The Business Exchange Swindon & Wiltshire March Edition 2013 | Page 13

COMMERCIAL PROPERTY

THE ENERGY ACT 2011
Will new legislation affect the value of your
property? Your ability to let it? Or, if you’re a
tenant, the ability to sub-let or assign your lease?
As a title I realise “The Energy Act 2011”
might lack immediate impact, but bear
with me because this Act is undoubtedly
going to have a significant impact on a
large sector of the commercial property
market with financial implications for both
owners and occupiers.
Introduced to assist the government in
achieving ambitious targets for reducing
CO2 emissions, the Act includes within its
scope the energy efficiency of buildings
and, within its armoury, a very large
stick...
When Energy Performance Certificates
were introduced as part of the Home
Information Packs (HIPs) in 2007 they
were largely seen as another unnecessary
layer of government bureaucracy and
needless meddling in the house buying
process. When the main part of the HIP
was dropped in 2010, EPC’s stayed and
were then introduced to commercial
property sales and lettings. Whilst initially
still considered as an unnecessary cost

to transactions, it became clear that
EPCs would become a major part of the
government’s energy strategy.
The Energy Act 2011 requires the
government to introduce, no later
than 1st April 2018, Minimum Energy
Performance Standards (MEPS), which will
prevent owners or existing tenants from
selling or re-letting any property which
falls below a specified energy efficiency
threshold. The mechanism for this control
is to be the EPC.
The ratings given in an EPC run from
A to G and it is widely expected that
the threshold will be an E rating. Once
implemented this Act will make it unlawful
for any F or G rated building to be sold
or let without work being undertaken
to improve its rating. By definition such
buildings will most likely be 25 years old
or more, constructed at a time when
building regulations were much less
focussed on energy efficiency. Whilst
such a building might still be perfectly

functional to its occupier, undertaking the
level of work needed to bring it up to the
required EPC rating may not be viable,
leaving some stark choices.
For the owner, this has obvious
financial implications for the underlying
value of the building, and therefore
on the company balance sheet, with a
consequential impact where that building
is used as security against a loan.
Tenants are not exempt from the
risk this legislation carries either as a
significant proportion of commercial
property transactions occur when
existing tenants look to either assign
or sublet their leases, both of which
will be captured by the Act. The other
unknown for tenants is whether “catch
all” lease terms requiring compliance w