Commercial landlords more worried about meeting upcoming energy efficiency regulations than mortgage repayments and keeping tenants happy
With a matter of months to go until regulations start coming into effect outlining minimum standards for energy efficiency in rented premises1, research from E.ON reveals property managers' and landlords' lack of awareness and worries about getting their properties to make the grade.
- From April 2018 landlords will not be allowed to let properties1 without minimum ‘E’ grade Energy Performance Certificate
- ON research reveals commercial landlords ‘ill-informed and worried about how to get properties up to standard’
- Only 9% of landlords believe all properties in their portfolios would currently receive an acceptable grade
With a matter of months to go until regulations start coming into effect outlining minimum standards for energy efficiency in rented premises1, research from E.ON reveals property managers’ and landlords’ lack of awareness and worries about getting their properties to make the grade.
The research2 found that nearly half (45%) of commercial landlords say they are either only vaguely aware or not aware at all of the Minimum Energy Efficiency Standards (MEES) regulations –which will prevent commercial landlords in the public and private sector from renewing existing tenancies or agreeing new lets if it doesn’t meet minimum standards.
Concern is mounting among commercial landlords over the impending deadline of 1st April 2018. In a survey more than half of landlords surveyed believed at least 40% of their property portfolio currently has an “F” or “G” Energy Performance Certificate (EPC) rating and more than a third were worried the new regulations will impact their ability to renew leases (34%).
Almost a third said they didn’t feel adequately informed on how to maximise their properties’ energy efficiency (30%) and were worried about the new regulations because they did not know how to make their property compliant (33%).
Phil Gilbert, Director of Customer Solutions at E.ON, said: “Our research reveals that many landlords, freehold owners or property managers have a long way to go to get their properties up to standard. These new regulations are already causing uncertainty for landlords looking at new lets and renewals so it’s vital that landlords act now to improve the EPC rating of their properties.
“Clearly there’s no silver bullet that works for all types of business buildings and all industry sectors but by getting some expert advice from a trusted energy partner you can make your buildings work harder for you; either by holding tenants longer because their overheads are reduced, commanding higher rents for energy efficient buildings, or by future-proofing your building through intelligent building management systems or on site generation and demand side response technologies which could actually provide an extra source of income by providing services to the national grid.
“E.ON has helped its business customers with all these measures, providing an in-depth energy strategy that helps them become more efficient and save money by offering a suite of bespoke solutions tailored to meet business needs.”
The worry over the regulations are trumping more everyday landlord concerns. Many are worried about having an acceptable EPC rating (37%) — more so than being able to make mortgage repayments (34%), keeping tenants happy (27%) and having to unexpectedly make expensive repairs (27%).
Their concerns could become realised if they do not make the necessary improvements and carries a heftier fine than many expect. Half of landlords underestimate the penalty for breaching the MEES regulations, guessing the fine for renting out a property with an EPC below “E” for over three months after 1 April 2018 is 15% of rateable value or less (50%). In reality, the penalty after this period is 20% of the rateable value up to a maximum of £150,000.1
To cover the cost of making the necessary upgrades to meet the new regulations, nearly two-thirds have or would consider raising the rent (65% - with the majority saying this is because the tenants are the ones to see the benefit in terms of lower bills (88%).
There are benefits to making energy efficient upgrades for the landlord beyond meeting the MEES regulations. Commercial landlords say they have an easier time convincing prospective tenants to let out the property (43%), along with higher rental values (39%) when their properties are seen as energy efficient. A third say improving energy efficiency is also beneficial because it pre-empts future regulations (33%), as some landlords fear the minimum EPC rating will be increased in the future (33%).
Phil Gilbert from E.ON has provided a number of tips for landlords looking to improve their property’s EPC rating:
- EPC ratings look only at permanent improvements to the fabric of the building so think about long-term upgrades that will help to reduce heat and electricity use. To improve your EPC you need to find permanent ways to fill the gaps to stop heat escaping such as cavity wall insulation, draught proofing or ducting and pipework insulation.
- Make a play of your energy savings standards – don’t just think of improving energy efficiency as something for meeting regulations, it’s a commercial decision too. Given most tenants are responsible for paying energy bills, some may be willing to pay more for properties that are energy efficient, so make sure you’re making the most of this as a selling point.
- Don’t underestimate the importance of insulation in making a property more energy efficient. Solid wall insulation can be installed from either the inside or the outside. If a property is difficult or expensive to insulate, then changing the heating system to more efficient boiler or fuel type might be an option to consider.
- Lighting, heating, ventilation, air conditioning, boilers, chillers and compressed air account for around 95% of building energy consumption. Improving controls to your Building Energy Management System means you can better analyse your energy data and optimise energy consumption and efficiency opportunities.
- Take advantage of on-site generation such as Combined Heat and Power, high-efficiency boilers or heat pumps which can have a significant effect on improving energy efficiency, as well as reducing a property’s CO2 emissions and energy costs.
- For those looking to future-proof their buildings or even use them as an additional source of revenue, consider renewable technologies such as solar panels with battery storage to store energy for use even when the sun goes down.
- On-site low and zero carbon energy generating systems can not only help improve a building’s EPC rating. Flexible generating units or shiftable loads such as backup generators, CHPs, heat pumps or compressors can also play a part in grid balancing systems – helping to generate income or avoid fees through integrating them into power networks during periods of grid stress. Energy solutions providers can optimise these technologies and help you to sell this capacity to short-term markets.