At a glance
- Legislation to herald major changes for real estate sector
- As many as 20% of all current commercial properties may fail Act, which is expected to go live in 2018
- Zurich offers range of support to help brokers and their clients in assessing their portfolios
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The Energy Act 2011, which promises a big shake-up of the real estate sector, is coming and commercial landlords are being forced to take a long, hard look at their portfolios.
It is estimated that around 20% of all commercial properties will not hit minimum energy efficiency standards under the new legislation, to be enforced from April 2018, making it impossible to let a property with an Energy Performance Certificate (EPC) rating of ‘F’ or ‘G’ after this date.
What the Energy Act 2011 will mean for brokers’ real estate clients
- From 2018, it will become unlawful to let commercial properties with an EPC rating of ‘F’ or ‘G’
- Changes to be introduced in Scotland from April 2015
- Landlords will be forced to assess the energy efficiency of their properties
- Energy efficiency improvements should take advantage of void periods, or be part of ongoing maintenance
- Applicability of Green Deal finance to certain buildings needs to be assessed
However, Zurich is offering support to brokers and their clients when it comes to assessing their property portfolios, with its partnership with 4See Environmental, an energy consultancy which has expert knowledge in allowing landlords to help improve their EPC ratings.
Access to this advice will enable landlords to better understand the inherent risks that sit in their portfolio and how they can best manage them in relation to the changing legislative framework.
Recent research by 4See Environmental says that the problem of landlords having to complying in full with the Energy Act may, in fact, be far greater than previously thought. 4See has found that 34% of commercial properties for rent do not even currently have an EPC, which uses a grading system running from ‘A’ to ‘G’ to establish an energy efficiency rating.
And although the legislation may seem some way in the distance, it will be with us sooner than we think – the Energy Act is coming into force in Scotland from April 2015 – and commercial landlords should be reacting now in a bid to minimise its impact and best position their portfolios to take advantage of increasing tenant demand for energy efficient properties.
Given that environmental regulations are moving in one direction only, meeting the minimum requirements may also not be the best policy to adopt. For instance, the EPC – which all landlords have been required to provide to tenants since 2008 – is revised from time to time and it will more than likely be harder to achieve higher EPC bands in the future.
To counteract this, Zurich is helping landlords to future-proof their portfolios by introducing new clauses for customers that enable them to actually improve the quality of the property and introduce new construction materials at the time of a loss, rather than simply reinstate what was there previously.
And at policy level, Zurich is introducing new and improved policy wordings that can offer landlords the ability to meet the demands of legislation as they manage claims and losses.
Source: 4See Environmental
Acting often is best policy
While acting just once before the 2018 deadline to rectify any EPC issues is also not advised, as this will restrict the ability of landlords to negotiate with incumbent tenants around the leases and the upgrades they may want to plan.
In reality, though, much of the work required to improve the EPC rating of a building will not be overly extensive or expensive. The type of lighting used in a retail unit, for example, can have a large impact on the EPC rating with tungsten and halogen fittings contributing heavily towards a poor energy performance.
The UK government has introduced a ‘Green Deal’ scheme to allow landlords across the country to install a range of energy efficiency and renewable energy upgrades on their property through a loan scheme to pay for more costly upgrades, such as installing double-glazing that can cost thousands of pounds.
Repayments will be made through charges on the property’s electricity bill, whereby the cost of the loan taken out over the expected lifetime of the improvement, of up to 25 years, is no greater than the amount of the projected energy saving.
Landlords need to be aware, however, that this scheme works well for them when the property is fully let, but the landlord will pick up the Green Deal repayment liability if the property is empty.