Research Breakfast Briefing Energy Act 2011 Research
Research Breakfast Briefing
Energy Act 2011 Research
Wednesday 20th March 2013 The UK Chapter is grateful to its Annual Sponsors:
Programme
8.30 8.35 8.40 9.00 9.30
Welcome, Nick Winter CoreNet Programmes Kate Dean, SEGRO, Chairperson Research Findings, Dr Rob Harris, Ramidus Panel Debate & Questions and Answers Close
The UK Chapter is grateful to its Annual Sponsors:
Upcoming Events
Knowledge Exchange SP&P Ask the President’s Question Time Annual Summer Party Annual Awards Breakfast
The UK Chapter is grateful to its Annual Sponsors:
23rd April 25th April 20th June 3rd December
Research Sponsors
Context The UK’s Kyoto commitment to reduce CO2 emissions by 34% by 2020. EU Energy Performance of Buildings Directive. Energy Performance Certificates.
The most recent instrument to affect the property industry is the Energy Act 2011. Many aspects of the Act remain unclear: raft of secondary legislation? Implications for occupiers are potentially significant.
•
The Act becomes effective from 1st April 2018.
•
After this date it will be unlawful to let a building with an EPC rating of F or G.
•
The Green Deal: a mechanism to provide capital finance for upgrading buildings.
An area of corporate risk?
Context The Act outlaws the letting of property with poor energy performance ratings, including the assignment and sub-letting of business leases. Such buildings will not be able to be let until improvements have been made to bring energy performance to an EPC rating of at least E. JLL estimates that 20% of the UK’s commercial property stock falls into the EPC Frated and G-rated properties. Corporate occupiers will need to undertake risk assessments to evaluate how their portfolios are affected.
The main provisions of the Act apply from 1st April 2018. But this is the latest date by which the Act will be applied. There is a provision allowing the Act to be applied earlier should the Government choose to do so. There is also the possibility that Government might choose to take a more aggressive stance and lift the bar from a minimum E-rating to a minimum D-rating.
The research Survey made contact with over 50 corporate occupier organisations, resulting in 22 interviews, together with a number of industry experts. The corporates occupy over four million square metres (c44 m sq ft) of office, industrial and retail premises. Interviews followed a semi-structured format, addressing: • awareness of the Act; • the nature of preparation in anticipation of the Act, and • plans to comply with the main provisions of the Act. Interviewees encouraged to speak freely around what they perceived to be the implications of the Act. Also interviews with a small number of advisory experts in order to assess how advisors were working with their corporate clients, and to gather their perceptions of the Act.
Corporate awareness Defining aspect of our survey was the lack of awareness of the 2011 Act and, as a result, a major lack of knowledge of the detail of the Act. Most have a good grasp of their corporate sustainability agenda and the role of property within that; and most have at least a working knowledge of EPCs. But ... the level of awareness of the 2011 Act and its implications for their estate planning is low.
Corporate preparation We then asked what levels of preparation had been made. Given the low level of awareness, preparation for the Act was also very low! Half of the respondents had undertaken no EPCs or only for a minority of their stock. Some had not undertaken any. Respondents do not question the importance of CSR and meeting their environmental commitments.
But the rate of completing EPCs is slower than might be expected. Most of the occupiers in our study have major carbon reduction strategies, and question the need for additional legislation.
Planning to comply We asked about plans to comply with the Act between now and 2018. For some, they will only address the issue, on a building-specific basis, when there is a particular need or opportunity.
We asked the interviewees whether they felt that the Green Deal would feature in their planning. The response was a near universal nil points: just one occupier had engaged in Green Deal discussions. The overwhelming view was that it would prove “irrelevant”, “bureaucratic” and “unnecessary”. Even when awareness and due diligence have been raised, there is then still the question of implementing changes, especially now in such economically challenged times: “We had a BMS replacement programme to improve our buildings, but this has been shelved due to the recession”.
Issues (1) So little is known The lack of awareness suggests that the Government’s communication of the Act has failed to penetrate the corporate world. The Green Deal remains a vague, poorly understood instrument.
Lost in translation? A widespread sense that the application of the Act in the commercial sector is fraught with difficulties and complexities. Great for the house but not for the HQ! A perception that the Green Deal has been framed around the residential market, and is now being “retrofitted” to commercial. Some questioned its utility and value. Some also suggested that it might be of value to small owners and occupiers: corporate occupiers can borrow at favourable rates. It’s too far away In business terms, 2018 is still a long way away. The distant deadline has been an obstacle to it being taken on board more fully. But 2013 it is less than one full rent review cycle away.
Issues (2) Is it the right mechanism anyway? Responsible occupiers are getting on with their carbon reduction strategies anyway, and some question the need for more legislation. For companies with CSR commitments the Act adds another layer of bureaucracy. But many occupiers and landlords are differently motivated, and the legislation helps remove obstacles that can be used for not taking responsible measures. Are we measuring the right thing? EPCs are focused on the expected energy performance of a building, not the amount of energy consumed. Buildings often perform not as they are expected to. Occupiers tend to set corporate targets around actual emissions and actual energy usage, not around the expected performance of buildings. Isn’t the main issue a behavioural one? For some corporate occupiers, energy usage is a largely behavioural issue. Would the use of DECs be a better way of monitoring, measuring and reducing energy consumption?
Issues (3) Who pays? If a landlord upgrades a building, without Green Deal funding, will the associated costs be passed on to the tenants? Is such an upgrade simply compliance with statutory obligations in an otherwise partly-obsolete building (i.e. an improvement beyond the terms of the lease)? Significant opportunity for occupiers to exercise some leverage over landlords during lease renewal and dilapidation discussions. Tenants will be in a stronger position in poorly-rated buildings.
Building values The Act could have a significant impact on values, particularly for older stock. There is much secondary stock in secondary locations throughout the UK, where values are depressed. Such stock could be vulnerable to blight if not upgraded. In such circumstances, attaching a further cost to the building (e.g. a 20 year energy bill), might make it even less attractive.
Issues (4) Shared space, shared cost, shared interest? One of the more problematic areas of the Act appears to be in multi-let buildings where the interests of different occupiers might not all align. If there are a number of tenants with different lease profiles then all might not be aligned to a landlord’s plans to improve energy efficiency through capital spend, especially where the costs might appear in an increased service charge. And what if the Government raises the bar again? The Government could raise the minimum energy rating required above E at some point in the future. Should this be the case, and E-rated properties are lumped together with F and G properties, then a new round of assessments and improvements will be required.
Panel Discussion Question and Answers Kate Dean Rob Harris Miles Keeping Darren Coppins
The UK Chapter is grateful to its Annual Sponsors:
SEGRO Ramidus Deloitte Chapman Bathurst
Pick up your copy of the research
The UK Chapter is grateful to its Annual Sponsors:
Annual Sponsors
The UK Chapter is grateful to its Annual Sponsors
Energy Act 2011 Research
Wednesday 20th March 2013 The UK Chapter is grateful to its Annual Sponsors:
Programme
8.30 8.35 8.40 9.00 9.30
Welcome, Nick Winter CoreNet Programmes Kate Dean, SEGRO, Chairperson Research Findings, Dr Rob Harris, Ramidus Panel Debate & Questions and Answers Close
The UK Chapter is grateful to its Annual Sponsors:
Upcoming Events
Knowledge Exchange SP&P Ask the President’s Question Time Annual Summer Party Annual Awards Breakfast
The UK Chapter is grateful to its Annual Sponsors:
23rd April 25th April 20th June 3rd December
Research Sponsors
Context The UK’s Kyoto commitment to reduce CO2 emissions by 34% by 2020. EU Energy Performance of Buildings Directive. Energy Performance Certificates.
The most recent instrument to affect the property industry is the Energy Act 2011. Many aspects of the Act remain unclear: raft of secondary legislation? Implications for occupiers are potentially significant.
•
The Act becomes effective from 1st April 2018.
•
After this date it will be unlawful to let a building with an EPC rating of F or G.
•
The Green Deal: a mechanism to provide capital finance for upgrading buildings.
An area of corporate risk?
Context The Act outlaws the letting of property with poor energy performance ratings, including the assignment and sub-letting of business leases. Such buildings will not be able to be let until improvements have been made to bring energy performance to an EPC rating of at least E. JLL estimates that 20% of the UK’s commercial property stock falls into the EPC Frated and G-rated properties. Corporate occupiers will need to undertake risk assessments to evaluate how their portfolios are affected.
The main provisions of the Act apply from 1st April 2018. But this is the latest date by which the Act will be applied. There is a provision allowing the Act to be applied earlier should the Government choose to do so. There is also the possibility that Government might choose to take a more aggressive stance and lift the bar from a minimum E-rating to a minimum D-rating.
The research Survey made contact with over 50 corporate occupier organisations, resulting in 22 interviews, together with a number of industry experts. The corporates occupy over four million square metres (c44 m sq ft) of office, industrial and retail premises. Interviews followed a semi-structured format, addressing: • awareness of the Act; • the nature of preparation in anticipation of the Act, and • plans to comply with the main provisions of the Act. Interviewees encouraged to speak freely around what they perceived to be the implications of the Act. Also interviews with a small number of advisory experts in order to assess how advisors were working with their corporate clients, and to gather their perceptions of the Act.
Corporate awareness Defining aspect of our survey was the lack of awareness of the 2011 Act and, as a result, a major lack of knowledge of the detail of the Act. Most have a good grasp of their corporate sustainability agenda and the role of property within that; and most have at least a working knowledge of EPCs. But ... the level of awareness of the 2011 Act and its implications for their estate planning is low.
Corporate preparation We then asked what levels of preparation had been made. Given the low level of awareness, preparation for the Act was also very low! Half of the respondents had undertaken no EPCs or only for a minority of their stock. Some had not undertaken any. Respondents do not question the importance of CSR and meeting their environmental commitments.
But the rate of completing EPCs is slower than might be expected. Most of the occupiers in our study have major carbon reduction strategies, and question the need for additional legislation.
Planning to comply We asked about plans to comply with the Act between now and 2018. For some, they will only address the issue, on a building-specific basis, when there is a particular need or opportunity.
We asked the interviewees whether they felt that the Green Deal would feature in their planning. The response was a near universal nil points: just one occupier had engaged in Green Deal discussions. The overwhelming view was that it would prove “irrelevant”, “bureaucratic” and “unnecessary”. Even when awareness and due diligence have been raised, there is then still the question of implementing changes, especially now in such economically challenged times: “We had a BMS replacement programme to improve our buildings, but this has been shelved due to the recession”.
Issues (1) So little is known The lack of awareness suggests that the Government’s communication of the Act has failed to penetrate the corporate world. The Green Deal remains a vague, poorly understood instrument.
Lost in translation? A widespread sense that the application of the Act in the commercial sector is fraught with difficulties and complexities. Great for the house but not for the HQ! A perception that the Green Deal has been framed around the residential market, and is now being “retrofitted” to commercial. Some questioned its utility and value. Some also suggested that it might be of value to small owners and occupiers: corporate occupiers can borrow at favourable rates. It’s too far away In business terms, 2018 is still a long way away. The distant deadline has been an obstacle to it being taken on board more fully. But 2013 it is less than one full rent review cycle away.
Issues (2) Is it the right mechanism anyway? Responsible occupiers are getting on with their carbon reduction strategies anyway, and some question the need for more legislation. For companies with CSR commitments the Act adds another layer of bureaucracy. But many occupiers and landlords are differently motivated, and the legislation helps remove obstacles that can be used for not taking responsible measures. Are we measuring the right thing? EPCs are focused on the expected energy performance of a building, not the amount of energy consumed. Buildings often perform not as they are expected to. Occupiers tend to set corporate targets around actual emissions and actual energy usage, not around the expected performance of buildings. Isn’t the main issue a behavioural one? For some corporate occupiers, energy usage is a largely behavioural issue. Would the use of DECs be a better way of monitoring, measuring and reducing energy consumption?
Issues (3) Who pays? If a landlord upgrades a building, without Green Deal funding, will the associated costs be passed on to the tenants? Is such an upgrade simply compliance with statutory obligations in an otherwise partly-obsolete building (i.e. an improvement beyond the terms of the lease)? Significant opportunity for occupiers to exercise some leverage over landlords during lease renewal and dilapidation discussions. Tenants will be in a stronger position in poorly-rated buildings.
Building values The Act could have a significant impact on values, particularly for older stock. There is much secondary stock in secondary locations throughout the UK, where values are depressed. Such stock could be vulnerable to blight if not upgraded. In such circumstances, attaching a further cost to the building (e.g. a 20 year energy bill), might make it even less attractive.
Issues (4) Shared space, shared cost, shared interest? One of the more problematic areas of the Act appears to be in multi-let buildings where the interests of different occupiers might not all align. If there are a number of tenants with different lease profiles then all might not be aligned to a landlord’s plans to improve energy efficiency through capital spend, especially where the costs might appear in an increased service charge. And what if the Government raises the bar again? The Government could raise the minimum energy rating required above E at some point in the future. Should this be the case, and E-rated properties are lumped together with F and G properties, then a new round of assessments and improvements will be required.
Panel Discussion Question and Answers Kate Dean Rob Harris Miles Keeping Darren Coppins
The UK Chapter is grateful to its Annual Sponsors:
SEGRO Ramidus Deloitte Chapman Bathurst
Pick up your copy of the research
The UK Chapter is grateful to its Annual Sponsors:
Annual Sponsors
The UK Chapter is grateful to its Annual Sponsors
