E is for Energy – Watch out for a recasting of current EPC rules
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In 2018 DM Hall released an article entitled E is for Energy, and for England . Its purpose was to compare and contrast the, then, newly introduced Minimum Energy Efficiency Standards (MEES) regulations in England and Wales with the regulatory framework in Scotland.
The concern was that banks and other commercial lenders in Scotland would begin to implement regulations designed for England. Five years on these concerns remain.
The first thing to consider when interpreting the various MEES regulations is the four main sectors that are currently considered:
- Scottish Commercial
- English Commercial
- Scottish Private Rented Domestic, and
- English Private Rented Domestic
In England the situation for both the Commercial and Domestic sector is reasonably straightforward. Before a property is let it must reach a certain Energy Performance Certificate (EPC) rating, or be eligible for and registered as, being exempt.
It has been suggested recently, however, that scheduled change to an EPC Band C requirement for new leases on English private rented domestic properties from 2025 are to be scrapped or delayed.
Unfortunately, the Scottish offering is less clear. Regulations controlling EPC ratings for the Private Rented Domestic Sector (PRS) were developed and planned for introduction in 2020. The COVID-19 pandemic put these regulations on hold, where they have remained since.
So where are we now? In October 2021 the Scottish Government confirmed its plans to change the rules to require PRS landlords to meet an EPC rating of no less than C by 2025 for new tenancies and by 2028 for existing tenancies.
The guidance states: “this will ensure that from 2025 onwards all private housing must achieve minimum standards equivalent to EPC C at respective trigger points, where technically feasible and cost-effective to do so – with backstops of 2028 (for the private rented sector) and by 2033 (for owner occupiers).”
But what is technically feasible or cost-effective? This seems open to interpretation, and, ultimately, confusion. The Scottish Government has committed to consultation but, so far, no dates have been set for this to get under way.
The upshot seems to be that there will be some form of EPC rating control for the Private Rented Domestic Sector in Scotland in 2025, but we do not yet know exactly what form that regulation will take.
Thankfully, the Scottish Commercial Sector is a little clearer, but still not without issues. The fact is that there are no MEES in Scotland, and since commercial EPC ratings in Scotland are fundamentally different to commercial EPC ratings in England, the latter’s relatively hard-line minimum rating is considered by some to be an unreasonable method of control.
In Scotland the EPC rating is simply the amount of carbon dioxide emitted by the building, per square metre of floor area per year. In England the rating is calculated using a more complex method.
Since 2016 commercial buildings in Scotland over 1000 sqm have been subject to an additional level of assessment called Section 63 . Where required a Section 63 assessment will call on a building’s owner to make physical changes to it within three and a half years to improve energy efficiency.
This can include works such as draft stripping windows and doors, installing automatic lights, or changing a boiler. Works can be deferred through annual declaration of energy usage using a Display Energy Certificate (DEC), though there is now an appetite to strengthen energy usage legislation, and we are expecting further consultation soon on any proposed legislation for introduction in 2025.
The guidance states: “We intend to consult on the regulatory approach in 2022 and introduce regulations by 2025 to require owners to reduce demand for heat through energy efficiency improvements where feasible, and install a zero-emissions heating supply, within the extent of our powers.”
Completed consultations suggested options such as a hard-line minimum, an expansion of the Section 63 assessment, mandatory declaration of energy usage, or even an overhaul of the EPC calculation methodology itself, but it remains unclear which of these will be the Scottish Government’s chosen option.
So how is it affecting the real-world markets? The drive to reduce energy usage and clean up our planet is worthy and necessary, but it has led to conflicting and confusing regulation between Scotland and England.
Banks and other lenders are required to make climate considerations when taking lending decisions and the EPC is the most obvious tool to use. But confusion over the different legislation, calculation methodology and timelines has meant that rather than considering the specifics of each legislative area in house, policies have been adopted, most often a minimum EPC rating, that don’t chime with the reality of the situation.
To move forward in Scotland we need clear and achievable goals when it comes to energy usage and carbon emission reduction. And while the vision of the Scottish Government remains noble, without greater clarity, it is tending to create a fog of confusion.
What we know is this: there are currently no legal bars to transacting a property in Scotland based on its energy rating, but with the added caveat that this may change shortly. As they say, watch this space.
Calum Almond, Head of Architectural Services and an Associate at DM Hall.Back to News