Action it now: new energy efficiency obligations for landlord/sellers in Scotland
On 14 June 2016, the Scottish Government announced that Scotland has exceeded a target to reduce its greenhouse gas emissions by 42% by 2020 – six years early . However Climate Change Secretary Roseanna Cunningham has confirmed that the Government will now set a “new and more testing 2020 target”. The Government will hope the new target can be achieved, in part, by enforcement of the Assessment of Energy Performance of Non-domestic Buildings (Scotland) Regulations 2016. The Regulations will require owners of certain non-domestic buildings to assess and improve energy efficiency. The Regulations will apply from 1 September 2016.
Who is affected?
The Regulations will affect owners of any non-domestic building or non-domestic building unit of over 1,000 m² which is not constructed in accordance with a building warrant applied for on or after 4 March 2002 (a “Building”). A “building unit” is part of a non-domestic building which is designed or altered to be used separately. Green Deal properties, and properties excluded under The Energy Performance of Buildings (Scotland) Regulations 2008 (currently temporary buildings with a planned time of use of two years or less, workshops and non-residential agricultural buildings with low energy demand), will not be affected.
When are they affected?
The trigger is when the decision is taken to sell or let the Building. Uncompleted buildings, short term lets (duration less than 16 weeks) and lease renewals are not trigger events. The current view is that an assignation (assignment) of a lease will not be a trigger, but FAQs awaited from the Scottish Government should confirm the position on this.
When a trigger happens, the Building owner must:
- produce an action plan for improving the energy efficiency of the property and make it available to a prospective buyer or prospective tenant; and
- ensure that the energy improvement data relating to that action plan has already been sent to the relevant register.
What will the action plan identify?
The action plan is prepared by a “section 63 advisor” (a qualified member of an organisation approved by the Scottish Ministers and also registered as a non-domestic Energy Performance Certificate provider) following an assessment of the Building. The action plan will identify any physical improvements required. These can be Identified Improvement Measures and/or Alternative Improvement Measures. Identified Improvement Measures come from a list set down in the Regulations, e.g. replacing the boiler, insulating the roof and upgrading lighting; the advisor must be satisfied that the cost of these improvements will be recouped (via reduced energy costs) within 7 years (or 15 for the boiler). Alternative Improvement Measures are measures the advisor advises are carried out and will reduce energy consumption and greenhouse gas emissions of the Building; the guidance on the Regulations suggests that these measures will often be more cost effective measure.
How long is the compliance period?
The owner (or new owner following a sale) usually has 42 months to complete the improvements. However, if the action plan includes a statement that the owner has elected to implement operational ratings measures, then the owner can choose to defer the carrying out of the works by (1) recording and reporting annually on the operational energy rating of the Building and (2) exhibiting a Display Energy Certificate. A DEC is only valid for one year from its issue and must be updated before expiry to allow any deferment to continue.
If the original action plan does not allow for operational ratings measures (1) a new action plan can be obtained within 12 months of the original one with this as an option or (2) a new action plan can be obtained after that 12 month period with this as an option provided there is a valid Display Energy Certificate and there was one in place no later than 12 months after the date of the original action plan and there has been no gap.
When the works have been done, the owner must obtain a new Energy Performance Certificate and a new action plan (referred to as a “document of confirmation of improvement”). The new action plan will show that the works have been done and when they were done.
All actions plans and confirmations of improvement are registered in the Scottish EPC Register by the section 63 adviser.
What are the penalties?
Local authorities can impose a fine of £1,000 for failure to obtain an action plan and £1,000 for failure to compete the works within the time limit. Note that these are the current penalties; it is always possible that more stringent and far-reaching penalties could be introduced in the future.
Key practical issues
- Sellers/landlords: Sellers or owners granting leases should check whether the property needs an action plan, and if so ensure it is exhibited to the purchaser/tenant at the earliest opportunity (in the same way as an EPC is at present).
- Purchasers: Commercially a purchaser may wish to require the seller to carry out any necessary works in advance or seek a reduction in the purchase price to reflect the cost where this information was not available when the price was agreed. Purchasers should check that any existing occupational leases give the necessary access rights to allow the new owner to either do the works or comply with the reporting requirements (as applicable). If the leases do not contain the necessary rights, then the owner’s risk is a fine as set out above – though bear in mind that the penalties may change in future.
- Leases: The Regulations do not make any express exemptions for leases which do not allow the landlord necessary access – and whilst the absence of such an access right may give a defence against a fine in relation to premises let under an existing lease, it is unlikely this argument would be accepted for leases entered into after 1 September 2016 – so landlords should ensure new leases include appropriate access provisions. The parties should consider whether any required improvements are to be implemented by the landlord or the tenant, and who will bear the cost, with specific provision being made in the lease documentation to match the commercial agreement. However, note that the legal obligation will rest with the owner – and any assumption of responsibility by the tenant will be contractual only.
