You, MEES and non-domestic EPCs in Scotland
A winter of sorts, is about to bite for landlords in England and Wales who own certain categories of non-domestic property. From 1 April 2018, landlords in England and Wales will no longer be permitted to grant a new lease, permit a lease renewal or extension to a tenant of a non-domestic property where it has been assessed as category F or G under the EPC rating scheme. And from 1 April 2023 this extends to existing leases, meaning it will be unlawful for leases of F and G category properties to continue from that date.
How this affects your Property in Scotland? The answer is MEES do not affect property in Scotland. There is no minimum rating applicable to Scottish Properties.
Enforcement of the Minimum Energy Efficiency Standards (“MEES”) rules, introduced by the Energy Efficiency (Private Rented Property) (England and Wales Regulations) 2015, marks a further departure from the approach in the North. The updated Scottish Regulations came into force on 1 September 2016.
Landlords and property owners in Scotland will not be prevented from leasing F and G rated properties, and shall instead (courtesy of the Assessment of Energy Performance of Non-domestic Buildings (Scotland) Regulations 2016) be required to prepare an action plan for properties over 1000m2 and choose either (a) to defer the implementation of the action plan and to have the energy efficiency of their building monitored and reported on annually or (b) reduce emissions directly by initiating works to improve any factors contributing to a low EPC rating. Broadly speaking, that applies only to non-domestic buildings or individual units with a floor area over 1000m².
Properties that meet 2002 building standards or later; or are under the Green Deal; or temporary buildings/workshops with low energy requirements are not affected. Unlike in England and Wales, however, listed buildings north of the border are subject to the regulation change.
Lights, camera…action plan
In Scotland, where an owner of a commercial property over 1000m² wants to sell or lease a property, the regulations now dictate an action plan must be provided to the prospective tenant or buyer at the seller’s expense. It must include a programme of improvement measures to enhance the energy efficiency of the building and recommendations must be implemented within 3.5 years, or deferred by the monitoring noted at (a) above. If the monitoring option is exercised a DEC (or Display Energy Certificate) will record actual versus projected energy consumption and emissions and the public will have access to this Certificate.
The improvement measures will only be mandatory where the energy savings over a period of seven years would exceed the preliminary cost of the works, or if a boiler is over 15 years old. On completion, a document of confirmation of improvement must be registered and a new EPC obtained.
Renewals, short term leases, subleases, assignations and unoccupied buildings escape the regulations.
Besides the impending divergence in approach to tackling the lowest rated properties, there are other fundamental differences between England/Wales and Scotland on the EPC front. For example, the basis on which EPC ratings are calculated differs in key respects. In Scotland the EPC rating system is based solely on the Building Emissions Rate (BER) of a building. It measures emissions in kilograms of carbon dioxide per square metre per year, on a linear scale.
The EPC system in England and Wales on the other hand bases its calculation on the basis of BER and something called SER (Standard Emission Rate). The SER concept basically uses a reference to a hypothetical building of a similar type, size and shape to contextualise the banding and, in theory at least, so as not to penalise necessarily power hungry buildings (eg data centres). Although the same A to G rating system is used, buildings in England and Wales will generally fair better due to the SER test and thus obtain a better overall EPC rating as compared to an identical building built in Scotland.
Sting in the tail
Whilst English and Welsh advisers and their landlords are checking their files and asking what it all means for them, they will soon be acutely aware of the perils of failing to comply. They could be fined £5,000 or up to 10% of the rateable value of the property for a breach of 3 months or less, to a maximum of £50,000; or £10,000 or 20% for a breach of 3 months or more, to a maximum of £150,000. In Scotland, Local Authorities can impose a penalty of £1,000 if an owner fails to provide an action plan or carry out improvement measures within the 3 and a half year time limit.
Public flogging and Night watching
Taking a leaf out of the UK Information Commissioner’s book, public ‘shaming’ in all but name appears to be in prospect in England and Wales too for the most offending owners. And, the Scottish Government will be monitoring the energy data and can impose compulsory works prescribed under the regulations should they see no improvement. Whether they do so with a Night’s Watch-esque commitment remains to be seen.
So with the EPC landscape in England and Wales set to undergo further change this year, together with the ongoing challenges for owners of large commercial properties in Scotland, owners and landlords affected have much to contemplate as they tackle the latest EPC twists and turns and try to stay on the right side of the ratings scale going forward.