On 20 September 2023, Rishi Sunak announced a series of policy changes relating to targets to tackle climate change, including delaying a ban on the sale of new petrol and diesel cars from 2030 to 2035.
Earlier in the year, the Scottish Government opened a consultation in relation to its proposals for reform of legislation governing Energy Performance Certificates (“EPCs”). Views must be submitted before 16 October 2023.
The consultation is in respect of EPCs for domestic and non-domestic property. This article, though, looks primarily at commercial EPCs.
An EPC provides information about the energy efficiency of a property. A seller or landlord must (subjects to various exemptions) exhibit an EPC when selling/leasing the property.
Currently an EPC is valid for 10 years or until replaced by a new certificate: the Scottish Government’s proposals would reduce the 10 year period to 5 years. Accordingly, at the relevant trigger point (eg the sale or lease of the property), a new EPC would be needed if no EPC had been issued in the previous 5 years.
The Consultation Paper does not propose the introduction of minimum ratings that must be achieved by non-domestic properties (in Scotland there are minimum ratings with which domestic properties must comply). That approach is interesting given that the Scottish Government called for submission in December 2021 on the “Regulation of energy efficiency in existing non-domestic buildings”, which mooted, amongst other things, the introduction of a minimum standard for a property’s energy efficiency performance (which could be linked to the property’s EPC rating).
In contrast, in England and Wales, since 01 April 2023, certain non-domestic properties (various exemptions apply) with an EPC rating below “E” are deemed to be “sub-standard”. That rating may be reduced to “C” by 2027 and “B” by 2030. (Please bear in mind that the ratings system in England and Wales differs from that in Scotland, so at present a rating of (eg) “B” in England and Wales does not necessarily mean the same as a “B” rating in Scotland.) In England and Wales, from 01 April 2023, if the landlord of a property with a “sub-standard” rating wants to grant a new lease or to continue an existing lease, the landlord must to (I) improve the property’s energy efficiency and or (II) register a valid reason for the property not having a rating of “E” or above. Financial penalties can be imposed for breach.
If Scotland does introduce a minimum rating system, that might mean that a seller/landlord with a property rated below the minimum level is blocked from selling/leasing the property until the required improvements are made.
While Scotland does not currently have such a minimum rating system, Regulations from 2016 require that non-domestic buildings with a floor area larger than 1,000m² (and units within buildings with floor areas larger than 1,000m² that can be used separately) that are to be sold or leased, they must comply with standards set out in the Scottish Building Regulations 2002.
If the property does not meet that standard, the required improvement measures (eg more efficient heating, better insulation) are set out in an “Action Plan”.
If the improvement measures are completed, a new EPC could be obtained, evidencing compliance with the standards in the Scottish Building Regulations 2002. The improvement measures would need to be performed within 42 months. If the property owner prefers not to perform the improvement measures, it has the option to lodge a Display Energy Certificate (“DEC”). A DEC must be lodged annually until the improvement measures are completed. Fines can be imposed on the property owner if the improvement measures are not completed within the appropriate timeframe.
It is worth noting that these 2016 Regulations do not apply where (I) an existing lease is being renewed with the same tenant, or (II) the lease is for a period of not more than 16 weeks, provided there is only 1 lease such lease during any 52 week period.
While the current Westminster Government may intend to loosen the drive to achieve net zero, we wait to see whether Holyrood will again consider introducing minimum energy efficiency ratings for non-domestic properties.
If you have any questions on this on any other area of Commercial Property, please get in touch with Blackadders Commercial Property Team, working in Aberdeen, Dundee, Edinburgh & Glasgow and across Scotland.
