Galbraith is Scotland’s leading independent property consultancy, with expertise across a broad spectrum of property related services.

Counting the cost of energy targets

Tough rules on the energy efficiency of buildings are due to become law in Scotland in April. Calum Innes says landlords should be preparing now.

New laws will make it illegal for landlords to issue a new lease on a building that lacks an energy performance certificate (EPC) of e or higher.

REEPSH (Regulation of Energy Efficiency in Private Sector Housing) becomes effective in Scotland in April 2020. The UK Government is obliged by the Paris Agreement to significantly reduce greenhouse gas emissions by 2050 and ensure targets are evidence-based and independently assessed. Buildings are estimated to account for between 12.6 and 40% of energy consumption. 

While in England and Wales the Minimum Energy Efficiency Standard Regulations (MEES) applies to both residential and commercial tenancies, its Scottish equivalent REEPSH affects only homes. With both, the official approach has shifted from carrot – renewable-energy subsidies – to the stick of mandated standards and costly penalties. 

Energy Efficient Scotland Route Map

The Scottish Government’s Energy Efficient Scotland Route Map, published in May, provides for these minimum standards in privately rented properties: 

• EPC band E at change in tenancy from April 1, 2020; 

• EPC band E in all properties by March 31, 2022; 

• EPC band D at change in tenancy from April 1, 2022 and 

• EPC band D in all properties by March 31, 2025. 

Social landlords must ensure they achieve the relevant minimum E ratings by December 31, 2020 for social housing, though requirements change with building type and heating. The Scottish Government Guidance for Social Landlords gives full details. 

Commercial property

While there are currently no minimum EPCs for commercial property in Scotland, there are protocols for the sale of commercial properties above 1,000 square metres and F or G rated. This involves an action plan on how the minimum E can be met after sale. 

This obligation comes from Scottish regulations, which came into force on September 1, 2016, and applies to non-domestic buildings (or units designed for separate use) with a floor area of more than 1,000 square metres, unless they comply with Scottish Building Standards from 2002 or later. If the regulations do apply, the owner will need to obtain a section 63 Action Plan before letting or selling the property – essentially, they allow a property with a poor rating to be let, but the focus is on either carrying out the improvement works recommended in the action plan or monitoring and recording energy efficiency annually by obtaining a Display Energy Certificate. 

While REEPSH will apply to most privately rented homes, lower levels of energy improvement may be accepted for legal, technical or cost reasons. Consultations under Energy Efficient Scotland are due to determine how exceptions will apply and work in practice and enforcement by early 2019. 

The Scottish Government has also been consulting on raising the standard for all privately rented properties to EPC Band C by 2030 “where cost-effective and technically feasible”. A higher proportion of private rented dwellings with low EPC ratings is situated in rural areas. 

The new rules exclude owner-occupiers even though they emit carbon. The plan is that they reach EPC C by 2040. 

Enforcement

Until the Scottish position on enforcement is clearer, it may be useful to consider the practice in England and Wales. There, challenged by local trading standards officers, landlords must prove they have complied and, if they cannot, will be given a short time to do so. 

South of the Border, MEES does not apply to residential tenancies of local authority landlords, only to their commercial tenancies; whereas for private landlords it applies to both. This is despite public sector-owned properties often being very energy-inefficient. 

There, based on rateable values, penalties for unlawfully renting out a property will be between £5,000 and £50,000 for contraventions of up to three months, rising to between £10,000 and £150,000 for longer periods. 

Those affected by the legislation should consider their approach sooner rather than later. Noncompliance may have consequences beyond sizable fines. Large agents could face depreciating asset values; landlords will struggle to renew leases or could be forced into rent reviews by tenants. Rather than undertake costly renovations or installing new boilers, landlords may consider installing green technologies such as PV plus battery storage to generate daytime power for use after dark.