U.K. landlords to invest in energy efficiency

Wednesday, July 22, 2015

Landlords in the United Kingdom (U.K.) risk losing the rental and investment value of their buildings if they do not meet minimum energy performance standards by April 2018. Industry analysts estimate that regulations passed into law earlier this year could potentially remove upwards of 20 per cent of existing commercial buildings and 15 per cent of the private rental housing stock from the market in England and Wales.

Since 2008, property owners must obtain energy performance certificates (EPCs) through the U.K.’s national energy rating program and make the information available prior to leasing or selling commercial and multi-residential buildings or single-family homes. Under the scheme, which mirrors European Union (EU) stipulations, accredited assessors rate buildings on a seven-step scale, from A to G, based on energy efficiency and environmental impact.

The new regulations, which also reflect the U.K.’s commitment to EU energy efficiency and emissions reduction targets, will prohibit new rentals or lease renewals in buildings with energy efficiency ratings lower than E as of April 2018. Landlords of F and G rated buildings will have to upgrade them to keep them on the market. Expectations for stricter performance standards in the future also mean that buildings at the E level may not attain that grade after their 10-year EPC expires and recertification is required.

“These regulations stand to make a groundbreaking impact to the status quo,” Simon Clouston, head of sustainability and energy with the engineering firm, WSP Group, predicted in February 2015. “Whatever the reaction to the regulations, it will be hard for property owners to ignore the potential penalties for non-compliance, which are both financial and reputational through the government’s publication of non-compliance.”

Rental housing landlords have been granted some leeway to ensure that required upgrades can be covered through the U.K.’s Green Deal program, which provides funding for energy saving improvements recommended by an accredited EPC assessor. U.K. based energy distributors/retailers underwrite the program as part of their obligatory targets for reducing energy consumption, and customers repay through a utility surcharge equivalent to the cost savings realized from the improvement. Once payback is complete, customers will reap the savings into the future.

“Setting the standard at a sensible rather than aspirational level, allowing time to achieve it and granting exemptions if the necessary improvements cannot be funded through Green Deal or other government subsidies means these new regulations will not impose an unreasonable burden,” observed Richard Lambert, chief executive officer of the U.K.’s National Landlords Association. “The NLA actively encourages landlords to improve the energy efficiency of their properties because it’s good business practice.”

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