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Green FM


cost-effectiveness criteria (currently a 7-year payback) or consent cannot be gained from the tenant, lender or superior landlord. This is also the case if an independent expert states that improvements will negatively affect the value of the property by 5% or more. However, there may be hidden costs associated with the time and fi nancial resource required to implement energy effi ciency measures. For example, this could include disruption costs associated with installation, the time taken to research and organise works and the costs of redecoration. There is also the time required to interpret and apply the regulations to a portfolio and possible other costs, such as business rates incurred during lengthy retrofi tting of void premises and the rare occasion in which planning permission may be required. These costs, however, can be passed on to tenants over time through marginal increases in rent or service charge, or recovered through capital appreciation. This will, of course, largely depend on market conditions and the location of the asset: consider the high property values and rent levels in London, for example, where also the largest number of properties built pre-1919 are located. Landlords should be particularly aware that non-compliance carries both fi nancial and disclosure penalties: Non-compliance or providing misleading information – maximum fi ne of £5,000 and publication of non-compliance. Renting out a non-compliant property for less than 3 months – 10% of rental value with a minimum penalty of £5,000 and maximum penalty of £50,000. Publication of non-compliance. Renting out a non-compliant property for more than 3 months – 20% of rental value with a minimum penalty of £10,000 and a maximum penalty of £150,000. Publication of non-compliance.


Preparing for change


Research conducted in 2011 on behalf of Consumer Focus showed that 79% of those who received an EPC had not acted on the recommendations. The new Minimum Energy Performance Standards will change this, and we can expect that over the coming years, the energy performance of buildings will become of greater importance to all actors in the


marketplace – particularly commercial property owners looking to make their buildings more attractive to customers, as well as investors deciding where best to look for their desired return. However, an important shift is already happening that requires immediate incorporation into any strategy for compliance with the Minimum Energy Performance Standards. Analysis by Ramboll Environ has shown that EPC calculation changes with Part L2A of the Building Regulations led to an average increase of 23.5% in EPC ratings between 2006 and 2010. This means that changes in the EPC methodology could result in a building with a C or D rating in 2015 being rated E or lower in future years. Considering that there are 25 Asset Rating points within each EPC band, we predict that there is a reasonable likelihood that there could be a change of up to two EPC bands by 2018. This means that landlords looking to achieve only the minimum standard required by the regulation could fi nd that they would need to carry out further improvements sooner, causing added disruption and increasing the costs of compliance to the business. This is without considering any possible change in the regulations to increase the minimum standard from an E rating to a D in future years, which is diffi cult to predict. The key to ensuring that your business


derives value from these new regulations is to carefully analyse the EPC rating and lease position of each of your properties in order to develop a plan that makes business sense. This will ensure you are able to effectively use the time available between now and 2018 to take advantage of void periods and undertake planned maintenance, as well as building upgrade work in to planned refurbishments.


Author information


Stephen Barlow, writing for the UK Environmental Law Association, is principal at Ramboll Environ.


http://www.ukela.org/rte.asp


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