46 commercial property
Energy Act 2011 – Tenants should ignore this at their peril
From April 2018, it will be unlawful for commercial premises that do not reach a minimum energy efficiency standard to be let, writes David Thomas, partner, Vail Williams LLP
According to the department for energy and climate change this will be set at an Energy Performance Certificate (EPC) rating of ‘E’ – a minimum level that will rise over time.
With the now familiar requirement for EPCs to be provided when a property is marketed, tenants can make an informed choice with regard to energy use and carbon footprint.
Making it unlawful to lease accommodation could have significant repercussions for the property market. It is not clear as to whether this will only apply to new leases or also encompass lease renewals, assignments and sub-lettings. For an occupier leasing premises with a poor EPC rating (or not currently rated) this could be an issue, for example:
Occupier A leases a building with
an EPC rating of F in 2012 on a 10-year lease. In 2018, they sub-let or assign the building. Based on the anticipated regulations they would be prevented from doing so. In order to recover or mitigate their outgoings they may need to spend considerable sums of money in upgrading the building.
Occupier B contracts to a lease renewal (exempt from requiring an EPC currently) with expiry in 2018. They spend a substantial amount of money on the refitting the premises and in 2018 prefer not to move. At renewal, they find the property has a low energy efficiency rating but the landlord refuses to contribute to improving the premises.
Occupier C is in a multi-let building on a lease until 2020. Other floors within the building become vacant in 2017. The occupier is contracted to
VAT changes impact
the property sector The property sector will be affected by two VAT changes, which came into full effect on October 1, writes Rupert Moyle, tax director, Baker Tilly
These changes include the application of the standard rate of VAT to all provision of self-storage and the removal of the zero-rated approved alterations to listed buildings.
Self-storage
Previously, the provision of self- storage facilities was generally exempt from VAT. Therefore, on the one hand, it reduced the cost to the public while on the other it imposed a restriction on the ability to claim VAT on costs.
Suppliers need to be aware of differing VAT liabilities to rents spanning October 1, but should also identify any potential VAT recovery available under Capital Goods Scheme (CGS) adjustments.
Many of the larger operators have facilities within the VAT CGS affording a recovery of VAT
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incurred on a property with a value in excess of £250,000, calculated on the basis of taxable use over the following 10 years. Hence the change in treatment of storage from exempt to taxable may allow additional recovery, particularly as HMRC have announced that the £250,000 limit can be disregarded for the change in VAT treatment for self-storage facilities.
There may also be a need for reviewing partial exemption methods to the extent that exempt insurance is being provided as well as standard rated storage, in order to maximise VAT recovery and in respect of future CGS adjustments.
Approved alterations
The reason given for the withdrawal of the zero rate to
pay a service charge without any cap. The landlord replaces the buildings heating and ventilation equipment in 2017 to allow the vacant floors to be let and recharges the cost of the replacement plant through the service charge.
In each scenario, the unsuspecting tenant could be forced to spend considerable sums of money in trying to mitigate the costs.
To assist with the cost of implementing energy improvements the Act sets out the “Green Deal” – a government initiative enabling funding from accredited providers which can then be paid for in instalments through a property’s energy bills. The reasoning being that payments can be passed from one owner to another when the property is transferred.
Exemptions to the anticipated
applied for before March 21, then any supply of building materials or construction services made from March 21 as a result of that contract can continue to be zero- rated until September 30, 2015. Projects undertaken after March 21 will qualify for VAT at the zero rate to the extent that works are completed prior to October 1, but any works undertaken on or after October 1 (even when pre-paid) will be subject to VAT at the standard rate (currently 20%). Suppliers need to be aware of, and correctly account for VAT on supplies spanning October 1.
approved alterations, was to address what HMRC consider as a “perverse incentive to change… rather than repair” listed buildings. By applying VAT at the standard rate, alterations and repairs will reflect the VAT treatment of works to other buildings.
However, there are transitional arrangements which allow for the application of the zero rate for approved alterations for a limited period.
Where a contract was entered into before March 21, 2012, or where planning consent was
THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2012 Call to action
Property businesses should take action to ensure they mitigate for these legislative changes and where necessary take specialist advice.
Details: Rupert Moyle 01483-307000
Rupert.moyle@
bakertilly.co.uk
regulations may be given where landlord’s consent is not able to be agreed. Due to the uncertainty of the regulations and the potential far-reaching financial and legal obligations, a considered approach with appropriate professional property and legal advice will be imperative before entering into a new lease.
Details: David Thomas 07815-071882
dthomas@vailwilliams.com
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