<< back

EPC Regulations and the Green Deal: a nudge towards synergy

The Energy Performance of Buildings (Certificates and Inspections) (England and Wales) (Amendment) Regulations 2011 had been expected in July but were eventually published in October. Together with the ‘Green Deal’, which is central to the Energy Act 2011, the measures are a welcome development. Their purpose is to facilitate increased action in the reduction of carbon emissions and the implementation of property-related measures, intended to address climate change in compliance with EU Energy Performance of Buildings Directives.

In her green living blog in April 2011, Faye Scott of the Green Alliance commented in relation her own residential sale and purchase that estate agents mention Energy Performance Certificates (EPCs) as being a legal requirement without “selling [them] and their potential benefits.”

Scott’s view is that although buyers are unlikely to choose between two domestic properties based on energy costs alone, EPCs “could and should be used as a negotiating tactic.” Prospective commercial purchasers or tenants are less likely than residential purchasers to be as idealistic about the cosmetic appearance of premises and more hard-headed as to running costs but Scott’s view, that the benefits of EPCs are currently undersold, applies equally to commercial premises.

Scott suggested in her blog that EPCs could be given greater weight by the introduction of a requirement that any energy-saving recommendations in an EPC must be complied with by the new owner or occupier within two years of acquisition or occupation of a property, or that a property could not be sold without the recommendations having been adopted. In light of continuing economic uncertainty, it is arguable whether the element of compulsion proposed by Scott and the associated upfront costs would immediately appeal to many sellers or landlords of residential or commercial property.

EPCs were originally required as a component of the now-abandoned Home Information Packs (HIPs) on residential sales, and were subsequently  required incrementally in commercial property transactions. EPCs survived the abandonment of HIPs, as they are mandated under European law. However, it may have been their original introduction as part of the widely discredited HIP regime that has resulted in EPCs continuing to be viewed with only muted enthusiasm by those other than the most committed environmentalists.

The 2011 Regulations amend the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007 and will come into force on 6 April 2012. Although they do not introduce any compulsory compliance with any energy-saving recommendations set out in an EPC, the regime has now been given more teeth.

EPCs will be required at the outset for all properties marketed on or after 6 April, unless any of the limited exceptions for commercial properties apply. From that date, agents’ particulars of sale or letting must include not only the asset rating of the property but also a copy of the full EPC, including energy-saving recommendations. With continuing increases in energy costs, any inefficiencies disclosed in EPCs could then be used as a tool in price or rental negotiations. This might then act as an incentive for sellers and landlords to undertake the recommended improvements to attract purchasers, tenants or licensees.

The ‘Green Deal’ set out in the Energy Act 2011, which received Royal Assent on the 18 October, is the government’s flagship energy efficiency initiative launched by the Department of Energy and Climate Change (www.decc.gov.uk). The Energy Act has the same broad aims as EPCs: at national level, the reduction of greenhouse gases (which are seen as a contributory factor in climate change) and at local level, the improvement of energy efficiency and saving money on energy costs.

The Green Deal will enable occupiers and owners of premises and private sector landlords to obtain finance from accredited Green Deal providers for energy efficiency improvements through a ‘pay as you save’ financing mechanism. The occupier or owner will not incur expenses in advance for the improvements. The cost will be recovered by the energy suppliers through electricity and gas bills over a period of time following the improvements.

The energy efficiency measures are intended to pay for themselves through associated savings on gas and electricity bills as a result of reduced energy consumption. Eligibility for Green Deal finance will be determined by a test applied under the golden rule that the expected savings on energy bills must be equal to or greater than the cost of the energy efficiency improvements over the term of the Green Deal plan. This might be the expected lifetime of the improvements or a specified payback period, but the recoverable costs will attach to the energy bills for the relevant property rather than the person who originally applies for finance. Improved properties will therefore be sold or let subject to any Green Deal plan and sellers or landlords will be required to provide details of a Green Deal plan to any prospective purchaser, tenant or licensee.

There will be a less rigorous test relating to properties owned or occupied by the vulnerable and those on low income as the expense of efficiency measures is likely to exceed any savings on bills. As an alternative, vulnerable and low-income households will be offered the next most cost-effective measures which do not meet the golden rule, on the basis that the result will be warmer homes rather than cash savings.

The principal application of the Green Deal will be residential property but it will also be available to businesses. Smaller enterprises will have access to Green Deal funding, while larger concerns will be encouraged to meet their obligations under existing schemes (such as Climate Change Agreements or the Carbon Reduction Commitment Energy Efficiency Scheme) at a reduced cost.

Green Deal assessments will be provided by authorised Green Deal assessors and are to be based on the strengthened and improved version of EPCs. Regulations pursuant to the Energy Act that will set out the relevant framework to establish a scheme for authorising Green Deal assessors, providers and installers, and the necessary code of practice that will regulate their conduct have yet to be published.

It is to be hoped that the synergy between the 2011 Regulations and the Energy Act and the proposed improved versions of EPCs will address previous criticism from a number of professional bodies of the unreliability and inaccuracy of EPCs, particularly in relation to older properties. The incentive to save money on energy bills might then nudge property owners or occupiers towards applying for Green Deal finance to improve energy efficiency and reduce carbon emissions.

For more information contact cturner@lyonsdavidson.co.uk

Posted on Dec 14th, 2011 by Lyons Davidson