A powerful incentive to be green

Sep 19 2007 by Iain Laing, The Journal

Angus White, director of Naylors Chartered Surveyors and James Houghton, building services manager at Koru Property Services explain energy performance certificates, the HIPs of the commercial property industry

WHILE much media attention has been focused on the Energy Performance Certificate (EPC) requirement for homes in recent months, April 2008 will bring the phasing-in of EPCs for commercial property.

From then, lettings and sales of commercial space of more than 500sq m will need to be accompanied by an EPC, with an October 2008 target for all remaining buildings.

The introduction of EPCs is the Government’s response to the European Union 2002/91/EC Energy Performance of Buildings Directive (EPBD). This could be seen as another layer of legislation which needs to be met by property owners and developers to achieve a disposal, along with the need for fire risk assessments, asbestos audits and the rest.

Indeed, it will become part of the lengthening list of pre-contract inquiries issued by solicitors to property owners and managing agents. However, the certificate will become an increasingly important part of the asset management of a building and will help to direct investment decisions by property owners and managers.

The law behind the certificates is to promote more sustainable use and occupancy of buildings and suites by issuing a rating so potential occupiers are aware of the efficiency of the space in energy terms. From a financial point of view, it will also mean an occupier, when considering space, will now be able to compare energy costs as part of the overall occupational costs.

In the past, rent, rates and service charge were the three figures combined to give an occupier an indication of their “real” occupational costs. Now, the production of an EPC will mean energy costs are added to this list, so allowing a potential owner or investor to compare space in more detail.

The effect of this is clear. Where two similar buildings or suites have comparable occupancy costs rent, rates and service charge, but one is substantially better than the other in EPC performance, occupiers are likely to choose the more highly rated and therefore cheaper space.

As Article 7 of the EPBD requires the production of EPC recommendation and advisory reports when buildings are constructed, sold or rented out, the obvious response with respect to new buildings is to include the EPC as part of the operating and maintenance documentation when the building is completed.

However, and this is where commercial agents will become involved, owners will be responsible for procuring the certificate and advisory report on their current buildings. What’s more, information on an EPC is valid for only 10 years, after which a new report will be required.

The production of the EPC pack will involve a detailed inspection of the building by a competent and approved assessor, who will inspect the installed building services and the type of construction (such as type of windows and insulation). The information will then be input into the Government-approved simplified building energy model (SBEM) computer package and the advisory report, recommendations and certificate will be automatically generated. The report will advise on ways the owner can improve the energy performance of the building (so getting a better rating and the potential for generating greater rental income), while the assessors will utilise their knowledge of services and construction types to add additional improvements based on a detailed site survey. Whether the owner will take up any of the recommendations is entirely up to them.

The challenge to the property owner, and the managing agent, is to ensure that as part of any new build, but more important as part of any building or suite refurbishment, the EPC is considered at the design stage. This will enable the space to be assessed before refurbishing to establish the rating, and then incorporate the assessor’s report and recommendations into the specification of works.

As a result, not only will the accommodation be refurbished but also, on completion of the works, the EPC should be substantially improved and will become part of the building’s marketing and disposal process.

The Department for Communities and Local Government is finalising the national occupational standards required for approved assessors who will be certified to carry out the energy surveys, reports and certificates for commercial buildings.

The current consensus is that, because of the varying complexity of installed building services and construction types, accredited assessors will be experienced construction professionals who have had the required additional training.

In response, the Chartered Institute of Building Services Engineers has developed the Low Carbon Consultants register, where suitably experienced individuals can be assessed and approved for carrying out surveys and reports after specific training and examination.

The EPC should already be forming part of the design process as any refurb work being planned now is unlikely to lead to a letting before next April in the case of buildings or suites of more than 500sq m. It should also be noted that any building or suite let after October next year will need an EPC.

It should also be remembered that the EPC applies to all vacant space, so owners and managers need to act now to ensure that not only is there an EPC, but also an action plan to deal with the certificate when received and to implement and fund the recommendations contained.

For advice on the new law contact Angus White on (0191) 491-5252 or James Houghton on 0774 769-8604.