From 1 September 2016, owners of large commercial properties in Scotland will have to produce an action plan when they are selling or leasing their property.

From 1 September 2016, owners of large commercial properties in Scotland will have to produce an action plan when they are selling or leasing their property. Unlike similar regulations in England and Wales, the new Assessment of Energy Performance of Non-domestic Buildings (Scotland) Regulations 2016 will not prevent owners from leasing properties with poor EPC ratings. Instead, owners will have to choose whether the energy efficiency of the property is to be monitored and reported annually or whether works will be done to the property to improve energy efficiency and reduce emissions.

The new regulations will apply to non-domestic buildings with a floor area over 1000m_ and units within non-domestic buildings that are designed or altered to be used separately with a floor area over 1000m_ which do not comply with the 2002 and later Scottish Building Standards. They will not apply to properties improved under the Green Deal or temporary buildings and workshops with low energy demand.

An owner looking to sell or lease a property that is affected by the regulations will have to provide any prospective buyer or tenant with an action plan free of charge. No action plan will be needed for an existing tenant renewing a lease or a tenant taking a short term lease for less than 16 weeks.

A new assessor, to be known as a 'section 63 advisor', will produce the action plan, a programme of improvement measures to reduce energy consumption and greenhouse gas emissions from the building and will also set energy improvement targets for the building. The improvement measures the advisor can choose to include are prescribed by the regulations as follows:

installing draught stripping to doors and windows;
upgrading lighting controls;
upgrading heating controls;
installing an insulation jacket to a hot water tank;
upgrading low energy lighting;
installation of insulation in an accessible roof space; and
replacement of a boiler.

The building improvement measures will only be required where the energy savings over seven years would exceed the initial cost of the works or where a boiler is more than 15 years old. The works must be completed within 3.5 years, and on completion, a document of confirmation of improvement must be registered and a new EPC obtained.

The section 63 advisor will discuss his findings with the owner of the property and confirm in the action plan whether the owner intends to defer carrying out the improvement measures or, instead, implement operational rating measures. The regulations do not put a time limit on how long works may be deferred.

If an owner chooses to implement operational rating measures, they must obtain and exhibit a display energy certificate (DEC) in a clearly visible place at the property and renew it every year. In the first year, the DEC will estimate the energy consumption and emissions from the building and thereafter record actual consumption and emissions. Failure to renew the DEC annually will result in the owner losing the right to defer carrying out the improvement measures and being required to carry out the necessary works.

The action plan, the DEC, and the document of confirmation of improvement must all be registered in a central register which will be accessible to those who have the property details and the reference numbers of the documentation they wish to see.

Local authorities have been charged with policing the regulations and will be entitled to impose a penalty charge of £1,000 if an owner fails to produce an action plan or fails to carry out the improvement measures within the 3.5 year time limit. The Scottish Government will also be monitoring the collection of energy improvement data and, if they see no reduction in energy consumption or greenhouse gas emissions, they may move to make retrofit works such as those prescribed in the regulations compulsory.

Those considering buying, selling, leasing or funding a building affected by the regulations should take into account the costs of carrying out improvement measures or implementing operational rating measures when pricing the property.

If buying a building with a sitting tenant, the purchaser must ask if the costs can be recovered and whether the necessary rights of access are reserved in terms of the existing lease. They should also check whether the current service charge provisions allow the landlord to recover the cost of carrying out works or monitoring the property under the operational ratings regime.

Landlords negotiating new leases should also ensure that they reserve the right to carry out any investigations or improvement works and agree with any prospective tenant who is responsible for paying the costs of carrying out the works or monitoring the energy performance and emissions.

For more informationplease contact Johane Murray, PhilHunter or your usual Brodies contact.