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Energy Act 2011 - The Impact on Property Lettings

The Energy Act 2011, which is set to come into force in April 2018 across England and Wales, is part of the UK government’s drive to reach its carbon reduction target of 80% by 2050. It will prevent commercial landlords from letting out properties that fall below a prescribed level of energy efficiency unless they make certain improvements.
 
It is estimated that around 20% of all commercial properties will not hit minimum energy efficiency standards under the new legislation making it impossible to let a property with an Energy Performance Certificate (EPC) rating of ‘F’ or ‘G’ after April 2018. Landlords and managers of properties with an ‘F’ or ‘G’ rating – the lowest two grades of energy efficiency – could therefore face substantial costs in attaining the required standard.
 
Certain types of residential lettings will also be affected, including regulated tenancies under the Rent Act 1977 and assured short-hold tenancies. The Energy Act is not likely to apply to sales.
 
What you need to know about EPCs, the Energy Act and the ‘Green Deal’
 
Energy Performance Certificate (EPC) – An EPC shows the energy efficiency rating of a property and its environmental impact. It uses a grading system from ‘A’ to ‘G’, and will recommend measures to improve performance.
 
Energy Act 2011 – Set to come into force in April 2018 in England and Wales, the Act will make landlords legally responsible for improving the energy rating of commercial and certain types of residential property in order to achieve lower carbon emissions.
 
The Green Deal – Introduced by the UK government in conjunction with the Energy Act, the Green Deal is a loan scheme that allows for energy efficiency and renewable energy upgrades to pay for improvements such as insulation, heating and solar panels to properties. The loan can be paid back either out of savings on future electricity bills or up front. It is envisaged that savings on energy bills from the improvements will cover the cost of repayment of the loan. From 2018, if a property fails its EPC rating, it may still be rented out as long as the landlord has committed to Green Deal improvements. This, though, will make any property more costly to occupy.
 
Take action sooner rather than later
 
It is imperative for commercial property owners to take steps at this stage to understand the energy efficiency of their properties and assess the viability and associated costs of carrying out a retrofit or upgrade as appropriate.
 
Doing nothing now over the Energy Act will leave little time to do essential upgrade work, this could be particularly problematic where the relevant property is occupied by incumbent tenants with long leases.
 
Get to understand where the risks lie in portfolios and investigate the buildings that need inspecting further – ones that are likely to fail an EPC – so there is a realisation of how much it will cost to meet the requirements.
 
And given that environmental regulations are moving in one direction only, aiming to just meet the minimum stipulations of the Energy Act from 2018 may also prove to be counter-productive.
 
If you do nothing with a building, over time – from an energy perspective – it will drift down the EPC scale. There are some ways you can improve a building relatively inexpensively, but at the other end of the scale there are buildings that are just beyond economic resolution which could be cheaper to demolish.
 
Thus, a good EPC rating may greatly improve the value of a property, as well as its appeal to tenants who, increasingly, have green agendas of their own.
 
What to do next? 
 
If you would like to talk to an expert for more information about your insurance programme, or to discuss any other risk or insurance need, please give us a call. We do also have a PDF document available that focuses on the Energy Act 2011 in more detail, please contact us on the following number or email us to request a copy.
 
Call 01789 761660 

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