Plan to ensure your property is not obsolete

On 18 October 2011 the Energy Act 2011 received Royal Assent, reports commercial property agent Prop-Search, which throws out further challenges for the industry.  Whilst the aim of the Act is to improve energy efficiency, there is one area in particular where it appears that the stick is to be used rather than the carrot – namely the provisions relating to commercial property.

The Energy Act 2011 paves the way for secondary legislation that would make it unlawful to let nearly one in five existing commercial buildings in their current condition.  The Act specifies that these regulations must come into force no later than 1 April 2018.

Samantha Jones, a Surveyor at Prop-Search, says: “The Act requires regulations to be made that will compel a landlord to achieve and maintain a specified level of energy efficiency for his property as set out in its Energy Performance Certificate (EPC).  If the landlord allows the level of energy efficiency to fall below a specified level – suggested to be rating E – he will not be allowed to let his property until he has carried out prescribed energy efficiency improvements.  A breach of the regulations could result in a fine.”

Until the details of the regulations are made clear, there are a lot of uncertainties for commercial landlords, including whether their property will actually fall within the regulations.  It appears that the types of commercial properties affected will be specified in the regulations; what level of energy efficiency they will be required to maintain in accordance with the energy performance certificate for the property; and how long they will have to undertake energy efficiency improvements if their property is not compliant with their EPC, before being subject to sanctions.

Samantha Jones continues: “The underlying message is that landlords need to start thinking about the energy efficiency of their buildings to stay ahead of the game.  If they do not, they face the risk of either not being able to let their property or having to carry out potentially costly improvements in a tight timescale.”

“Furthermore, dealing with the cost of statutory compliance is a challenge for both landlords and tenants, and will put a strain on the workings of a standard commercial lease.”

Where an under-lease of a whole building is agreed, the burden of statutory compliance will in most cases fall on the existing tenant.  This could be a most unwelcomed liability for capital expenditure to have to bear given that it does not actually own the property.  Conversely, where buildings are let to multiple tenants, service charge provisions may prevent the landlord from recovering statutory compliance costs from the tenant.

There is however some good news that my make compliance a little easier for landlords and tenants to digest.  The Act incorporates the flagship policy – ‘The Green Deal’ – aimed at encouraging the installation of energy efficient measures.  This is scheduled to be launched in the Autumn 2012.

The Green Deal is a financing method which will allow private firms to lend finance to businesses to fund energy efficiency improvements to their properties.  The lender will recoup payment through a charge on the energy bill of the property.  This ‘debt’ however belongs to the property and not the tenant.

Lenders will only be able to provide finance where the expected savings are equal to or greater than the costs attached to the energy bill.  The improvements have to be recommended for that property by an accredited advisor who has carried out an assessment.