Financial implications of the proposed new rules on energy efficiency in commercial buildings
Financial implications of the proposed new rules on energy efficiency in commercial buildings06 March 2019 Written by James & George Collie

A Property The Assessment of Energy Performance of Non-Domestic Buildings (Scotland) Regulations 2016 are due to come into force on 1st September 2016 and will mean that certain commercial properties must achieve a minimum energy performance level (likely to be an E rating) in order to comply with the Regulations.

This means that commercial properties with an EPC rating of F or G may require costly energy improvement works to meet the new minimum standard.

The application of the Regulations is triggered by the sale or lease of non-domestic buildings or building units with a floor area of more than 1000 square metres and requires the owner of the building or building unit to make available to any proposed purchaser or tenant an “action plan” which details any improvements required to bring the building or building unit into line with the Regulations.

In practical terms, the “action plan” will need to be prepared prior to advertising the building or building unit since the Regulations describe a prospective buyer or tenant as anyone who (a) requests any information about the building from the owner for the purpose of deciding whether to buy or lease the building; (b) makes a request to view the building for the purpose of deciding whether to buy or lease the building; or (c) makes an offer, whether oral or written, to buy or lease the building.

“Section 63 advisors” (who must be employed by approved organisations appointed by the Scottish Ministers) will be responsible for the assessment and preparation of the action plan.  The Regulations provide that any physical improvement measures shall consist of "identified improvement measures" (e.g. boiler replacement, upgrading low energy lighting or installation of insulation), any "alternative improvement measures" recommended by the advisor, or a combination of both.

Any "identified improvement measures" (which are set out in the Schedule to the Regulations) must, in the opinion of the advisor, be able to pay back the initial cost (through reduced energy consumption) within 7 years (or within 15 years, in the case of a replacement boiler).

If improvement measures are required, the owner has two options; to complete the works within 42 months, or defer the works. If the owner elects to defer the works then in the intervening period, the owner must record the building or building unit’s energy consumption via a Display Energy Certificate which must be registered annually.

If the owner is selling the building or building unit and has not implemented improvement measures following an action plan and is not in breach of its obligation to do so (either 42 weeks has not passed or it has registered a valid Display Energy Certificate), the purchaser may prepare their own action plan.  However, if the new action plan does not provide for implementation of operational rating measures via a Display Energy Certificate then the deadline for completion of the works (42 weeks) will be the deadline specified in the original action plan.

With regard to the grant of a new lease, the parties are free to negotiate whether the owner or tenant is to pay for any works outlined in the action plan, much like if a tenant obtained a survey prior to entry and works were identified that needed to be carried out.  In terms of the Regulations, however, the ultimate responsibility for compliance with the Regulations falls to the owner.

There are various exemptions and exclusions from the Regulations:

  • Buildings constructed to the 2002 building standards or more recent standards.
  • Buildings constructed prior to 2002 that have been built to or improved to meet more recent energy standards.
  • Temporary buildings with a planned time of use of 2 years or less.
  • Workshops and non-residential agricultural buildings with low energy demand.

    • Green deal improved properties (where energy improvements have been made under a green deal plan, the Energy Act 2011 containing the framework).
    • The sale or lease of a building at any time before the construction of the building has been completed.
    • The renewal of an existing lease with the same tenant.

      • The grant of a "short term lease" (a lease for a period of not more than 16 weeks which does not include an option to extend its duration) where the building has not been let by the owner during the preceding 36 weeks.
      • Buildings with a floor area of less than 1000 square metres.

Enforcement of the Regulations will be carried out by the local authority where the property is located who have the power to issue a penalty for non-compliance of £1,000.

The Scottish Government Building Standards team are working on detailed practical guidance for the property industry and owners of properties which will be affected by the Regulations should seek advice prior to any proposed sales or leases which are likely to complete after 1 September 2016.

For advice on the implications of the new Regulations or selling or leasing commercial property generally, please contact Commercial Senior Solicitor, Kate Mitchell, on 01224 581581 or by email at This email address is being protected from spambots. You need JavaScript enabled to view it.

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