The commercial property world at large has got its collective head around Energy Performance Certificates (EPCs) and notwithstanding a few unhelpful (and irrelevant as far as commercial property is concerned) comments by Rishi Sunak late last year there is a clear and demonstrable drive towards London's buildings becoming more and more energy efficient.
One of the abiding rules in property has always been the devil being in the detail and EPCs are no exception, in today's post we're going to dive into one of the more nuanced decisions a landlord can make for their property - to have an EPC for their whole building or an individual EPC for each floorplate (or unit) within it - a strategy many have never heard of let alone considered...
EPC for the Entire Building
Does what it says on the tin, as they say - one energy performance certificate encompassing an entire property, its constructions, heating and cooling equipment, hot water, windows and so on. This one stop shop is the most frequently conducted by virtue of it being the default for most landlords (and indeed assessors) - does that make it the best however?
Pros:
Cost-Effective: Each commercial EPC registered with the government portal incurs a lodgement fee to the assessor, this logically makes up part of the fee that the landlord pays - and having only one fee keeps costs to a minimum.
Simplicity: One piece of paperwork which enables the landlord to sell the building or lease it wholesale or subdivided as they see fit.
Consistency: It provides a uniform rating across the building, perhaps the top floor on its own performs poorly in terms of energy efficiency but the averaging effect of it being incorporated into the whole equation can dampen these issues.
Cons:
Less Specific: The averaging effect swings both ways - a landlord may have invested heavily in one floor of a building when it became available at the end of a lease installing the latest HVAC and triple glazing, this expenditure may not be reflected if a whole-building approach is taken.
Potential Overgeneralisation: Commanding higher rents for an EPC 'B' rated property will ring hollow with tenants on one floor who are shivering in winter.
EPC for Each Floor Plate/Demise
Many of the largest asset management companies in London have adopted the doctrine of having a highly-rated individual EPC for each floor plate of each asset in their portfolios, what is the thinking behind this, is it overkill or good practice?
Pros:
Detailed Assessment: Each subdivided unit will invariably receive closer scrutiny when taken on a case by case basis.
Flexibility in Leasing: Crucially it allows the landlord to maximise their returns, why let a poor overall building score get in the way of leasing the 6th floor with its 'A' rating at a sustainability premium. It also allows the freedom to lease or dispose of any part of their assets at will.
Incentive for Improvements: Individual EPCs allow for highly targeted improvements to be identified and undertaken without the over-expenditure of whole-building refurbishments.
Minor Loophole: Whole-building EPCs account for the entirety of the building as the name suggests, individual floor EPCs do not include the common parts of the building outside of each demise such as corridors, stairwells and shared toilet facilities. This could prove advantageous if there is a material issue with the common parts (often the draftiest and least efficient parts of a building) - It must be stated however that the common parts would have to be accounted for in the event of the sale of the whole building.
Cons:
Higher Costs: Multiple EPCs require multiple lodgement fees, though the assessors overall fee can still be negotiated.
Complex Management: Keeping track of multiple certifications could be an issue but unlikely given their presence online.
Potential Inconsistencies: Different ratings within the same building might complicate the overall marketing strategy.
Which Approach Is Best for You?
The choice fundamentally boils down to the complexity of the building and the landlord's appetite for efficiency (in business as well as energy consumption). Many small to medium sized property owners view EPCs as little more than a rubber stamp but in today's high energy cost environment those attitudes are changing fast - coupled with regulatory targets to achieve throughout the rest of the decade it makes sense for landlords to carefully consider their EPC strategy going forward.
Along with building size the other main factor to consider is the current leasing structure, a landlord with non-concurrent tenants may have a strategy in place to refurbish each floor as they become vacant - this would be ideal for a multi-floor EPC strategy.
It's important for any landlord to make well-informed decisions when managing their assets, forwhole building or multi-floor EPC queries or indeed any other issues surrounding the energy efficiency of your commercial property in London please do not hesitate to reach out to us here at Haptic EPC.
Edit 05/02/24: We have now added a notable multi-floorplate EPC survey to our Portfolio.
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