There is a ticking time bomb in Scotland's commercial property market as compulsion looms on energy efficiency.
Sometimes the effects of even the best intentioned property legislation only become apparent many years down the line and, despite the intervening period, they still have the capacity to take property owners by surprise.
Such an effect is bubbling away in the background of Energy Performance Certificate (EPC) regulations. New developments could have a notable long-term effect on the commercial property market.
EPCs have been on the go for six years and are now part of the scenery in commercial transactions. They have been reviewed, tightened up, tweaked and are slowly beginning to be recognised as making a contribution in forcing property owners and occupiers to star thinking about energy efficiency.
The Scottish government has made much of the need for property professionals to embrace the principles behind EPCs - but what we are about to witness is the first employment of the regulatory 'big' stick.
New Rules
Embedded in the Climate Change (Scotland) Act 2009, are provisions which require the Scottish government to regulate for the assessment and improvement of the energy efficiency of commercial buildings. The decision to have to adopt this earlier and broader legislation in contrast to the enabling legislation contained with the energy Act is notable.
Also worth of note is the approach likely to be adopted in England. A property is likely to be deemed energy inefficient if it does not achieve D and E in the EPC. In Scotland a different tack has been taken. Reading between the lines, properties which fail to attain energy efficiency standards in line with 2002 building regulations will need to be improved through the implementation of Energy Action Plans (EAPs). Essentially, these EAPs will force property owners to carry out the energy efficiency recommendations contained within the EPC.
There are certain exemptions: initially, buildings of less than 1,000 sqm do not need to be assessed and improved, though EPCs would still be required for sales or lettings; buildings that currently meet energy standards equivalent introduced by the 200 building regulations would be exempt as would buildings which have already been improved via the Green Deal/
The regulations, timetabled for a June 2016 introduction, have not been fully drafted and published by the Scottish government and, consequently, there remains some uncertainty as to how things will work in practice. An EPC will still be required at the point of marketing, for sale or let, but owners must also prepare or have prepared for them an action plan which will identify a target and set out how that target will be achieved. The improvements can be undertaken in full over 3.5 years, or deferred during which time annual records of actual energy use will be taken.
Much of the commercial stock in Scotland was constructed prior to 2002 and as such will currently fall short of the energy efficiency standards required under the 2002 Building Regulations.
Older Buildings
Consider a 1970s or even 1980’s office building, for instance, constructed in dated building materials with poor or non-existent insulation, single glazing and obsolete heating. In many cases, it would not be financially viable to spend the capital required to bring the building up to the new standards.
This, in turn, could mean that properties become unmarketable.
Energy prices, despite recent dips in the price of oil, are inevitably only going to travel in one direction as carbon based resources are used and, from a tenant's point of view, an energy efficient building becomes more and more attractive, providing a better environment for the business and its staff.
But property investors should be taking professional advice now to make sure that their assets do not fall under the wheels of the juggernaut of progress.
Compliance365 is an independent energy consultancy. We provide advice and guidance on all our services; how to save energy; how to save money on your energy bills; and ultimately how to become more energy efficient. Our aim is to be as cost effective and flexible as possible for our clients.
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