The sharp rise in energy costs has undoubtedly been one the major talking points of 2022 so far. The hike in prices has not only been felt by home-owners, but also by commercial property proprietors and tenants alike. With no sign of energy prices falling, the energy efficiency of commercial buildings is becoming an increasingly important consideration when buying, selling or leasing.
What is an Energy Performance Certificate (EPC) and when is it required?
An Energy Performance Certificate (EPC) measures the energy efficiency of a building. These certificates are produced by recognised Energy Assessors and are valid for a period of 10 years. EPCs must be produced when a property is intended to be made available for sale or let, subject to a limited number of exceptions outlined in Regulation 4 of the Energy Performance of Building (Scotland) Regulations 2008:
- Temporary buildings- ‘temporary’ being a planned use time of less than 2 years;
- Stand-alone buildings less than 50m2 in floor area;
- Non-residential agricultural buildings and workshops with a low energy demand- determined based on multiple factors including whether there is an intention for occupation by humans and whether a functioning heating system is fitted.
Where a transaction relates to a unit which forms part of a larger building with common areas in terms of energy, then an EPC for the whole property will be required. For independent units in terms of energy within a larger building, then an EPC will be required for that unit only.
Unlike in England, there is no legal preclusion to selling or leasing in Scotland based on a poor EPC rating.
‘Old’ Buildings, Section 63 Assessments and Action Plans
Under the Climate Change (Scotland) Act 2009 and The Assessment of Energy Performance of Non-Domestic Buildings (S) Regulations 2016, there is an additional requirement for a ‘Section 63 Assessment’ to be undertaken (as well as producing an EPC) where:
- a property was constructed prior to the coming into force of the 2002 Buildings Energy Standards Regulations; and
- the property has a floor area greater than 1000m2
Once more, there are exemptions to the ‘Section 63 Assessment’ requirement including where a property has been renovated to post-2002 standards and for short term leases of less than 16 weeks. ‘Section 63 Assessments’ are carried out by registered Section 63 Advisors and result in tailored energy improvement measures/ targets being produced and documented in an ‘Action Plan’.
Action Plans are divided into two sections: ‘prescribed improvement measures’ and ‘alternative improvement measures’. Prescribed improvement measures legally require to be implemented and there is a statutory period of 3 years for doing so before re-assessment is necessary. The obligation to implement prescribed improvement measures transfers on sale and when agreeing a lease is it important to be aware of which party will bear this obligation. Alternative improvement measures, on the other hand, are simply recommendatory.
Although the obligation to implement prescribed improvement measures within 3 years may appear onerous on the surface, there is a loophole which in practice is more often than not exploited- the Display Energy Certificate (DEC). A DEC measures annual energy usage and its production postpones the need to implement prescribed improvement measures. Producing a DEC is often a far cheaper option, however it is worth noting that if the DEC is not updated annually then the implementation timeframe for prescribed improvement measures remains 3 years from the date of the Action Plan.
Future Developments
As energy considerations come more sharply into focus it is likely that Scotland will follow England by introducing a restriction on transacting with poorly rated buildings. What’s more, the thresholds for when Section 63 Assessments are required are likely to be tightened and removal of the Dec loophole is somewhat inevitable.
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