Since the introduction of the Climate Charge (Scotland) Act 2009, the Scottish Government has been a global leader in tackling climate change. The Act introduced the statutory framework for greenhouse gas emissions reductions in Scotland by setting an interim reductions target of 42 per cent by 2020 and an 80 per cent reductions target by 2050. Since the Act was passed the Scottish Government has successfully implemented secondary legislation to achieve their objectives, including the introduction of EPCs (Energy Performance Certificates) and other legislation, such as the carrier bag charge.
The most recent secondary legislation in support of its objective is The Assessment of Energy Performance in Non-Domestic Buildings (Scotland) Regulations 2016, which came into force this month. The new regulations apply to larger commercial buildings with a floor area of more than 1,000 m² and are triggered by either sale or lease to a new tenant. Prior to the regulations the owners of such buildings were required to provide and display a valid EPC. Now owners must undertake an additional assessment to produce an “Action Plan”. This identifies targets for improvement of the carbon and energy performance of the building and how these targets will be met via physical improvements.
The owner then has up to 42 months to carry out any recommended building improvements. All Action Plans and DECs are lodged with the Scottish EPC Register.
The Action Plan must be made available to prospective buyers or tenants. Provision of the EPC and Action Plan is all that is required to enable marketing of the property. Any suggested improvement works do not need to be carried out as a requirement of the transaction proceeding. However, where ownership of the property changes, the responsibility under the 2016 Regulations for improvement or reporting will transfer with the interest in the property.
Those considering buying, selling, leasing or funding a building affected by the regulations must now take into account the costs of assessing the building and producing an Action Plan. Further consideration also must to be given to the costs to be incurred in carrying out the improvement measures or implementing annual reporting of the operational rating.
Local authorities 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 42-month 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 the retrofit works prescribed in the regulations compulsory.
The Scottish Government hopes the regulations will see older buildings made more energy efficient. But it remains unclear whether in fact the regulations will result in a two-tier system whereby older properties are less likely to change hands. In a commercial real estate market that is still struggling to maintain traction this could be seen as over-legislation for political gain that could harm the commercial real estate market and the Scottish economy further.
Cassy Auld is a partner at Weightmans (Scotland) LLP