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Friday, 12 February 2021 10:11

New energy regulations may pack a financial punch for commercial property owners

Liz Stewart

The Scottish Government has published new rules aimed at improving the energy efficiency of commercial properties.

Liz Stewart, partner in the commercial property team at Stronachs LLP explains why the proposed new rules could have significant financial implications for owners of older buildings.

The draft regulations – the Assessment of Energy Performance of Non-Domestic Buildings (Scotland) – are scheduled to come into force on September 1, this year.

Ministers want certain properties to achieve a minimum energy performance level – most likely an ‘’E’’ rating based on current Energy Performance Certificate standards. Commercial properties with an EPC rating of ‘’F’’ or ‘’G’’ may require expensive energy improvement works to meet the new minimum standard.

A similar minimum energy efficiency standard is already in operation south of the border however, the Scottish regime differs in a number of key respects and some fear these inconsistencies will have a negative impact on the commercial property market here.

Generally speaking, the Scottish regulations will apply to all commercial property with a floor area greater than 1,000m2. While detailed guidance on proposed exceptions is awaited, only buildings already requiring an Energy Performance Certificate are intended to be caught.

With few exceptions, a sale or grant of a new lease on a qualifying property will trigger the need to meet the new regulations, so the owner must provide a prospective buyer/tenant with a formal action plan detailing how the energy performance of the building can be improved to meet the statutory minimum rating.

Action plans, which bring another additional cost, can be produced by a qualified member of an approved organisation, and will assess greenhouse gas emissions and energy performance.

Works needed to improve the energy performance of the property to the minimum standard must be identified in the plan which, once agreed, will be added to a statutory maintained register.

If improvement works are needed, the owner has two options – to complete the upgrades within 42 months, or defer the works. In the interim, the owner must keep an accurate record of the property’s energy consumption via a Display Energy Certificate, which must be registered annually, with a view to reducing the energy consumption of the property concerned.

Responsibility rests with the property owner. Failure to comply can result in a penalty charge – responsibility for enforcement will lie with each local authority in Scotland.

In most cases, it is hoped improvement works will reduce energy bills in the long term – with the cost of upgrades recouped within five to seven years. The environmental impact of older commercial properties should also be mitigated. Having said this, some older properties may require considerable improvement works to meet the minimum energy efficiency standard without any guarantee of payback - at least 40-50% of existing building stock pre-dates the 1940s.

Detailed government guidance is anticipated in the coming months, and a number of issues including the regulation’s application to buildings with multiple occupiers, listed or historic buildings require clarification.

Until then, owners of qualifying properties should take stock of the new regime and seek early advice in advance of any anticipated sale or lease. Early action can help circumvent fundamental issues, including the question of who pays to improve the energy rating and at what cost?

Written by Liz Stewart, partner in the commercial property team at Stronachs LLP.

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