildings is about taking action where the biggest energy efficient savings are to be made, but it also removes compliance and capex risk from the lower end of the market.
But it is not just complying with the law which is driving a change in behaviour. The most energy-efficient buildings are already the most attractive to both investors and occupiers, with the prospects of consequent higher rents and freehold values.
This hasn’t been passed into law yet, but it is widely expected to happen. Landlords and investors should get ahead of the game now to future-proof buildings: review portfolios, utilise exemptions where applicable, and use lease events such as a lease renewal as a trigger to improve energy efficiency and negotiate higher rents to offset the capex and seek an immediate return.
Buyers and lenders should take into consideration a building’s current EPC and whether it will meet future standards. Buildings that are ‘C’-‘E’ rated now are compliant with today’s standards, but there is a risk that significant capex may be required to ensure the building is lettable from 2031.
Kevin Atkins is an associate in the Commercial Property team at Arnolds Keys.
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