Overview of Minimum Energy Performance Standards

Date: 25th November 2013

The Energy Act 2011 came into effect in October 2011. Under the Act, non-domestic energy efficiency regulations must come into force in England and Wales no later than the 1st April 2018, and in Scotland, no earlier than the 1st April 2015. The Act proposes that the regulations are tied to the Energy Performance Certificate (EPC), setting a minimum EPC rating that must be achieved by non-domestic properties. These are referred to as Minimum Energy Performance Standards (MEPS) within the industry, and if a property does not meet these MEPS then the property cannot be let.

 

The EPC arose from the European Directive (2002/91/EC) on the Energy Performance of Buildings (EPBD), which requires Member States to ensure that an EPC is provided when a building is constructed or at the point of transaction, sale or lease. In the UK this EPC requirement for non-domestic buildings came into effect from 1st October 2008. EPCs are valid for 10 years, although should be renewed when a material change is carried out to the property to ensure the EPC rating remains an accurate reflection of performance.

 

The EPC denotes the asset energy performance of a building through an A-G rating scale, this rep­resents the as-designed/as-built energy performance of the property, this is determined through an on-site assessment of the building, the outcome of which is then modelled within a Simplified Building Energy Model (SBEM), or for more complex buildings, a Dynamic Simulation Model (DSM) to generate the EPC rating. An understanding of the asset energy performance at the point of transaction allows prospective buyers or tenants to understand the energy efficiency of the building fabric and services separate from how it was used operationally by the previous owner or tenant.

However, the EPC to date has largely been viewed as a ‘licence to transact’ rather than a vehicle for the assessment of asset energy performance. A largely commoditised EPC market caused many certificates to be used upon insufficient or inaccurate data, meaning many EPC ratings do not fairly reflect the energy perfor­mance of the property. Through competent asset assessment, the EPC can be used to gather quality data about a property’s energy performance and form the basis for retrofit feasibility decision-making.

 

With the introduction of MEPS, proposed under the Energy Act 2011, a tangible risk will be associated with properties with poor EPC ratings, directly impacting a landlord’s ability to generate an income from non-domestic property. Furthermore, MEPS risk will likely impact the transaction process, causing prospective owners and tenants to demand discounts for poorer rated properties, as well as increased landlord exposure to dilapidations liabilities.

 

Also arising from the Energy Act 2011, is the introduction of the Green Deal, an initiative that enables the implementation of energy saving measures with no upfront outlay, and re-payment for the measures made through energy bills. The re-payment of the measures must be covered by the associated energy cost savings. If a property has a poor EPC rating then the landlord can undertake measures under the Green Deal scheme to overcome MEPS risk, although it will not be feasible to reposition all properties out of risk through the limited Green Deal measures.

 

Due to MEPS, the EPC rating will consequently act as a trigger for energy performance improvements, the precise rating at which this will occur is to be set out within the forthcoming regulations, expected in late 2014. The Department of Energy and Climate Change (DECC) advises that it is likely MEPS will be associated with F or G rated properties, and as a result, from 1 April 2018, all private, rented, non-domestic properties must be brought up to a minimum EPC rating of an E if they are to be let. Landlords’ obligations will therefore have been met where a property has an E rating or they have carried out the maximum package of measures outlined and funded under the Green Deal (even in the event that the building does not reach an E rating).

 

Non-domestic landlords with an acute awareness of the risk associated with poorly rated assets will now be looking to assess and re-assess their portfolio to determine an accurate baseline from which to manage this legislative risk going forward.

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