Energy efficiency: English and Scottish legislation
The high road and the low road
24 October 2016
Liz Stewart outlines some contrasts between the requirements of recent English and Scottish energy performance legislation
Regulations aimed at improving energy performance of commercial properties are following respective national trends in the UK. Property owners north and south of the border face different regimes when it comes to monitoring and improving energy efficiency – just as they do when selling or leasing.
The UK Energy Efficiency Regulations are designed to improve the environmental performance of qualifying assets and reduce energy bills. Underpinning both regimes is a principle that the cost of improvements be recouped via long-term savings in energy bills. Significant differences between the requirements operating in Scotland, England and Wales have, however, given rise to fears of a negative impact on commercial property markets.
Monitor or improve
After a lengthy consultation, Scottish ministers have issued the draft Assessment of Energy Performance of Non-Domestic Buildings (Scotland) Regulations 2016 (the 2016 regulations). With effect from 1 September this year, there will be a general requirement to monitor or improve the energy efficiency of qualifying commercial properties with a floor area of more than 1,000 sq. m; buildings constructed to the 2002 building standards or more recent iterations are exempt from the requirement.
While owners of qualifying properties will be required to carry out certain energy efficiency improvement works and keep a display energy certificate at the property, the Scottish government has, so far, failed to prescribe a minimum energy standard.
With few exceptions, the sale or grant of a new lease on qualifying property will trigger the need for the owner to provide a prospective buyer or tenant with an Action Plan, in addition to the energy performance certificate (EPC) that is already required. This plan will identify the improvement works needed to meet the target energy performance standard for the building, to be established by the relevant assessor.
With effect from 1 April 2018, it will be unlawful for landlords to grant either a new lease or sub-lease, or to renew the lease on properties, with an EPC rating below E.
Once an Action Plan is registered, the owner can choose to complete the required works within 42 months, or defer and record the property’s energy consumption via an annually registered Display Energy Certificate. Responsibility for compliance rests with the owner, as defined by the regulations. Failure to comply can result in a penalty charge of £1,000, and the responsibility for enforcing compliance will lie with each Scottish local authority.
In England and Wales, energy efficiency standards are already in operation under regulations introduced in 2015 for both domestic and non-domestic property. With effect from 1 April 2018, it will be unlawful for landlords to grant either a new lease or sub-lease, or to renew the lease on properties, with an EPC rating below E.
Unlike the position in Scotland, the government south of the border has opted to incorporate the new regulations into the current EPC regime and has gone so far as to prescribe a minimum EPC rating. While sales are excluded, many more properties in England and Wales are held on long leasehold rather than freehold or ownership – in contrast to the position in Scotland.
Some protection measures are contained in the legislation in England and Wales to reduce the adverse impact on the value of properties, so there are exemptions under certain circumstances.
One such exemption operates where the improvement works identified to bring the energy rating up to the required minimum target rating will result in a reduction of more than 5% in the value of the property. Examples of such cases are not easily identified; however, projects that result in a reduction in the net lettable floor area of the property could be considered.
Exclusions also apply where third-party consent for improvement work cannot be obtained, and there is some recognition that older buildings may require exemption by virtue of the fact that they may not be capable of meeting the minimum standard. As yet, it is unclear to what extent the Scottish government will mirror these exemptions.
Holyrood has taken a very different and arguably softer approach to the requirements imposed by Westminster. While the Scottish legislation is due to come into force 18 months before its English counterpart, property owners north of the border can opt to postpone the achievement of energy performance targets by opting to monitor instead. As a result, properties with poor energy performance ratings may not become sustainably obsolete and owners will have no real incentive to invest in improvement works – unlike their counterparts in England or Wales.
Practical guidance on the operation of the 2016 regulations is now available. While it was hoped this would help clarify a number of key issues to help align the Scottish regime with its counterpart south of the border, as yet this has proven not to be the case.
Liz Stewart is Partner, Commercial Property at Stronachs