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Brexit-news

Published: 11 April 2017
Sector: Energy
Area of Law: Brexit

Brexit: Building efficiency or simply a waste of energy?

EU legislation, particularly The Energy Performance of Buildings Directive, has played a pinnacle role in promoting energy efficiency and encouraging UK legislation to improve energy efficiency in commercial buildings by setting EU-wide standards and targets, in the form of Energy Performance Certificates (“EPC”), Display Energy Certificates (“DECs”) and air conditioning inspection requirements.

So, what is the plan for energy efficiency in commercial property now that Brexit has spoken and the UK is out of the EU? Whilst the precise nature of the UK-EU relationship post Brexit cannot be determined, it is possible to speculate the effects upon law and policy within the UK.

Although some may say that the future energy performance of buildings may be jeopardised by the fact that the UK will no longer be required to comply with EU laws; the UK has in fact already implemented relevant obligations into national law (for example, through the Energy Act 2011) and these regulations are unlikely to change because of Brexit.

Commercial property will face a significant legislative change in April 2018 when it shall become unlawful to let commercial properties with an EPC rating below “E”. EPCs have had a transformative effect on commercial property as landlords are consequently forced to consider the energy performance of their property. However, landlords often see this as a minimum standard of compliance as oppose to facilitating the growth of the market for energy efficiency and stimulating demand for sustainable buildings. 

This “minimum” mentality by landlords is heightened by the fact that improvements in energy performance to buildings are not typically valued very highly by property agents; factors such as location, proximity to transport hubs and market rent competitiveness usurp any ‘green improvements’ to properties. In addition, if a change to “pro-green” would not financially benefit landlords - what would be their incentive in light of the additional cost, time and disruption in order to facilitate the “energy efficient” change?   In a bid to provide greater fiscal incentives, the UK government has already signalled its intention to link minimum energy standards to the “Green Deal” in order to provide a financial solution to support energy efficiency refurbishment and retro-fit projects.

One thing is clear: the impact of sustainability on commercial property will increase and the government will need to consider stringent regulatory changes to allow both landlords and tenants to improve their energy efficiency in buildings. Currently, both parties are faced with “split incentives” as their personal needs clash. Landlords do not pay for energy bills, therefore why would they make improvements if they are not receiving a financial gain? Similarly, tenants are not wanting to be faced with additional costs of implementing such energy efficiency measures unless a direct benefit (perhaps shorter lease terms) is felt.

Brexit may act as a catalyst for change within the UK commercial property market which may witness new or revised government regulations in relation to energy efficiency. This could potentially act as a driver to encourage property investors to increasingly favour buildings and systems that will help them meet energy performance obligations – time will tell!

"This is exactly why we like to work with people who understand the industry and can identify potential issues and create solutions."

Jon Saltinstall, Senior HealthCare Banking Consultant, Lloyds Bank