Energy efficiency: Creditors to pay?
New energy efficiency regulations came into effect in Scotland on 1 September 2016. Find out how these affect IP’s and why creditors may end up ultimately paying the price.
The Assessment of Energy Performance of Non-Domestic Buildings (Scotland) Regulations 2016 came into effect on 1 September 2016 and introduce new requirements on building owners for the assessment and improvement of the emissions and energy performance of non-domestic buildings in Scotland.
The Regulations apply to non-domestic properties with a floor area of more than 1,000 square metres unless:
- The property is constructed to 2002 building standards or later;
- The property has benefitted from energy improvements under a Green Deal plan;
- The property is a temporary building intended for use for two years or less;
- The property is a workshop, or
- Is a property with low energy demand, for example where there is no heat provision.
The Regulations require property owners to obtain an EPC and undertake an assessment to identify a target for improvement of the carbon and energy performance of the building. An Action Plan, set by an assessor, is required to detail the physical improvements required to the property to achieve the target.
Along with the EPC, the Action Plan must be made available to prospective buyers or tenants but does not apply to
- The renewal of a lease to an existing tenant;
- The grant of a lease for 16 weeks or less where the property has not been let by the owner during the preceding 36 weeks;
- The grant of a sub-lease;
- A sale or lease of a property in the course of construction.
Where a building is sold and the new building owner does not wish to implement the physical improvement measures set out in the seller's action plan, the incoming owner may prepare their own action plan. However, if the new action plan does not provide for implementation of operational rating measures, the physical improvement measures set out in the revised action plan must be completed by the same deadline as that in the original action plan for the building.
Insolvency practitioners dealing with non-domestic properties in Scotland which fall within the scope of the Regulations will therefore require to instruct an EPC and Action Plan to be prepared where they are selling or entering into a lease.
As well as the additional costs associated with having an Assessor prepare the Action Plan, it is likely that the new requirements will affect the price that a purchaser may be prepared to pay where significant costs are associated with carrying out the work identified in the Action plan. In this situation, ultimately it is the creditors (and most likely any secured creditor) that will end up funding the energy efficiency improvements with no benefit.
With the new Regulations now in force, banks and other property lenders may well also start to review the likely impact that any Action Plan may have on the security value against existing debt when renewing existing facilities.
Similar rules will come into force in England and Wales on 1 April 2018 but will not apply to sales.