Commercial property owners face tougher sustainability standards.

Tougher energy efficiency rules will be applied to the commercial property sector from April 2018. With 12 months to go before their introduction, what must landlords now prepare for?

Britain’s commercial property owners have been urged to improve the sustainability of their portfolios, as the Government seeks to clamp down on poor-performing buildings.

With tougher energy efficiency standards coming into force next year, ministers have issued a timely reminder to landlords about what’s expected of them. Failure to comply with the revised rules could ultimately lead to financial penalties and reputational damage.

So why is energy efficiency still such a hot topic in the UK property industry, and what changes will landlords have to make between now and 2018?

Why energy efficiency matters

It’s not hard to see why sustainability remains a key watchword in both the residential and commercial property markets. In the simplest terms, energy efficient buildings can offer environmental advantages by lowering carbon emissions and cutting waste.

Looking at the wider picture, measures such as insulation, double-glazing, renewables and eco-friendly boilers are also capable of delivering a financial boost. For tenants, this can take the form of savings on their energy bills. Landlords, meanwhile, can enhance their reputation within the market. This positive reputation could help them save money by cutting down the expenditure that would otherwise have been spent marketing their properties. This increased marketability could in turn mean reduced void periods.

Despite these common benefits, ministers are concerned about the current pace of change, with recent government figures suggesting that non-domestic buildings still account for roughly 12% of the country’s emissions [SC1]. That’s why they’re asking commercial property owners to comply with tougher standards from next spring…

What the changes mean for landlords

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, to give them their full name, will take effect from April 1, 2018.

Under the regulations, privately-rented non-domestic properties in England and Wales will need to meet a minimum energy efficiency level in order to be let to tenants. Such properties will be required to achieve an Energy Performance Certificate rating of at least band ‘E’.

Landlords with properties rated ‘F’ or ‘G’ won’t be able to agree fresh tenancies with new or existing tenants from next April. And from 2023 onwards, they won’t be able to let a property under an existing rolling agreement unless it has an ‘E’ rating either.

Local weights and measures authorities will have the power to hand penalty notices to landlords who fail to comply with the higher standards. The names of such landlords might also be made public.

However, landlords with genuine concerns about their ability to make energy efficiency improvements in time might be eligible for an exemption. Taking one example, they could be made exempt if they’re unable to secure the consents that are needed to proceed with large-scale changes. This might include consent from a mortgagee or a superior landlord, or it could take the form of listed building consent.

Detailed guidance on all the ins and outs of the rules is now available directly from the Government.Dealing with new financial pressures

It’s perfectly understandable if landlords feel concerned about the financial implications of the new sustainability standards. After all, the costs associated with things like innovative heating systems and insulation could quickly add up.

Commercial property owners should carefully assess how they’ll go about paying for any improvements which are required. That might mean trimming their spending in other areas of their business. Or it could involve shopping around for a grant or loan that’s appropriate for their individual circumstances.

However, in the rush to identify savings, landlords mustn’t lose sight of the value of insurance. Bespoke policies are available to property owners covering buildings, contents, public liability, theft and even malicious damage caused by their tenants. Although it may be tempting to cut back on their coverage in the face of new expenses, insurance is one thing landlords simply can’t do without.

Insurance Requirements

At NIG we have a range of products which can cater for the needs of Commercial Property Owners, small or large.

For smaller risks we offer Property Owners. Designed for commercial properties that are owned or managed by the policyholder, it is suitable for single and multi-location portfolios of up to 25 premises. On top of that it is available via our award-winning online trading platform, TheHub.

For larger risks we offer Essential Property Owners which is traded via our regional offices. This product is designed for professional property owners or managing agents whether it be a large single site risk or larger commercial UK portfolios.