Under new energy efficiency regulations to be introduced in 2018, commercial properties will have to comply with new stringent legislation – and it is already affecting the market, says Craig Straw.
The CRC Energy Efficiency Scheme has bedded in and the commercial property sector has become familiar with the greater emphasis on buildings being energy efficient – but there are more changes afoot.
From April 2018, there will be new legislative changes which will make it unlawful to let commercial properties with an EPC rating of F or G – that’s the lowest two grades of energy efficiency.
For landlords or occupiers who wish to move space on, this will no doubt create some issues. It will not just effect some properties in terms of marketability - they simply won’t be able to be let at all unless they were upgraded to meet the minimum standards.
You may be surprised to learn that it is estimated around a fifth of non-domestic properties could be in the F and G rating brackets. Not only that but the new minimum standards could apply to all lettings and re-lettings, including sub-lettings and assignments.
There are other serious implications to take into consideration too. Valuations of properties could be affected if their marketability is diminished and rent reviews for properties in this situation could also be affected. Implications for dilapidation liabilities at lease ends could also exist.
This new legislation may seem a long way off, but it is already influencing decisions in anticipation of its introduction. It is vital that property owners and occupiers plan now to take action when the opportunity arises.
I was recently speaking at the Investment Property Forum (IPF) event in Nottingham where a new piece of research was presented which considered the “extra over” costs of going beyond standard levels of refurbishment so as to achieve a higher EPC rating on office, industrial or retail property.
So, what is the cost implication of achieving this higher EPC rating? What the research showed is actually that for most building types the EPC banding can be improved by increasing refurbishment costs by only 2 or 3%.
What I told the audience is that there are already isolated incidences where this new 2018 legislation is already impacting on the market. Don’t think that because we are five years away that you don’t need to worry about it – you do.
Property owners and investors need to address two things – firstly do you know the EPC rating on your building? If you don’t, you should find out and, secondly, utilize the time efficiently between now and 2018 to take advantage of void periods and undertake planned maintenance. If you don’t and you get to 2018 without planned maintenance and improvements to your F or G rated building - you will have difficulty letting or selling and could find that the impending legislation starts to affect your asset long before then…