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Don’t let the energy efficiency standards leave you with ‘unrentable’ properties

There are now only six months until the new Minimum Energy Efficiency Standards (MEES) are implemented – a sweeping change due in April 2018, that will rule out any new or renewed leases on commercial property with an Energy Performance Certificate (EPC) rating of F or G.

Time is running out and landlords with commercial portfolios would be well advised to prepare carefully, or risk losing out on potentially significant amounts of rental income.

Below are some key tips to help protect you from inadvertently allowing your property to become ‘unrentable’.

Organising a well-maintained property database

Having a comprehensive and accurate property asset list, including a detailed record of current EPCs, is invaluable when it comes to compliance with MEES legislation.

Open communications with all parties involved in changes to your portfolios will help you to keep on top of your assets. This way you are fully aware of assets that are being sold, refurbished or tenanted. 

Keeping a stringent log of tenant movements will result in an asset list that can quickly and easily be referred to for accurate and current data. This will reduce time and resource required to draw information from multiple sources and avoid any duplication of effort required to collate the data.

It is essential that good EPC records are kept. They should detail the EPC rating, date of expiry and EPC address, which is often different from the addresses known to property management teams. It is worth remembering that EPCs can be commissioned by any individual - tenants may have authorised a new EPCsince the landlord last ordered one. 

Reassess EPC ratings

An EPC is based on the characteristics of a building and its services (such as heating, ventilation, air conditioning and lighting); energy assessors often do not have detailed and updated information about a property.

As a result, they need to gather as much information as possible during their EPC site assessment visit, modelling their findings before determining the EPC asset rating. With time constraints and a lack of readily available information, existing EPCs are often based on assumptions, conventions and default settings, which represent worst case scenarios.  They often do not provide an accurate representation of the current building status.

Before refurbishing a property with an EPC that is currently considered sub-standard, we would recommend that its building energy model is re-assessed to eliminate as many estimates as possible and improve the EPC rating.

Don’t limit your analysis

There are a number of additional factors you should consider to ensure a comprehensive understanding of your risk exposure:

Listed Building status. Despite popular belief, listed buildings are not exempt from EPC legislation. In fact, they are likely to fall within EPC F and G bands because of their poor fabric specifications in terms of energy performance (single glazing, uninsulated walls etc).

E-rated EPC buildings. EPCs are linked to the UK Building Regulations, Part L, which are regularly updated and become more and more stringent each time they are revised. Hence previous EPCs, whose Asset Ratings were E, may fall within the F & G categories once their 10 years validity period has expired.

Rental Values. If refurbishment works are abandoned in favour of offering sub-standard properties, landlords will not be permitted to market buildings with a subsequent loss of rental income. The rental value per annum, per square metre, should be taken into account in order to undertake suitable risk assessments and prioritise remedial actions. 

Two birds with one stone

Many owners are unsure about their exposure to MEES compliance risk. That’s why undertaking a desktop review is vital. You can also save time and money by simultaneously commissioning reviews of additional environmental compliance risks when third-parties are involved in determining MEES risk exposure.

For example, ever changing climatic conditions often reassert the importance of understanding flood risk. Property owners therefore need to understand their risk exposure to reduce business threats and develop action plans for guaranteed business continuity.

MEES however provides the perfect opportunity to ask further questions about the environmental legislation agenda. Property environmental compliance risk exists in many areas including air conditioning inspections (ACIs), ESOS energy audits and asbestos registers among others.

On top of providing a valuable assessment of regulatory and non-mandatory environmental risks, high level reviews also highlight opportunities, like solar PV installation, that impact on the wider business.

Plan ahead to ensure leases provide protection

You must consider the risk that a tenant could carry out works that may lower the EPC rating, thereby affecting re-letting once the property becomes vacant. Whenever the opportunity arises, owners should be looking to introduce provisions against the tenant carrying out alterations thatadversely affect energy performance. You may also wish to restrict the tenant’s ability to commission its own EPC, as this would invalidate the existing certificate.

At the same time, the new regulations are also an opportunity for greater engagement with tenants through the use of green leases. A green lease is a standard form lease with additional clauses included which provide for the management and improvement of the environmental performance of a building. Both owner and occupier can agree carbon, energy, waste and water reduction strategies which best fit with the circumstances of individual properties.

Conclusion

Using some or all of these strategies, landlords can safeguard themselves and their portfolios ahead of MEES – and potentially ensure not only that they are scraping by for compliance, but that they are leading the way in terms of property and asset management, and demonstrating the value of this attitude when it comes to environmental protection.

Steve Barlow is a principal and chartered engineer at Ramboll Environ

  • Colin Lillicrap

    Very sound advice. There have been previous articles advising landlords to prepare for MEES including my own article in Property Investor Today. From my admittedly limited sample it would appear many landlords have yet to take any action to protect their business. Time is running out - act now.

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