EPC Regulations amended

Transitional period revised and register search improved

New regulations have been published that amend the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007. The Energy Performance of Buildings (Certificates and Inspections) (England and Wales) (Amendment No 2) Regulations 2008 extend the transitional period for energy performance certificates (EPCs) and make various other changes.

Background

Since 6 April 2008 EPCs have been required on the construction, sale or letting of buildings over 10,000m2. From 1 July 2008 this was extended to buildings over 2,500m2 and since 1 October the requirement applies to all buildings (with a few limited exceptions) whenever they are constructed, sold or let.

There is a duty on the prospective seller or landlord to supply an EPC to the prospective buyer or tenant at the earliest opportunity. This means:

• when written information about the building is supplied to the prospective buyer or tenant (eg with the sales or letting particulars); or, if earlier,

• when the buyer or tenant views the building;

• and in any event, before exchange of contracts.

What is the effect of the transitional provisions?

In March 2008 regulations containing transitional provisions were introduced. Where the transitional provisions apply, the duty to provide an EPC is deferred until exchange of contracts. Following exchange, the seller/landlord must commission an EPC as soon as reasonably practicable and must then continue to use all reasonable efforts to obtain it.

The transitional provisions were due to expire on 1 October. After that the seller or landlord would have been under a duty to supply an EPC at the earliest opportunity and (at the latest) by exchange.

However, the new Regulations extend the transitional provisions for non-dwellings until 4 January 2009. This is the date by which the UK government must fully implement the Energy Performance of Buildings Directive under EU law. The extension does not cover dwellings, to which the original deadline of 1 October still applies.

In what circumstances do the transitional provisions apply?

It is not easy to bring a transaction within the transitional provisions. The following criteria must be satisfied:

• The building must have been put on the market before the relevant commencement date (6 April, 1 July or 1 October – see above).

• Action must have been taken before the commencement date to make public the fact that the building is on the market. Sales and lettings negotiated off-market are therefore unlikely to qualify.

• That action must have been taken with the intention of selling or letting the building before the commencement date. It will be very hard to demonstrate an intention to complete before the relevant commencement date where the property was only put on the market shortly before that date.

• The action must have been sustained to a reasonable extent after the property was put on the market and until the relevant commencement date.

• The building must still have been on the market on the relevant commencement date. It is unclear whether this will be interpreted to cover transactions in progress on the relevant commencement date, as well as those where a buyer or tenant has not yet been found. Otherwise, transactions where a property has been taken off the market prior to the commencement date because heads of terms have been agreed, but where exchange has not taken place, will fall foul of the regulations unless an EPC is provided to the buyer or tenant prior to exchange.

Where these criteria are met, the seller or landlord may need to reserve a right of access for the energy assessor to carry out the assessment to prepare the EPC, if there is a chance that the EPC may not be carried out until after completion. If this is not done, then all is not lost. The Regulations impose an obligation on every person with an interest in, or in occupation of, the building to co-operate to allow access for an energy assessor to inspect it, and to co-operate with the seller or landlord to enable them to comply with their duty to provide the EPC.

What if the property is taken off the market after the commencement date?

Where a property is on the market at the relevant commencement date, but is subsequently taken off the market because the seller or landlord has accepted an offer to buy or rent the building, then in the event that that offer is subsequently withdrawn the transitional provisions will continue to apply provided the building is put back on the market within 28 days of the offer being withdrawn.

If the property is taken off the market after the commencement date in any other circumstances, the transitional provisions cease to apply, and the usual duty to provide an EPC at the earliest opportunity will apply if the property once again becomes available for sale or let.

Are there any defences available if a seller or a landlord fails to provide an EPC when required?

A seller or landlord will not be liable to a penalty for failure to provide an EPC when required if it can demonstrate that:

• it made a request for an EPC at least 14 days before the relevant time; and

• it made all reasonable efforts and enquiries to obtain it.

The difficulty is in ascertaining the ‘relevant time’. It will not necessarily be sufficient to make the request 14 days before exchange, as the duty to provide the EPC may have arisen at an earlier stage (see above). Nonetheless, this defence may prove useful where, due to the shortage of energy assessors, it will take some time from the instruction of the energy assessor before an EPC can actually be produced.

What are the other changes made by the new Regulations?

The Secretary of State is obliged to maintain a register of EPCs. The register is maintained by Landmark Information Group and is accessible online at www.ndepcregister.com/home.html. Previously, in order to search the register, it was necessary to have the reference number under which the EPC had been registered. In practice this meant that the searcher had to have a copy of the EPC.

Under the changes introduced by the new Regulations, from 1 October it should be possible to search the register just by using the address of the property concerned. This will reveal whether or not an EPC exists for that property and, if so, the date it was issued. It will not, however, reveal the registration number of that EPC, nor the EPC itself.

Changes to DCLG’s guidance

Potential areas of confusion clarified

In July 2008 the Department for Communities and Local Government published a second edition of its guide to EPCs for the construction, sale and letting of non-dwellings. We set out below the key points in the new edition.

What happens if a subsequent EPC of part of the building is obtained?

A landlord of a multi-let building with a common heating system has a choice about how to comply with its duty to provide an EPC on a sale or letting. Individual EPCs for each unit can be commissioned. Alternatively, an EPC can be prepared for the whole building, which can then be used on subsequent lettings of individual units as well as on a sale of the building. The Regulations provide that the landlord’s EPC is only valid if no other EPC for the building has since been obtained by, or provided to, the landlord.

Landlords were concerned that if they prepared an EPC for the entire building, and the tenant of an individual unit subsequently commissioned its own EPC of that unit, then this might then invalidate the landlord’s EPC of whole – which would mean wasted expense.

The new guidance confirms that this will not be the case. If an EPC is subsequently produced for part of a building, a previous EPC for the building as a whole will remain valid, except for any separate transactions for the specific part covered by the newer EPC. The example given in the guidance is of a landlord obtaining an EPC for an office block. The tenant of the first floor obtains a separate EPC for just that floor. The landlord’s EPC will remain valid if it wants to sell the building, or let any of the other floors. If, however, the landlord wants to re-let the first floor within ten years (the maximum validity period of an EPC), it would need to use the tenant’s more recent EPC.

The guidance states that the converse is also true, so the tenant’s EPC of the first floor will remain valid for transactions concerning the first floor, even if the landlord subsequently obtains an EPC for the entire building, the newer EPC only taking precedence in a sale of the entire building.

This useful clarification will assist landlords that are trying to decide how to carry out EPCs on their multi-let buildings.

Which transactions are not considered to be a sale or letting?

The first edition of the guidance stated that lease renewals or extensions, compulsory purchase orders and lease surrenders would not be considered to be a sale or let for the purpose of the EPC Regulations and therefore would not trigger the requirement for an EPC. The second edition of the guidance confirms that where there is a sale of shares in a company that owns a building, no EPC need be provided (since it is the shares, rather than the property, which are changing hands).

In addition, the second edition states that living accommodation at a workplace that is tied to a job may also fall outside the ambit of the Regulations, although this will depend on the circumstances of each individual case.

What happens on auction sales?

As we have seen, the Regulations provide that the EPC must be made available to a prospective purchaser at the earliest opportunity and in any event no later than the time at which any written information about the building is given to that person. The new guidance seeks to clarify how this rule applies to auction sales.

The EPC need not be included in the catalogue. However, if a floor plan or description of room sizes is included in the catalogue, the asset rating from the EPC must also be shown. A full copy of the EPC should be included in the pack of information about the property that is provided to prospective purchasers.

How are communal areas treated?

The guidance clarifies how communal space should be treated when preparing an EPC for a multi-let building or centre. We summarise the position below. However, the guidance contains specific examples covering a range of buildings and should be referred to for the definitive position in any particular case. EPC covering a single unit Communal areas should be ignored when producing an EPC for a single unit.

EPC covering the whole building

When a building containing communal areas is sold or let as a whole, the building owner has a choice:

• prepare an EPC for the whole building, including the communal space; or

• commission EPCs for each separate unit in the building and a separate EPC covering the common parts.

How are shell and core buildings treated?

If there is no intention of having fixed services such as heating, mechanical ventilation or air conditioning, and no ability to include fixed services to condition the indoor climate, an EPC will not be required.

If, on the other hand, a building is to be let without fixed services, but it will be fitted out and there is the expectation that energy will be used to condition the indoor climate, an EPC will be required. For the purposes of producing the EPC, the activity within the building should be specified in line with business activity that is typical of the building’s use class under the planning legislation. The most energy-intensive fit-out (in line with Part L of the Building Regulations in force when the building was built) will then be assumed. The services actually installed will either be as assumed, or more energy efficient if the tenant chooses a more energy-efficient specification.

What is a ‘stand-alone’ building?

The legislation stipulates that stand-alone buildings of less than 50m2 are exempt from the requirement to produce an EPC. It was unclear whether to be ‘stand-alone’ a building must be physically detached, or whether self-contained units in a larger building could also take advantage of the exemption. The new guidance takes a restrictive interpretation of the rules, and provides that ‘stand-alone’ means freestanding properties only.

What is a ‘dwelling’?

The guidance only applies to buildings that are not dwellings. A dwelling is defined in the new guidance to mean a self-contained unit designed to provide accommodation for a single household. A dwelling will always require its own separate EPC when it is sold or let. Rooms for residential purposes (eg a room in a hotel, hall of residence or residential home) are not dwellings and no EPC need be provided when a room is let. However, when the building containing the rooms for residential purposes is sold or let, it will require a non-domestic EPC.

If a dwelling has been altered to enable parts of it to be used for industrial or commercial purposes (eg a workshop or office), it should be treated as a dwelling if the industrial or commercial part could revert to domestic use without significant alteration on a change of ownership.

Air-conditioning systems

The intention behind the Regulations is to improve the energy efficiency of buildings. EPCs are just one way in which the Regulations seek to achieve this.Another is by reducing electricity consumption, operating costs and carbon emissions from air-conditioning systems via a regular programme of inspections.

Click to enlarge:

Which systems are covered?

The Regulations apply to air-conditioning systems that are within a building to cool it for the comfort of occupants.The Regulations do not apply to refrigeration provided solely for process applications such as cold stores, pharmaceutical production etc.

The air-conditioning system has to have an effective rated output of more than 12kW. The effective rated output means the maximum calorific output specified and guaranteed by the manufacturer as being deliverable during continuous operation while complying with the useful efficiency indicated by the manufacturer.

The full definition of ‘air-conditioning system’ in the Regulations is:

‘… a combination of all the components required to provide a form of air treatment in which the temperature is controlled or can be lowered, and includes systems which combine such air treatment with the control of ventilation, humidity and air cleanliness.’

When must the first air-conditioning inspection take place?

The deadlines for inspection depend on the size of the airconditioning system and when it was first put into service.The flowchart (above) summarises the position on the first inspection.

The effective rated output of the air-conditioning system should be ascertainable from the unit itself or the operating and maintenance manual. However, the government guide to air-conditioning inspections for buildings also gives an approximate indication of typical figures for installed capacity for various types of space (general office, retail, etc).

After the initial inspection, the system has to be re-inspected at regular intervals, not exceeding five years.The inspections required by the Regulations are in addition to any other servicing or maintenance arrangements in relation to the air-conditioning system, eg by virtue of other statutory obligations or duties of care in the operation and maintenance of the system.

What does the inspection consist of?

The inspector, who must be an accredited energy assessor,must give a written report of the inspection.The report provides an assessment of the air-conditioning efficiency and sizing of the system compared with the cooling requirements of the building. Advice is also given for improvements to the system, replacement of it and alternative solutions for cooling the building.

The air-conditioning assessment will not identify hazards or unsafe aspects of the installation, operation or maintenance of systems that should be identified and addressed by other arrangements (see above). Nor will the assessor carry out cleaning operations or adjustments to controls even where they might be carried out simply (although they may recommend that this be done).

Who has to ensure that the inspection takes place?

The ‘relevant person’ must obtain the report.This will be the person who has control of the operation of the system. Control is determined by the person who controls the technical functioning of the system and not just the temperature.

The government guide advises that the owner of the system will usually control its operation for these purposes, even where day-today operation is contracted out to another.Where a building is let and the tenant takes complete responsibility for the building and its services (as under a full repairing and insuring lease), the tenant will control the system.

Where the operation and management of the system is carried out on a day-to-day basis by a facilities management company, the contract with the facilities manager (FM) may specify the FM as the controller of the system. In this instance the FM may also become a relevant person for the purposes of the Regulations, but the owner or tenant retains a parallel duty to ensure that the inspection has been carried out.

Where the relevant person has the power to control the temperature of more than one individual air-conditioning unit in a building, each unit shall be considered to be a component of a single air-conditioning system for the purpose of calculating the size of the system (and therefore the deadline by which the first inspection must take place).

In summary, responsibility for ensuring that the inspection takes place is as follows:

• in a single-let building – the occupier;

• in a multi-let building – the owner if a single system covers the building; and

• if installed by an occupier for its own purposes – the occupier. The government guide contains examples that illustrate the application of the Regulations to different types of buildings.

How are records to be kept?

The most recent inspection report must be kept by the relevant person.The government guide suggests that good practice is to keep the inspection report with the building log-book.

What happens if there is a change in the relevant person?

If the relevant person changes (eg because the building is sold), then the report must be handed to the new relevant person. If the relevant person changes after 4 January 2011 and the new relevant person does not receive a report, then the system must be inspected within three months of the date that person became the relevant person. Buyers will therefore ask for sight of any air-conditioning inspection reports that have been prepared by the seller. The effect of these provisions may also be to accelerate the obligation to inspect the air-conditioning system in certain circumstances.As outlined above, air-conditioning systems first put into service on or after 1 January 2008 must be inspected within five years of the date on which the system is first put into service. Therefore, where:

• an air-conditioning system is first put into service on or after 1 January 2008;

• there is a change in the relevant person after 4 January 2011 but within the first five years of the system being put into service; and

• an inspection report is unavailable (as is likely),

the effect of the Regulations is that the system must be inspected within three months of the change in relevant person.This is notwithstanding that, had the relevant person not changed, the inspection would not have been required until five years after the system was first put into service.

How will the regulations be enforced?

As with EPCs, the Regulations are enforced through the trading standards departments of local authorities. An enforcement officer can require the report to be produced for inspection. If the report is not provided within seven days, a penalty charge notice may be imposed. However, no request for production can be made, or penalty charge notice imposed, more than six months after the breach of the regulations occurred.The penalty charge is £300.