Real Estate Technical Bulletin - autumn 2008
In this issue of the Real Estate Technical Bulletin we look at the latest round of regulations relating to energy performance of buildings, proposed new legislation that will change the way listed buildings are dealt with, two significant cases for property developers and a stamp duty ‘holiday’ for residential properties.
Energy Performance Certificates
From 1 October 2008, you must provide an Energy Performance Certificate (EPC) on the construction, sale and rent of all commercial buildings that were not previously caught by the requirement.
By way of reminder, 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 10,000m² and since 1 July 2008, EPCs have been required for the construction, sale or renting out of non-dwellings with a total useful floor area over 2,500m².
If your property was already on the market before the relevant date, and the property remained on the market after that date, you STILL have to provide an EPC although you do not need to do so before exchange of contracts as long as exchange takes place before 4 January 2009 (previously 1 October 2008). Once contracts have been exchanged, you must commission an EPC and hand it over to the prospective buyer or tenant as soon as reasonably practicable.
Similarly, if your property is smaller than 2,500m² and you put it on the market before 1 October 2008 (and it remained on the market after that date), the same applies ie you do not have to provide an EPC before exchange of contracts PROVIDED exchange takes place before 4 January 2009 but again, once contracts have been exchanged, you must commission an EPC and hand it over to the prospective buyer or tenant as soon as reasonably practicable.
You do not need to provide an EPC in respect of:
• 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.
Remember that there are penalties for not complying. 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. However, paying a penalty does not get you out of having to provide an EPC and successive penalties can be imposed.
Air-conditioning Inspections
If you have air-conditioning in your building, you may be subject to obligations to have the air-conditioning system inspected.
Part 4 of the Energy (Performance of Buildings) Regulations 2007 imposes an obligation on those who have ‘control’ of air-conditioning systems to ensure that the system is inspected at least every five years by an energy assessor.
The person who controls the operation of the system is the person who controls the technical functioning of the system, not someone who does no more than simply adjust the temperature day-to-day.
If the system was installed and operational after 1 January 2008, the first inspection must take place within five years of the system being put into service.
If the system was in service before 1 January 2008, the date of the first inspection depends on the output of the system:
• systems with an output of more than 250 kW must be inspected before 4 January 2009 (bear in mind the Christmas and New Year holiday period and 4 January is a Sunday!)
• systems with an output of more than 12 kW must be inspected before 4 January 2011.
The penalty for failing to having an air-conditioning inspection report is currently fixed at £300. If you want to sell or rent out a building with an air-conditioning system which should have been inspected, the solicitors acting for the prospective buyer or tenant will ask for sight of the report as part of the due diligence exercise before exchange of contracts. Failure to have a report where one is required could delay a sale or letting.
Display Energy Certificates
As if all that wasn’t enough, certain buildings also need a Display Energy Certificate (DEC) from 1 October 2008. A DEC shows the energy performance of a building based on its actual annual energy consumption and the CO2 emissions that result from that energy use. This is shown as a rating from A to G, where A has the lowest CO2 emissions (best) and G the highest CO2 emissions (worst).
A DEC and related advisory report are required for buildings with a total useful floor area over 1,000m2 that are occupied in whole or part by public authorities and by institutions providing public services to a large number of persons and therefore frequently visited by those persons. The affected occupier must, for each of its buildings, display a valid DEC in a prominent place clearly visible to the public at all times.
Heritage Protection Bill
This bill is due to be passed next year, its aim being to simplify and streamline the protection of historic buildings and places.
A combined register of heritage assets will be maintained and published by English Heritage (and will be available on-line) and developers will need to apply for Heritage Asset Consent (rather than Listed Building Consent).
Anyone can apply for any building to be listed and the building owner will be notified. However, developers should be aware that interim protection will be given where a building is being considered for listing. There is a period of 28 days whilst English Heritage considers the application. If a decision not to list is made, the applicant has a further 28 days to appeal to the Secretary of State who has yet another period of 28 days to consider the appeal.
This process could delay development projects by up to 3 months with no compensation payable for the delay even if, at the end of the day, the building does not get listed.
Watch this space for an update as the bill makes its way through Parliament.
Sign on the dotted line
Two cases have been before the courts recently involving property developers who lost out on potentially large sums of money because they did not sign up to written agreements. In Yeomans Row Management Ltd v Cobbe, the developer (C) spent £200,000 obtaining planning permission to redevelop a block of flats owned by Y, on the basis of an oral agreement that Y would sell the flats to him. A dispute arose and initially the High Court held that C was entitled to half the increase in the value of the property (between £5-£6M). Unfortunately for C, the House of Lords did not agree and found that C’s expectation was speculative and he had proceeded at his own risk. As a result he was only entitled to payment for his services in obtaining the planning permission.
In the case of Sutcliffe v Lloyd, S - again on the basis of an oral agreement that he would get a share of the profits - spent time and money obtaining planning permission for a development project. S claimed half the increase in the value of the property (approximately £220,000) but the court awarded him £25,000 to cover his costs.
These cases emphasise the importance of ensuring that all the terms of a deal are properly documented and contracts are exchanged before you start incurring expenses in obtaining planning permission. Even if the court does find in your favour, which is not a given in light of the court’s approach in the Cobbe case, the amount of any award is uncertain.
On the threshold
In early September the Government attempted to stimulate the housing market by announcing an increase in the Stamp Duty Land Tax (SDLT) threshold for residential properties from £125,000 to £175,000. This means that for all transactions taking place after 2 September 2008 and before 3 September 2009 no SDLT will be payable if the property is purchased for £175,000 or less.
The exemption applies to freehold transactions and the assignment of leases where the lease has 21 years or more left to run.