Commercial Property Owners – are you ready for the tougher energy efficiency standards?

From April 2018, the Government is clamping down on poor-performing buildings. Which means that if you’re a commercial property owner, you need to improve the sustainability of your portfolios.

Last year, you should have been issued with details of the new energy efficiency standards coming into force, and warned that failure to comply with theses revised rules could lead to financial penalties and reputational damage.

With energy efficiency being such a hot topic, what changes will landlords need to make? Not forgetting the importance of insurance, of course. Any improvements to your properties may mean that your Buildings Insurance policies could alter too – it’s important to keep them updated!

 

Why does energy efficiency matter?

Quite simply, because energy efficient buildings offer environmental advantages by lowering carbon emissions and cutting waste.

Measures such as insulation, double-glazing, renewables and eco-friendly boilers can also deliver a financial boost. For tenants, this provides savings on their energy bills. And as a landlord, your reputation within the market could be enhanced. A positive reputation could help save you money by reducing your current expenditure on marketing your properties. Better still, this increased marketability could also mean reduced void periods.

Despite these benefits, ministers are concerned about the current pace of change. Recent government figures suggest that non-domestic buildings still account for roughly 12% of the country’s emissions [SC1]. That’s why they’re demanding commercial property owners comply with tougher standards.

 

What the changes mean for landlords

Privately rented non-domestic properties in England and Wales will need to meet a minimum energy efficiency level by 1st April 2018 for them to be let, according to the new regulations. Your properties will need to achieve an Energy Performance Certificate rating of at least band ‘E’.

If you have any properties rated ‘F’ or ‘G’, you won’t be able to agree fresh tenancies with new or existing tenants from April. And from 2023 onwards, landlords won’t be able to let a property under an existing rolling agreement unless it has an ‘E’ rating either.

Be aware that local weights and measures authorities will have the power to hand penalty notices to landlords who fail to comply with the higher standards, and their names may even be made public.

If you have a genuine concern about your ability to make energy efficiency improvements in time, you might be eligible for an exemption. For instance, you may be unable to secure the consents needed to proceed with large-scale changes, such as from a mortgagee or a superior landlord, or even receive listed building consent.

Detailed guidance is available directly from the Government: Guidance to landlords of privately rented domestic and non-domestic property on complying with the 2018 ‘Minimum Level of Energy Efficiency’ standard (EPC band E)

 

Financial implications and insurance

You’re bound to feel concerned about the financial side of the new sustainability standards. After all, the costs associated with things like innovative heating systems and insulation quickly add up. You’ll need to carefully assess how to pay for any required improvements, which might mean reduced spending in other areas of your business. Or possibly shopping around for an appropriate grant or loan.

 

The importance of insurance

When you’re trying to identify savings, don’t lose sight of the value of insurance. Bespoke policies are available to property owners covering buildings, contents, public liability, theft and even malicious damage caused by tenants. Although it may be tempting to cut back on insurance in the face of new expenses, insurance is one thing you simply cannot do without.

 

This article is an edited version of the original, published 24.04.2017 on NIG.