Blog: Scottish property owners face double whammy over differences in Energy Certificates

Mark O’Neill
Mark O’Neill

Scotland and England, though joined in union, have always had differing legal structures and, even in legislation which has common aims across the UK, there are key differences.

The UK as a whole is pressing forwards with a commendable agenda of energy efficiency and sustainable use of energy within properties across the built environment, both in residential and commercial sectors.

One of the key planks of this policy is the Energy Performance of Buildings Regulations. These require property owners to provide an Energy Performance Certificate to prospective tenants and purchasers. Forthcoming amendments to these regulations will impose an obligation on owners of certain buildings to undertake improvements in order to increase the property’s energy efficiency. But the approach is significantly different on both sides of the border and this could create a double whammy for Scottish property owners.

Not only is the respective legislation applicable North and South of the border different in fundamental aspects, but the methods of calculating and the scaling of energy bands are different - and a broad lack of awareness of these differences could have major implications.

Briefly, in England and Wales it will be illegal from 2018 to grant a new lease on a building with an EPC rating below E. (Bands, in both countries, run from A to G, with A the most efficient).

In Scotland, incoming regulations will provide for property owners to improve an inefficient building, but will not prevent sale or letting. Energy Action plans will set out how the improvements will be made.

There is also a lack of understanding about E band ratings, with a growing misconception that a rating below that will impact adversely on the ability to market a property.

While there is emerging evidence that some banks and lenders are latching on to an E rating as part of their UK wide lending criteria, there is no mention of an E band threshold or benchmark in the Scottish regulations.

That has not stopped some institutions indicating that they will be introducing a blanket, UK-wide lending policy which will look unfavourably on properties with F and G ratings.

So it has never been more important for Scottish property owners to take independent, professional advice about these discrepancies and also to investigate the relationship between themselves and their lenders.

Those affected could include people who are using property as a vehicle for personal pensions. They could find that, should their property be deemed to be energy inefficient and thus more risk in terms of income security and future lettability in the eyes of a pension fund, that avenue could be closed to them.

The dispiriting thing is that property owners so affected could simply be victims of ill-considered policy-making by some national lenders who do not feel inclined to adjust their one-size-fits-all approach for a small portion of their market, such as Scotland.

An increasing number of property owners are being asked to provide EPCs to their lenders as part of their lending criteria. Commercial valuers are being required to provide comment on how an energy rating for property, being used as security for lending, might be impacted by a perceived poor rating.

With the majority of commercial property stock in Scotland having a G rating, there is a danger that Scottish borrowers might be asked to meet a standard which is being set using differing rules that do not apply in Scotland, and a standard they may not be able to actually meet, nor are legally required to do so.

  • Mark O’Neill is a Commercial Valuations specialist and a Non-Domestic Energy Assessor at DM Hall Chartered Surveyors