Sustainability

Question 1

What is sustainability?

Answer 1

Meeting the needs of the present without compromising the ability of future generations to meet their own needs

Question 2

How can be more sustainable?

Answer 2

• Consume less
• Reduce, reuse and recycle
• Travel smarter

Question 3

What best practice requirements do the RICS offer in terms of sustainability?

Answer 3

• RICS Rules of Conduct (2021)
• RICS Red Book Global (2021) – VPGA 8
• RICS Professional Standard Sustainability and ESG Guidance in Commercial Property Valuation and Strategic Advice (2021)

Question 4

What does “achieving net zero” mean?

Answer 4

• Climate Change Act 2008 was amended in 2019 to acquire UK to achieve “net zero carbon” by 2050
• Target of reducing emissions by 78% by 2030 was introduced
• Requires significant effort throughout property industry

Question 5

Under the UK Green Building Council, what is the rank of necessary actions to achieve “net zero carbon”?

Answer 5

1. Establishing Net Zero Carbon Scope – across the whole life of buildings (carbon emission associated with the construction, use, refurbishment, demolition)
2. Reduce Construction Impacts – developers focus on changing building materials and building designs
3. Reduce Operational Energy Use
4. Increase Renewable Energy Supply on site and off site
5. Offset any remaining carbon emissions – considered last resort for remaining emissions that can’t be eliminated through the measures above

Question 6

What is an EPC?

Answer 6

• Energy Performance Certificates (EPCs)
• It will contain information about the buildings energy use and typical energy costs
• It will have recommendations about how to reduce the energy use and save money
  o E.g. changing insulation, replacing windows with double/triple glazing, replacing lighting to energy efficient lighting
• An EPC gives a property an energy certificate rating from A (most efficient) to G (least efficient) and it is valid for 10 years
• EPCs are required for:
  o All commercial buildings with a total useable floor area of 50 sq m or more
  o Whenever a property is built, sold or let for more than 6 months (&less than 99 years)
  o Whenever a property is newly refurbished and heating/AC/ventilation is altered
  o EPCs are required for sub-letting or assignment of lease
• Arrangements for EPCs in England & Wales are expected to be reviewed in the coming months, whilst Scotland Gov have consulted proposals for significant reform

Question 7

What information is listed on an EPC?

Answer 7

• Address
• Floor area
• EPC certificate reference number
• Date the certificate was issued
• Who inspected and administered the certificate
• EPC rating
• Estimation on running energy costs
• Projected EPC rating based on recommendations of the assessor on how to improve the EPC of a building

Question 8

What are exemptions from getting an EPC?

Answer 8

• Listed buildings
• Buildings that don’t have any heating
• Religious buildings
• Temporary buildings
• Standalone buildings with a usable floor area of less than 50 sq m
• Buildings due to be demolished/refurbished
• Buildings that are not occupied more than 4 months of the year

Question 9

Does this apply everywhere?

Answer 9

No – in Scotland, places of worship, listed or historic buildings do need an EPC

Question 10

What are the EPC requirements for marketing?

Answer 10

• Must be commissioned within 7 days of the commencement of marketing (28 day limit for obtaining)
• Agents are responsible for procuring EPCs
• Actual energy rating is required on marketing particulars
• All marketing material must have link to front page of EPC
• EPC online register holds EPCs

Question 11

Who policies EPC compliance?

Answer 11

Local authorities Trading Standard Teams

Question 12

What are the penalties for non-compliance?

Answer 12

• Residential: £200 civil fixed penalty
• Commercial: max 12.5% RV of building (min £500 & max £5,000 fines)

Question 13

What is MEES?

Answer 13

• Minimum Energy Efficiency Standards 2015
• Applies in England and Wales only (2016 Scotland Gov published their own regulations)
• Require a minimum EPC rating of Level E to let a building from 1st April onwards
• 2 stages:
  o New leases from 1st April 2018, including lease renewals/extensions
  o All existing leases from 1st April 2023 for commercial properties (2020 residential)

Question 14

What are the exemptions of MEES?

Answer 14

• If building does not need an EPC (as above)
• Industrial units with low energy demand (e.g. no heating/cooling)
• Lettings of less than 6 months with no security of tenure
• Lettings of more than 99 years
• When it isn’t feasible to improve EPC rating
• When improvements would devalue property by more than 5%
• When 3rd party consent from a tenant, LL or planning authority for improvements is refused
• Certain types of residential leases (e.g. company lets, 2nd homes)
• Exemptions must be pre-registered on the Local Authority Rented Sector Exemptions Register and renewed 5 yearly

Question 15

Does MEES apply to sub-lettings/assignments?

Answer 15

Yes

Question 16

Who policies MEES?

Answer 16

Local Authority

Question 17

What are the penalties for non-compliance of MEES?

Answer 17

• Commercial:
  o Where breach has lasted less than 3 months – up to £5,000 or if greater 10% of RV with max fine of £50,000
  o Where breach has lasted more than 3 months – up to £10,000 or if greater 20% of RV with max penalty of £150,000
• Residential:
  o Where breach has lasted less than 3 months – £2,000
  o Where breach has lasted more than 3 months – £4,000

Question 18

How much do residential landlords have to spend on improving the energy efficiency at properties where an AST was granted on or since 1st April 2019 if properties have an F/G rating?

Answer 18

£3,500 – tenant demands improvements

Question 19

What is the impact of MEES?

Answer 19

• It will make some buildings illegal to let unless they are upgraded to the minimum standards which could be a significant cost implication
• It’s estimated that c.20% of non-domestic properties are in the F&G rating brackets
• Valuations could be affected if their marketability is diminished
• RR’s for properties in this situation could be impacted

Question 20

Does MEES have an influence on the attitudes of tenants or investors?

Answer 20

• From an occupier perspective, ESG credentials are an important aspect and they want to tick the box
• After the pandemic, a lot of occupies want nicer offices to attract employees back to the office
• Investors want to future proof their buildings so don’t want to buy buildings where they have to spend a lot of capital expenditure to bring it up to standards

Question 21

What are the potential changes to MEES regime?

Answer 21

• In response to the Committee on Climate Change 2023 Progress Report, the government confirmed in Oct 2023 that it will not be requiring LL’s of domestic properties to improve energy efficiency of their property to higher standards than those currently required by legislation, a reversal of MEES policy previously set out to ratchet minimum standards to a C by 2028
• A response to raising minimum energy efficiency standards for non-domestic leased buildings would follow

Question 22

What are ESG credentials?

Answer 22

• The three key areas on which socially responsible investors focus
• This means that their decisions are informed not only by financial considerations and risk by environmental and social factors
• ESG agenda is a natural progression of corporate social responsibility taking its concern with accountability and reporting

Question 23

What is BREEAM?

Answer 23

• The Building Research Establishment Environmental Assessment Method which is a voluntary assessment to rate new, refurbished and operational buildings
• There are nine weighted environmental categories including energy consumption, water use, transport links, waste management and health and wellbeing
• Five BREEAM ratings: Pass / Good / Very Good / Excellent / Outstanding
• Other ratings include LEED (Leadership in Energy and Design) – USA, WELL standard – international – standard for buildings to be rated in respect of spaces that can optimise the health and mental wellbeing of occupiers
• 2 stages of assessment: design and post construction where an interim and final certificate are issued

Question 24

What else has been introduced in the property industry to help with sustainability?

Answer 24

• Green leases – seek to ensure LL’s and tenants share information about the use of energy, water and waste arising in a building. The Better Buildings Partnership (BBP) has a green lease model form and recommendations
• The BBP also produced various toolkits to owners, managers and occupiers on how to improve the sustainability
• Green loans – such financing is becoming increasing popular for projects which contribute to environmental objectives (e.g. upgrading to solar power/upgrading EPC rating)

Question 25

What are some more efficient construction solutions that more developers are considering?

Answer 25

• Use of renewable materials and technologies – solar, wind, biomass and heat pumps to achieve low carbon emission and reasonable payback period
• Building aspect and use of natural light to use solar gain
• Effective energy management systems
• Heat pumps – take heat from the air into buildings to warm the internal environment using the small amount of electricity in the process. No fuel is burnt so no greenhouse gasses are released as a result (assuming electricity is renewably generated)

Question 26

What types of heat pump are there?

Answer 26

• Air source
• Ground source
• Both are highly efficient because they produce more energy in the form of heat than they use as electricity
• Will become more popular as the government has announced plans to ban the installation of gas boilers in new homes by 2025