Energy Performance Certificates – updated guidance
Government guide to Energy Performance Certificates for the construction, sale and let of non-dwellings: Second edition (July 2008)
In July 2008, the Department for Communities and Local Government published a second edition of its guide to Energy Performance Certificates (EPCs) for the construction, sale and let of non-dwellings. We set out below the key points in the new edition. Background information on EPCs can be found here.
Confirmation that a subsequent EPC of part of the building will not invalidate a prior EPC of whole
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 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.
This useful clarification will assist landlords who are trying to decide how to carry out EPCs on their multi-let buildings.
Transactions which are not considered to be a sale or let and which are therefore exempt from the requirement to produce an EPC
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 which 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 which is tied to a job may also fall outside the ambit of the regulations. This will depend on the circumstances of each individual case.
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 which is provided to prospective purchasers.
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.
Shell and core buildings
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 which 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.
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 free standing properties only.
Different types of commercial buildings
Non-dwellings are divided into three types for the purposes of finding an appropriate assessor:
- Level 3: simple, existing non-dwellings e.g. small buildings such as converted houses or doctor's surgeries
- Level 4: new and existing non-dwellings e.g. small purpose-built office buildings
- Level 5: new and existing complex non-dwellings e.g. large office buildings or factories.
The new guidance elaborates on the distinction between a Level 3 and a Level 4 building.
Definition of a "dwelling"
The guidance only applies to buildings which 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 (e.g. 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 (e.g. 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. More information can be found in the updated guidance.
This analysis forms part of a suite of Wragge & Co guides to the Energy Performance of Buildings legislation:
- Energy Performance Certificates (January 2008)
- Energy Performance Certificates (Transitional Provisions) (March 2008)
- A residential landlord's guide to Energy Performance Certificates (July 2008)
- Display Energy Certificates (May 2008)
This analysis may contain information of general interest about current legal issues, but does not give legal advice.