UK: Built To Last

Energy Use And Emissions For The Real Estate Sector
Last Updated: 3 July 2008
Article by Linda Fletcher

With the announcement by the EU on 23 January 2008 of a three limbed package of measures to tackle climate change1, you may be wondering how this affects you as a property owner, developer, investor, lender, manager or occupier.

The package set for the UK is ambitious and includes a reduction of 16% in UK GHG emissions by 2020 from 2005 levels from sectors not covered by the current EU ETS, for 15% (current requirement is 1.3%) of the energy consumed in the UK to come from renewable sources by 2020 and for 10% of road transport fuels to come from renewable sources.

The UK government has already introduced a number of obligations on businesses which directly affect the real estate sector to help meet the current targets and we expect these to tighten and broaden in scope. Some of these are EU-driven but we will see more UK national measures being taken.

How might the real estate that you either own, fund, manage or occupy be affected?

Are you about to carry out a major renovation or refurbishment programme for your portfolio? Does your lender, who is going to part-finance the programme, have its own environmental checklist and does your programme meet these?

Are you managing the older buildings in your portfolio so as to optimise their environmental performance?

Are you about to embark on a sale/lease-back programme or an intra-group re-organisation?

Will you be able to charge higher rents if your building has a good energy rating or is it more likely that tenants will expect lower rents at commencement and on review for buildings with a poor energy rating? Perhaps it is more realistic to expect that a higher rated building will have better rental stability. Will you see tenants' demand 'greener' buildings to fit in with their CSR policies?

The first of this three part series focuses on the issues surrounding energy use and emissions for the real estate sector.

Real estate (there are 25 million buildings in the UK2) alone accounts for more than 40% of final energy consumption in the EU and so its impact on long-term energy consumption needs to be addressed. In the UK the energy used in buildings represents about 45% of total CO2 consumed in the UK3.

The Energy Performance of Buildings Directive was enacted by the EU in 2003 and was required to be implemented by Member States by 4 January 2006. The Directive introduced higher standards of energy conservation for new and refurbished buildings, regular inspections (every 5 years) for larger air conditioning systems and/or advice on more efficient boiler operation for commercial buildings. The UK government has now passed two sets of regulations to implement this Directive, albeit late. If you have European portfolios then you will need to understand how other Member States have implemented this Directive and take action accordingly; for example, in Spain new residential and commercial buildings have to be 30% more energy efficient than under previous legislation.

Building Regulations 2006 Amendments4

Amendments have been made to the building control system by introducing a new part L to the Building Regulations 2006. This came into force on 6 April 2006. The changes apply to both commercial and residential buildings and establish minimum energy performance requirements for all new buildings and for major renovations of existing buildings exceeding 1,000 m2 of useful floor space5. The CO2 emissions standards have been raised by between 20% and 28%, depending on the type and size of building, compared to 2002 standards6. The cumulative impact of the 2002 and 2006 changes are substantial, at around 40% improvement in the energy efficiency of buildings.

New buildings are now required to meet maximum CO2 emission levels so conservation of fuel and power will require improved insulation and more efficient heating systems. Examples of such systems are using low carbon fuels and heating appliances, limiting heat gains and losses by using thermal fabrics, draught proofing windows and doors, using natural ventilation, mechanical ventilation or air conditioning or a combination of each. Architects and engineers will need to address controlling solar gains, airtightness compliance and the requirement to provide energy performance certificates for a building.

For major renovation projects the extension, provision of or increase to the installed capacity of fixed building services, i.e. for heating, hot water, mechanical ventilation or air conditioning, need to comply with these requirements if it is technically, functionally and economically feasible7.

How do you know if your refurbishment programme is caught by this? A major renovation is defined as being either where the total cost of the renovation relating to the building shell and/or energy installations (e.g. heating, hot water supply, ventilation, lighting etc.) is higher than 25% of the value of the building (excluding the value of the land upon which it is situated) or where more than 25% of the building shell is undergoing renovation.

A refurbishment is, of course, an opportunity to change to low energy fittings, to install motion-activated lighting for certain areas, to put in place a system of bins for segregating waste streams from the building and to consider renewable energy being generated on site.

How do you then measure the carbon emissions? The 2006 Regulations required the Secretary of State to approve a methodology for the calculation of the energy performance of buildings and in the UK we now have the National Calculation Methodology. Under the EU Directive the energy performance requirements must be reviewed and updated at least every 5 years.

A number of models have been developed for different types of buildings. One of these the Simplified Building Energy Model ("SBEM") has been developed by BRE (Building Research Establishment) which has been adopted by the government as an approved model.

EPC Certificates - the 2007 Regulations

You are probably familiar with all the attention the residential market received about the requirement on owners when selling a house to produce a Home Information Pack which includes the provision of an Energy Performance Certificate ("EPC"). This was first introduced on 1 August 2007 for houses with more than 4 bedrooms and from 10 September 2007 it applied to houses with more than 3 bedrooms. From 1 January 2008 it was required for all houses being sold and for all new houses being constructed.

A natural progression is for this system to be extended to all other buildings and from 6 April 2008 this will apply to the commercial real estate sector in stages. The need to obtain and provide EPCs will depend on the type and size of the building and whether it is being constructed, sold or let - see table for details.

The EPC will be valid for 10 years unless changes or improvements mean that a new certificate is required. If a valid EPC still exists when changing tenants no new certificate is required. There is no need to provide an EPC for existing tenants.

For a multi-let building the requirement to provide an EPC will be triggered by a new letting of just one unit as building is defined as being either a whole or "a part of a building which has been designed or altered to be used separately". How this will work in practice remains to be seen but guidance produced by the Communities and Local Government states that if a building has a common heating system then the landlord can either prepare an EPC for the whole building or prepare an EPC for the unit being let, with the assessment being based on the energy use per square metre for the whole building8. An underletting or assignment of a unit or floor will also trigger the requirement but here the current tenant will be the 'landlord'/'seller' so it will be responsible for providing the EPC.

On construction of a new building it is worth noting that a building control inspector will not issue a completion certificate until an EPC has been provided by the contractor.

A recommendation report will also have to be provided by the assessor giving the certificate setting out any measures that could be taken to improve the energy rating of the building. Assessors need to be accredited and will, of course, need to be trained to attain this qualification. There is an obvious concern about whether sufficient assessors will be available in time and you would be wise to start the process now so EPCs for your portfolio are in your files ready for your sales/letting programmes.

Table

Date9

Buildings covered

Requirements

6 April 2008

Construction of new commercial buildings or the sale or letting of commercial buildings with a total useful floor area > 10,000 m2

EPCs and recommendation report.

Duty to provide on contractor/seller/ landlord

1 July 2008

Construction of new commercial buildings or the sale or letting of commercial buildings with a total useful floor area >2,500m2

EPCs and recommendation report

1 October 2008

The construction, sale or letting of all remaining commercial buildings and any dwellings not already covered

EPCs and recommendation report

1 October 2008

Buildings with a total useful floor area >1,000m2 occupied by public authorities or by institutions providing public services to a large number of persons where the public frequently visit the building

Annual Display Energy Certificates will need to be displayed in the building. This will include both an asset rating and an operational rating showing how much energy was consumed over a period of 12 months. Recommendation reports required as well - valid for 7 years.
Duty on occupier

4 January 2009

All buildings

Deadline for completion of first inspection of all existing (i.e. installed before 1 January 2008) air conditioning systems with output >250kW10

4 January 2011

All buildings

Deadline for completion of first inspection of all existing (i.e. installed before 1 January 2008) air conditioning systems with output >12 kW

Industrial sites and workshops with low energy demand (but not storage and distribution warehouses) are currently excluded from the ambit of the 2007 Regulations.

Flowchart

An EPC will include an asset rating, i.e. the energy efficiency of the building, based upon the CO2 emissions per m2 of floor area but on a modelled use not actual metered use, using the same scale as you now see on domestic appliances as a result of the EU Energy Label requirements and, of course, for your homes. This will range from A (very efficient) to G (very inefficient). These ratings will become commonplace with the idea being that buyers and tenants can then compare the energy performance of buildings.

Failure to comply with the duty to provide an EPC can result in a penalty charge notice being issued by the enforcing authority, which will be your local weights and measures authority via the Trading Standards Officer. The maximum level of fine however is currently fixed at £5,000.

Air conditioning and boilers

Do you know how old the air conditioning system is in your building and is it regularly maintained? If not it may not be running efficiently. In a typical office, air conditioning can account for over 30% of annual electricity consumption11. It is estimated that 40% of commercial floor space will be air conditioned by 2020 compared to 10% in 1994, 11 so you need to explore whether alternative 'free cooling' options are available which will use less energy. Similarly the efficiency of the boilers will have a significant impact on the overall energy efficiency and the UK regulations provide for advice and information to be given on the replacement and modification of heating systems as opposed to mandatory inspections but you can expect that to be introduced in the future.

National Register

All EPCs must be recorded in a central national register and are required to be lodged by the energy assessors after they produce them. A unique reference number will then be provided. Access to the register is restricted so that it can only be accessed by those who have been given the reference number.

What next?

So if you are involved in the real estate sector there are a number of questions you should be asking yourself now and by doing so you will be ahead the game whether you are negotiating contracts for construction, disposing or acquiring real estate or granting leases.

In the next issue we will look more closely at how these legislative changes and proposals will come through in the drafting of contracts and leases and the development of the "green" lease. In our final part we will focus on other carbon influences, such as the minimisation of waste and the proposed Carbon Reduction Commitment which will affect those of you who have portfolios with high electricity usage.

Footnotes

1. See earlier article in this Alert

2. Communities and Local Government

3. UK Climate Change Programme 2006

4. The Swiss Re building ("the Gherkin") built in 2004 was the first environmentally sustainable office building in London

5. This is equivalent to the RICS gross floor area measurement

6. Planning Portal - UK Government

7. Economic Feasibility is stated to be a simple payback not exceeding 15 years.

8. See flowchart.

9. The timetable for Scotland and Northern Ireland is different.

10. Note - any air conditioning systems installed after 1 January 2008 are required to have a first inspection within 5 years of the installation date.

11. Carbon Trust

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions