Energy-efficiency laws shake up property industry

The property industry is under pressure to become energy efficient. And the deadline is approaching for all commercial buildings to have an Energy Performance Certificate, says Chris Stubbs

Property is on the front line in the battle to reduce carbon emissions.

In the UK, it is responsible for around 50% of total greenhouse gas emissions.

A ten-storey, 1,500m2 commercial building in London which complies with 2002 building codes emits about 900 tonnes of CO2 a year – the equivalent of driving to the moon and back 17 times.

Energy Performance Certificates (EPC) are the legislative expression of the growing clamour for change, and are a rapidly approaching issue for the property industry.

Legislative changes

The European Energy Performance in Buildings Directive, which became law in January 2003, is a pan-European directive driving changes in the energy and carbon performance of buildings. This has spawned legislative changes across Europe.

In the UK, the first piece of legislation that came into force as a result of EPBD was 2006 Part L of the Building Regulations (an upgrade to 2002). This was then followed by boiler checklists/advice, and then subsequently EPCs for dwellings that were to be sold.

The next piece of legislation to appear was EPCs for commercial property and for new buildings that had not previously been covered. This has arrived simultaneously with Display Energy Certificates for public authorities. And these will be required annually for major public buildings, and may eventually be rolled out to larger commercial properties.

The final piece of the jigsaw is five-yearly air-conditioning inspections, which have to be completed by January 4, 2009, for systems over 250kW, with those over 12kW by January 4, 2011.

With a number of legislative changes at present the property industry faces mounting pressure, and at the moment EPCs are the most pressing legislative change. EPCs measure the energy efficiency of a commercial property using a standard methodology to create an energy rating.

EPCs typically assess a building in terms of its fabric and installed systems, such as air conditioning and lighting, rather than plug loads for equipment such as photocopiers and printers.

The government has set a deadline of April 6, 2008, from which time it is compulsory for all commercial buildings of more than 10,000m2 to produce a certificate whenever they are sold, let, newly constructed or refurbished. By July 1, 2008, all commercial buildings of more than 2,500m2 will have to provide the certificates, and from October 1, 2008 the requirement will extend to all commercial property.

For buildings that are to be sold, let, newly built or refurbished, the landlord will be responsible for ensuring the certification is prepared. This should be shown, on request, to any prospective purchaser/tenant, and should be provided by the owner to the ultimate purchaser/tenant before a contract for sale is made.

EPCs will lead to greater transparency in the property market and enable prospective tenants and purchasers to make comparisons based on energy performance. We are seeing a rising tide of energy and carbon sensitive buyers in the market, driven by their own corporate responsibility commitments to running low-carbon businesses or where they do not have such policies themselves, by the policies of their customers.

As demand for low-carbon, low-energy properties grows, so the value of high-grade buildings will increase, and that of low-grade buildings will fall. This will encourage building owners to upgrade their buildings and incorporate sustainable design in order to ensure the value of their property is not adversely affected. By taking measures to lower the environmental impact of property, value can be created in the form of:

  • Lower energy bills
  • Meeting corporate responsibility agenda
  • Addressing market demand
  • Faster planning approval

Obtaining an EPC

The mechanics of producing an EPC (the methodology) is known. As of early November 2007, the final version of the certificate-producing software, the accreditation and training schemes for commercial energy assessors and the national database for certificate registration have all yet to be finalised.

But that does not preclude the possibility to prepare for certification and to undertake the labour-intensive survey and computer model preparation. Both activities are fully supported and encouraged by the Department of Communities and Local Government.

The government has put back the implementation dates for all but the largest (more than 10,000m2) buildings by three or six months. But that alone will not relieve the build-up in pressure to produce EPCs in 2008.

It is increasingly clear that the estimates previously made by government for the number of EPCs that will be required in 2008 are woefully inadequate. And therefore the planned number of assessors that will come on stream during 2008 as a result of the currently planned accreditation and training scheme roll-out will be equally woefully inadequate. There is a real risk that latecomers to the party will have to pay well over the odds for a quick turnaround service and may well simply have to wait – and lose a sale or potential tenant in the process.

Companies will initially need to obtain floor plans of their buildings. They will also require a desk study and need to complete a site survey to characterise zone envelope boundaries (walls, floors, ceilings) and building systems (heating, cooling, air handling, lighting, renewable technologies etc) for the purposes of Simplified Building Energy Model (SBEM) analysis.

SBEM is a calculation system, which processes the data on a building according to a standard calculation methodology to produce the rating. This is in place and the standard software is available. The certificate will be created using the same model but with an upgraded version of SBEM which will incorporate the SBEM Writer.

Buildings of a more complicated nature in terms of shape or building system type may require other dynamic simulation models, which are also in place and have been approved for compliance with the National Calculation Methodology.

Once the certificate is finalised, this information will be logged into a national database, where all EPCs will be registered, and an EPC serial number will be generated. Once the certificate is registered on the National Database and signed off by an approved assessor, the building will have an EPC.

Until the certificate software, the national database, and at least one assessor accreditation scheme is in place, it is not possible to issue a full EPC. As the complexities of this process lie in getting properties properly assessed and finding the expertise to undertake this before the mainstream surge in the market, it is essential to begin the basic work needed to obtain an EPC. The time to prepare is now.

An increasing number of commercial property landlords and property funds are moving early to prepare their portfolios for the arrival of EPCs.

Part of the reason for this is that landlords are trying to understand the range of energy performance in their existing property portfolios. This allows them to calculate the risk associated with a wholesale shift towards low-carbon property, to prioritise upgrade expenditure on the portfolio, and to earmark buildings for possible disposal.

Landlords are also conscious of the need to maintain liquidity in their portfolios. Once EPCs become a legal requirement at the time of a transaction, buildings without them will be unsellable or unrentable.

The fear is that there will be a shortage of building energy assessors, and that there will be long lead times for EPCs in the middle of 2008.

The mere fact that building floor plans are required means that there will be a material time-burden to the production of an EPC for older buildings, where up-to-date floor plans do not exist.

Therefore, a number of landlords and commercial property fund managers are commissioning wholesale energy assessment work across entire portfolios now in order to maintain liquidity in their property holdings during 2008.

Empty rates

The issue of liquidity becomes even more important with empty rates starting to bite from April 2008. The impact of empty property on owners’ financial performance will be substantially greater than it would have been previously.

With empty rates for many commercial properties being in the tens of thousands of pounds per annum, early commissioning of EPCs is essential. It does not make any commercial sense to delay commissioning the EPC until the property comes to market during 2008 and 2009, as this could stifle interest or block the deal and therefore expose firms to increased empty rates.

EPCs have a ten-year lifespan and many owners are commissioning work now to effectively reserve capacity among the few firms currently able to undertake the preparatory survey and modelling work today. By getting an EPC completed and on file, this will ensure that deals can move forward unhindered by the lack of a certificate.

As EPCs become a staple of the built environment, the property industry must prepare for their impact. While the systems surrounding EPCs have not yet been implemented, the time to react is now. EPCs are inevitable, and the sooner the industry prepares the better.

Chris Stubbs is director of WSP Environment & Energy

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