New energy building standards for warehouses

April 2018 sees the introduction of new government measures intended to ensure that commercial buildings – including warehouses – improve their energy efficiency. Owners or landlords will not be allowed to grant new leases or renew existing tenancies on properties with F and G rated Energy Performance Certificates (EPCs), which are the two worst performing categories. From 2023, landlords will be prevented from continuing to let F and G rated structures subject to certain exclusions and exemptions. However different rules apply in Scotland and Northern Ireland.

Property owners are not allowed to sell or rent properties without a valid EPC which provides a measure of energy efficiency and CO2 emissions. EPC rankings run from the most efficient- A- down to G. Not making an EPC available to a prospective tenant or buyer could lead to a fine up to £150,000, together with publication of non-compliance.

There are some safeguards, including measures to ensure that the works are cost-effective, that consents are obtained and adverse effects on the property values are considered.   Landlords may be eligible for an exemption in certain circumstances.

Where we are today

The commercial property industry in general has a lot of work to do to comply with these new standards, as around 60% of buildings still have no EPC. Of those that do, around 18% are F or G rated with a further 22% being E rated. Older buildings are likely to be the worst performing E, F or G rated properties.

The new rules are aimed at removing the worst performing buildings from the lettings market and occupiers need to act now to ensure they have an effective strategy for managing the impact on their operations. The Government expects landlords and tenants to agree amongst themselves who will pay for any improvements.

How the EPC system works

The assessor will review the key aspects of the property including the building fabric, heating, lighting, insulation, glazing and any design features or equipment that affect energy use and emissions. The EPC lasts for 10 years.

Together with the EPC the assessor should also provide a report on how to improve the property into a more cost effective and energy-efficient building, with lower fuel bills and carbon emissions.

The certificate will also include information to show how these recommendations will increase energy efficiency, making the sale or rent of the property more attractive.

Assessing the risk

Owner and landlords need to establish a strategy to measure the risks and prepare a plan to manage their properties accordingly.   Such a plan should involve drawing up a list of all properties affected, confirm which have EPCs and their ratings, and then develop a programme to deal with those currently rated F and G. In addition, it may be worth further upgrading those already rated above F to improve their marketability. In addition E rated properties should be considered at risk as they may fall into an F or G category during future assessments.

Taking action

Once the poorer performing properties have been identified, those responsible should draw up a detailed action plan for each individual facility, based on the two following key dates.

Before April 2018

The first step will be to gather all available ‘as built’ information about the property with copies of existing EPCs and to review any recommendations that assessors may have provided.   It may be helpful to obtain a new EPC which uses ‘as built’ construction details and accurate zoning rather than using ‘default’ assumptions.

Computer-based Energy Modelling Systems can help analyse various scenarios to identify improvements in key areas such as lighting, heating, controls and insulation.

Once each property has been reviewed and assessed the management team will be better placed to consider a future exit strategy, especially for leases expiring after 2023. One option is to consider whether sub-letting will trigger a new EPC which may require improvement to the property. In addition, some of the exemptions available may apply so some properties.

Finally, in the light of the new rules it’s important to assess the cost of dilapidations when the lease ends.

Before 2023

In addition to the action plan for 2018, there are a number of additional aspects to be considered so that identified properties can continue to be occupied after this date.

Once the buildings affected by the new rules have been identified, a timetable and schedule can be prepared listing works required to improve the property, any exemptions that apply and whether relocation is a safer option. The landlords will of course be consulted where appropriate on the proposed strategy and works to be undertaken. This will include agreeing on who will apply for exemptions, pay for improvements and who will obtain a new EPC.

Where a programme of improvements has been identified the plan should consider how to minimise any disruption to the business.

In the more extreme cases where continuing to occupy the facility is no longer feasible due to the cost of reaching a higher EPC rating or other grounds, the management team should develop an exit strategy.

Simple ways to upgrade the warehouse

While some properties may need extensive expenditure to reach higher EPC ratings, there are a number of comparatively simple ways to save energy, reduce CO2 emissions and cut costs.

According to the Carbon Trust as much as a quarter of a building’s heat loss is through the roof. Insulating the roof can cut the loss by up to 90% and reduces solar heat gain during the day. Insulating cavity walls can also significantly reduce energy loss.

Draughts are often overlooked, but draught-proofing doors and windows is one of the simplest and most cost-effect steps in energy conservation.   Many warehouses have large doors which are often left open during busy periods. The easier they are to open and close the more likely they are to be used effectively and simple supervisory procedures will help cut big heat losses from open delivery bay doors. However the EPC rating is concerned with the design of the doors and not their operation.

Modern, centrally operated building control systems may require more serious expenditure but will ensure that correctly installed and operated technology managing heating, ventilation, cooling and lighting can make huge inroads into energy costs.

Given the complexity of the new government requirements and the wide sweep of energy management technologies, most companies will seek outside expertise. As a specialist logistics property consultancy, sbh has more than 25 years’ experience in all aspects of design, acquisition, construction and disposal of warehouse and distribution properties and is ideally placed to help companies make the most effective decisions on their property portfolios.