The requirement for an EPC has already been with us for several months, but until now only applied to larger premises of more than 2,500 square metres. As from the 1st October the requirements have been extended to cover commercial properties with a total useful floor area of over 50 square metres. There are still some limited exceptions (including places of worship or sites with low energy demands) but the requirements will bite in most cases involving anything more than very small properties.

An EPC is a certificate providing an energy efficiency rating for the commercial building for potential buyers or occupiers. The EPC will also contain recommendations about how the energy efficiency of the building can be improved. The certificate must be produced by an accredited Energy Assessor, and the initial cost of this will fall upon the seller or landlord. Once obtained the certificate is generally valid for 10 years, providing the building or its fixed services are not altered in the meantime.

Failure to provide an EPC incurs penalties of up to £5,000 (enforced by local Trading Standards) so sellers/landlords do need to take the new requirements very seriously.

The obligation to provide an EPC is triggered as soon as the process of marketing the building for ‘sale or rent’ begins - whether this is via agents or privately (much in the same way as home information packs for residential properties).  It will cover the transfer of existing leases and the grant of sub-leases, but the Government has indicated that EPCs will not be required for lease renewals or extensions.

Clearly there will be a cost implication to the new requirements, through the additional expense bolted onto the process of selling or renting out commercial properties. The price for an EPC will be market driven, and is likely to depend upon the size and complexity of the building. However, there are concerns over a shortage of accredited Energy Assessors to cover demand (particularly for complex buildings) and this could drive prices up. It may also then take longer to obtain the certificate, and delay the process of marketing the building.

Sellers are unlikely to be able to pass this cost onto buyers, especially in the current market. Landlords may also face problems passing on the cost to tenants unless the nature of the arrangements for the building makes it appropriate to do so through a service charge. It will be important for landlords to make sure that provisions covering EPC requirements are built into new leases. In addition to addressing the cost issues, provisions may be required to permit access in connection with assessments and (particularly with multi-occupancy buildings) to prevent tenants from subsequently obtaining their own EPC where this would invalidate the landlord’s existing certificate.

Aside from the costs of obtaining an assessment, the requirements for EPCs could also have other longer term implications. The purpose of an EPC is to allow potential owners or occupiers to consider energy efficiency as part of their investment or business decision to buy or rent. It will be a publicly available efficiency rating which can be benchmarked with other similar properties.

Herein lies the potential ‘sting in the tail’ for sellers and landlords. Buyers may use a low energy efficiency rating to try and negotiate a reduction in the price. Tenants may also use a low rating to secure a lower rent either upon the granting of a lease or its subsequent renewal. The efficiency rating may not be the dominant factor to value, but it is probably an unwelcome additional item for sellers or landlords to deal with in negotiations.

From the buyer’s or tenant’s perspective, it is important to ensure that a valid EPC is provided before committing to buy or rent and to consider the energy efficiency rating carefully in the context of future overhead costs.