Energy Performance Certificates: an overview
What is an Energy Performance Certificate?
Which commercial buildings need an EPC?
Are there any buildings which do not require EPCs?
Who is responsible for providing an EPC when a non-dwelling is constructed?
What about responsibilities linked to the selling or letting of a non-dwelling?
Are there any transactions where an EPC is not required?
Do the requirements to produce EPCs differ depending on whether the transaction involves either the whole or part only of a building?
Who pays for the EPC and can the cost be recovered?
When can action be taken for failure to comply with the requirement to provide an EPC?
What are the penalties for failure to comply?
What is an Energy Performance Certificate?
An Energy Performance Certificate (EPC) is a certificate containing information about the energy efficiency of a building. There is no prescribed form for an EPC but it must include certain information including the asset rating of the building - the asset rating considers the characteristics of the building itself and its services and is expressed on a scale from A to G (A being most efficient and G least efficient). The better the rating, the more energy-efficient the building - this would probably result in lower fuel bills.
An EPC is valid for a ten year period unless it is superseded by a new assessment giving rise to a new EPC.
EPCs for non-dwellings are stored in a national register operated by Landmark Information Group Limited (Landmark).
Which commercial buildings need an EPC?
Since 6 April 2008, EPCs have been required for the construction, sale or renting out of non-dwellings with a total useful floor area over 10,000 square metres . The Government’s Guidance states that where contracts for the sale or rent of a property were exchanged before 6 April 2008, the duty to provide an EPC will not apply.
From 1 July 2008 EPC’s will be required for the construction, sale or renting out of non-dwellings with a total useful floor area over 2,500 square metres.
Where a property is on the market before 6 April 2008 (for properties over 10,000 square metres) or 1 July 2008 (for properties over 2,500 square metres), and remains on the market after that date, the obligation to provide an EPC before the sale/letting will not apply. That said, when contracts are exchanged on such transactions, the seller/landlord must:
• Request an EPC from a provider;
• Make all reasonable efforts to obtain an EPC as soon as reasonably practicable; and
• Give the EPC to the buyer or tenant, free of charge.
The final tranche of buildings that are not dwellings will require EPCs for their construction, sale and/or rent with effect from 1 October 2008.
Are there any buildings which do not require EPCs?
A building is a structure with a roof and walls which uses energy to condition its indoor climate. This definition would exclude certain structures from the requirement to have an EPC, including a car park which is open at the sides.
For buildings that do satisfy the definition the following do not need an EPC:
• Places of worship;
• Temporary buildings with a planned use of less than 2 years;
• Stand alone buildings with a total useful floor area of less than 50m² that are not dwellings;
• Industrial sites, workshops and non-residential buildings with a low energy rating; and
• Subject to satisfying certain requirements, the sale or rent of a building that is due to be demolished.
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Who is responsible for providing an EPC when a non-dwelling is constructed?
Once a building is physically complete it is the responsibility of the person carrying out the construction to give an EPC and recommendations report to the owner of the building. The original EPC must be produced. There is also a requirement to notify Building Control that this has been done. Unless Building Control are satisfied this has been done they will not issue a certificate of completion.
What about responsibilities linked to the selling or letting of a non-dwelling?
Subject to the exceptions above, EPCs are required when a building is sold or let. In addition, existing tenants of a building will require an EPC if they intend to assign or sublet.
It is the seller/landlord’s responsibility to ensure that an EPC is available even if an agent or other third party is acting on their behalf or providing the EPC. As a result any seller/landlord should ensure that someone acting on their behalf is complying with the Regulations which govern EPCs.
Where an EPC is required as part of a sale or letting, unlike construction of a building, a copy of the EPC will suffice.
Are there any transactions where an EPC is not required?
Yes - certain transactions are not deemed to be selling or letting and therefore do not require an EPC, these include:
• Lease renewals or extensions;
• Lease surrenders; and
• Compulsory purchase orders.
Furthermore, an EPC is not required where:
• The seller has reasonable grounds to believe that the prospective buyer/tenant is either not genuinely interested in entering in to the transaction or has insufficient funds available to be able to complete; or
• The seller is unlikely to be prepared to enter in to the transaction with the prospective buyer/tenant.
There are also some grey areas, including short term lettings (E.g. seasonal lettings) and option agreements. The latter, until exercised, are not contracts but could be caught if the actions of the buyer in requesting information about the building could trigger the requirement to produce an EPC. It appears that sale and leaseback arrangements will need EPCs.
Do the requirements to produce EPCs differ depending on whether the transaction involves either the whole or part only of a building?
Possibly! The following are typical building layouts with an explanation of the EPC requirements relevant to each:
Example 1 - a shop with a residential dwelling above. Here if the residential area has a separate access to the shop and is designed as a “stand alone” dwelling, then each part should have its own EPC. However, if the dwelling can only be accessed via the shop unit an EPC would be required for the whole premises.
Example 2 - an office block with no residential elements. This will depend on how the building is heated. If there is a common heating system for the whole building then either a common EPC can be produced for the building or a separate EPC produced for each part that is designed or altered to be used separately. If each floor has its own heating system then should the transaction involve the sale or letting of the whole building the choice is either to produce one EPC for the building or an EPC for each separate part. However, should the transaction involve, say, one floor of the building one EPC is required which can only relate to the part of the building being sold or let.
Example 3 - an industrial site. If the units share a common heating system then again there is a choice of having one EPC for the whole building or one EPC per unit. Contrast that with units enjoying independent heating systems where one EPC would be required for each unit.
Who pays for the EPC and can the cost be recovered?
The cost of preparing an EPC can run into tens of thousand of pounds, especially on a large complex building.
Where the requirement to produce an EPC relates to the construction or modification of a new building the Regulations do not appear to prevent this cost being passed on to the “owner” of the building.
However, where a building is being sold or let, an EPC must be provided to the prospective buyer/tenant free of charge. Is there any way that the cost could be passed on?
An EPC produced by someone else (e.g. a superior landlord) may be available but would this itself be provided free of charge? Wording in the lease may require the tenant who is requesting the EPC for its proposed sale or subletting to pay its landlord for the privilege.
Clearly if it is the whole of the building which is being disposed of then if the building is tenanted, a landlord may seek to recover the cost of producing the EPC from its tenants via the service charge. Whether this is possible will depend on several factors. Where the service charge provisions expressly enable the landlord to recover costs of statutory compliance this could cover the production of an EPC provided that the duty to produce the document has arisen. Over-eager landlords who commission the EPC too early may fall foul of this!
Even without an express reference to statutory compliance detailed in the service charge provisions, landlords may seek to recover it from its existing tenants arguing that it is covered by a general sweep up clause. The success of this argument will depend on how widely that clause is drafted.
Mindful of the fact that a new tenant cannot be charged for the provision of the EPC, if the transaction is the granting of a new lease, care would also need to be taken about when the charge incurred in providing the EPC is recovered via the service charge to avoid the new tenant indirectly paying part of the cost once they become bound to observe the tenant covenants in the lease and receive a service charge demand.
When can action be taken for failure to comply with the requirement to provide an EPC?
Enforced by local authorities (usually via their Trading Standards Officers), an enforcement officer can request a copy of an EPC at any time up to six months from when it was required. In view of that, it would be advisable for sellers/landlords to retain relevant information pertaining to an EPC so that a copy could be requested from the Landmark based Register if required.
What are the penalties for failure to comply?
The level of the penalty charge varies according to the type of property in question. In most cases, the penalty for failing to provide an EPC when selling or renting out commercial property is 12.5% of the rateable value of the building, with a minimum penalty of £500 and a maximum penalty of £5,000. That said the potential negative PR connotations of a failure to comply may be a lot more costly!!
Further useful guidance on EPCs can be obtained from a document entitled “Improving the energy efficiency of our buildings” produced by the Department for Communities and Local Government and available via their website: www.communities.gov.uk
For further information please contact Shama Gupta in our Support Team at our Nottingham Office:
Freeth Cartwright LLP, Cumberland Court, Mount Street, Nottingham NG1 6HH
Tel: 0115 9369 369
Fax: 0115 8599 641
Email: shama.gupta@freethcartwright.co.uk
The information contained in this alert is a general summary and commentary on recent developments and does not constitute advice.
You must take specific legal advice in relation to any of the issues raised here in terms of the impact they may have on you.