UK: Energy Regs & Academies: A Compliance Guide

An outline of the requirements with regard to energy certificates and MEES, and their implications for academy trusts.

In connection with efforts to combat global climate change, the regulatory regime governing energy efficiency requirements for buildings has become increasingly complex, and increasingly strict, in recent years. The two central planks of the current regime are the Energy Performance of Buildings (England and Wales) Regulations 2012 ("the EPC Regulations), which impose a requirement to obtain display energy certificates ("DECs") and energy performance certificates ("EPCs"), and the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 ("the MEES Regulations"), which introduced the concept of minimum energy efficiency standards ("MEES"). The regulations cover both domestic and non-domestic buildings, including school buildings. It is important, therefore, that academy trusts have an awareness of their obligations under the regulations. This article provides a summary of requirements under the current regulations and their implications for academy trusts.

DISPLAY ENERGY CERTIFICATES

What are the requirements?

Where a building is occupied in whole or in part by a public authority, has a total useful floor area of more than 250m2 and is frequently visited by members of the public, the EPC Regulations require the occupier to:

• obtain, and keep at all times, a valid recommendation report for the building setting out the energy performance of the building, and any potential improvements that could be made to upgrade the building's energy performance; and
• display at all times a valid DEC in a prominent place clearly visible to members of the public who visit the building.

Single and multi academy trusts are public authorities for the purposes of the EPC Regulations, and a building is defined as a roofed construction having walls, for which energy is used to condition the indoor climate (i.e. it has a fixed heating, air conditioning or mechanical ventilation system). The definition of building can also encompass a part of a building where that part has been designed or altered to be used separately.

What are DECs and recommendation reports?

A DEC shows the energy performance, in terms of carbon dioxide emissions, of the building based on actual energy consumption as recorded over the last 12 months within the validity period of the DEC (referred to as the 'operational rating' of the building). The operational rating of the building is shown on a scale from A to G, with A representing the lowest carbon dioxide emissions (best performance), and G the highest emissions (worst performance).

The recommendation report sets out recommendations for improving the energy performance of the building.

Commissioning and validity periods

DECs and recommendation reports must be produced by an energy assessor accredited to produce DECs for the category of building concerned, and have the following validity periods:

• for buildings with a total useful floor area of more than 1,000m2: 12 months for the DEC and 7 years for the recommendation report
• for any other type of building: 10 years for both the DEC and the recommendation report.

What are the penalties for non-compliance?

If the regulatory requirements with regard to DECs and recommendation reports are breached, the enforcement authority can issue a penalty charge notice of £500 for failure to display a valid DEC in an appropriate location, and of £1,000 for not having a valid recommendation report. Further penalties can be imposed if the relevant documents are not obtained promptly following the issuing of a penalty charge notice.

ENERGY PERFORMANCE CERTIFICATES

What are the requirements?

The requirement to have a valid EPC in place for a building is a separate and additional requirement to the DEC requirements outlined above.

The EPC Regulations require that an EPC is provided:

• where an existing building is to be sold or rented out (which includes the assignment of an existing lease);
• following the construction of new buildings; and
• when certain refurbishment works are undertaken.

Where a building is to be sold or rented out, the EPC Regulations impose the following obligations on the owner/landlord of the building:

• to commission an EPC before marketing (if there is not already one for the property);
• to include the EPC rating, which follows the same scale as a DEC, in any advertisements for sale or letting;
• to make a copy of a valid EPC available, free of charge, to any prospective purchaser or tenant. The EPC is to be provided on the earlier of:
  • the point at which written information is first made available to someone who has requested such information about the property for the purpose of deciding whether to buy or rent it;
  • the time at which a person views the property following a request to do so;
  • otherwise at the earliest opportunity.

If the above obligations are not complied with, an EPC must still be provided even if it is after completion. Furthermore, where a building is marketed without an EPC, all reasonable efforts must be used to issue the EPC within 7 days of the property going to market and with an absolute deadline for provision of 21 days.

Exceptions to the requirements

Certain buildings are exempt from the EPC requirement. Examples of exemptions that may be relevant in the academy context include:

• Buildings that do not have a roof, or do not have walls.
• Buildings which have no heating, ventilation or air conditioning equipment.
• Temporary buildings that will be used for less than 2 years.
• Stand-alone properties smaller than 50m2. This exemption only applies to free-standing buildings which are entirely detached from any other.
• Buildings that are to be demolished, provided that specific evidence of planned demolition can be provided.
• Certain listed buildings and buildings in conservation areas. The law relating to such buildings is complex and government guidance on the point is inconsistent. The exemption only applies 'in so far as compliance with certain minimum energy performance requirements would unacceptably alter their character or appearance'.

In addition to the exemptions for certain buildings, certain property transactions do not trigger the requirement for an EPC. These include:

• lease renewals and extensions. This includes negotiated renewals as well as statutory renewals. The inclusion of lease extensions in the exception means that reversionary leases (i.e. leases with a future term start date) will also be included.
• surrenders of leases, albeit it is unclear whether this applies even if the landlord pays a premium for the surrender.
• not for value transactions.
• compulsory purchase transactions.
• transactions involving living accommodation at a workplace or which is tied to a job, for example caretaker living accommodation.
• entry into an agreement for lease (albeit an EPC would be required on the grant of the lease).
• grant of a mortgage.
• variation of a lease that amounts to a surrender and re-grant.

Validity period and display of EPC

EPCs generally have a validity period of 10 years, but this period may be shortened if changes are made to the relevant building that might reasonably be expected to change its performance rating.

There is an additional duty under the EPC Regulations to display the EPC for a building where:

• the building is not a dwelling;
• the total useful floor area exceeds 500m2;
• there is a valid EPC in place;
• the building is visited frequently by the public; and
• it is not an exempt building.

Penalties for non-compliance

If the regulatory requirements with regard to EPCs are breached, the enforcement authority can issue a penalty charge notice ranging from £200 to £5,000 depending on the type of property and the nature of the breach. Again, further penalties can be imposed for continued non-compliance following the issuing of a penalty charge notice.

MINIMUM ENERGY EFFICIENCY STANDARDS

What are the requirements?

The MEES Regulations prohibit landlords from granting any new or renewal leases of any building with an energy performance rating as shown on an EPC of below an E (so called 'sub-standard' properties). The regulations also prohibit landlords from continuing to let a sub-standard property. This means that it is against the law to let, or continue to let a building with an energy performance of G or H unless an exemption applies and has been registered.

What buildings and transactions are affected?

The MEES Regulations apply to buildings situated in England and Wales that are let on a qualifying tenancy and are required to have an EPC. Buildings that are not required to have an EPC (please see the list above) do not fall within the MEES regime. A 'qualifying tenancy' for the purposes of the regulations is essentially any tenancy except:

• a short tenancy (i.e. a tenancy for a term of 6 months or less, unless the tenancy contains either an option to renew beyond that initial 6 months or the tenant has already been in occupation for over 12 continuous months prior to the grant of the tenancy);
• a very long tenancy (i.e. a tenancy for a term of 99 years or more).

Licences do not fall within the MEES Regulations. The position with regard to tenancies at will, however, is less clear.

Exemptions and exceptions

If a property falls within the scope of the MEES Regulations, the landlord may still let it (even with an EPC rating of below E) if one of the following exemptions or exceptions applies:

• Consent exemption - within the preceding 5 years a consent required in order to carry out the relevant energy efficiency improvement works has been refused (despite reasonable efforts by the landlord to obtain such consent). Examples would include if planning permission or listed building consent is refused for the alterations, or if a superior landlord refused to approve the works.
• Devaluation exemption – the landlord has obtained a report from an independent surveyor which confirms that making the relevant energy efficiency improvements would result in a reduction of more than 5% of the market value of the property (or the building of which it forms part).
• Temporary exemptions – in certain circumstances a landlord is given 6 months to carry out works (or to register a longer-term exemption) during which time it will not be in breach of the prohibition on letting sub-standard property. These circumstances include:
  • the landlord purchases sub-standard property already let to a third party;
  • a lease is granted pursuant to an agreement for lease;
  • there is deemed creation of a new lease by operation of law;
  • a lease is granted by order of the court; or
  • renewal of a protected lease (for a non-residential lease with security of tenure).

The other legitimate reasons to let, or continue to let, sub-standard property permitted by the MEES Regulations are that no relevant energy efficiency improvements can be made to the property, or that all relevant energy efficiency improvements that can be made have been made.

Registration requirement for exemptions and exceptions

An exemption or exception to the MEES Regulations requirements must be entered on the PRS Exemption Register before it is relied upon. Guidance suggests that the exemption will last for up to 5 years (subject to certain caveats or unless the circumstances for claiming the exemption change). Exemptions are personal meaning that if a property is transferred, the new owner must apply for a fresh exemption.

Penalties for non-compliance

The penalties that the relevant enforcement authority can impose for breaches of the MEES Regulations range from £1,000 to £150,000 depending on the type of property and the nature of the breach. As with the other regulatory requirements, further penalties can be imposed in the event of continued non-compliance. The enforcement authority also has the power to enter details of any breach onto a publicly accessible part of the exemptions register in addition to, or instead of, a financial penalty. This brings with it the risk of adverse publicity for the landlord.

IMPLICATIONS OF THE ENERGY EFFICIENCY REGULATIONS FOR ACADEMY TRUSTS

For the majority of academies, the main school building will be subject to the DEC and recommendation report requirements. In some cases, there may be more than one building on the academy site that is subject to the requirements. Academy trusts should review their academy sites to ensure that valid DECs and recommendation reports are in place for all qualifying buildings, and that the DECs are displayed in a suitable location accessible to the public. For any qualifying buildings that do not have a valid DEC and recommendation report in place, these should be commissioned at the earliest opportunity from an accredited energy assessor. An electronic register of DECs and EPCs is maintained on the gov.uk webpages, and this also includes a useful search tool to help find a suitably accredited local assessor, should this be required.

If academy trusts are letting any properties, then they need to bear the EPC and MEES Regulations requirements in mind. Common examples of situations that could fall within the scope of the EPC and MEES regimes include:

• where there is third party provision of nursery care, breakfast clubs and or after school services delivered from premises on the academy site;
• where the academy has inherited a children's centre or scout hut, or sub-lets part of its school back to the local authority or another entity; and
• where people are occupying caretaker cottages or other housing stock.

Portable cabin style buildings are particularly vulnerable to falling foul of the EPC and MEES regimes.

Academy trusts taking on new schools that include premises being let, or intended to be let, should, as part of their due diligence investigations prior to conversion/transfer, check whether a valid EPC is in place for the relevant premises, and that the energy performance rating indicated on the EPC complies with the MEES Regulations.

If premises on an academy site are being let without a valid EPC in place, an EPC should be commissioned as soon as possible unless an exception applies.

Finally, it is important to note that ongoing efforts toward carbon reduction mean that it is foreseeable that energy efficiency requirements may become stricter in years to come. Accordingly, a building that has an energy performance rating of E may be at risk of being designated as sub-standard in the future. Academy trusts letting buildings with a rating of E should therefore forward plan for steps they can take to either improve the energy efficiency of the building or bring the letting to an end in the event of requirements becoming stricter.

INTERESTED IN INFORMATION ON THE ENERGY REGULATIONS IN A WIDER PROPERTY CONTEXT?

Those seeking an in-depth guide to the energy efficiency regulations and their implications in a wider commercial and residential property context may find the following Wrigleys Solicitors articles of interest:

'EPC and MEES Regulations: What You Need to Know in 2023'

'Government abandons new EPC targets'

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.