So the catchy Section 63 is finally here. It’s official designation being ‘Assessing and improving our existing non-domestic buildings – Section 63 of The Climate Change (Scotland) Act 2009’.
The regulations are Scotland’s answer to the proposed ‘Minimum Energy Efficiency Standards’ (MEES) due to come into effect in England & Wales in 2018. So Scotland gets there first and with slightly more bite, I think.
The regulations apply from 1st September 2016. Buildings that fall under these regulations have to be:
- Non domestic
- Over 1000m2
- Marketed for sale or rent to a new tenant
- Eligible for an EPC
- Built before 2002
My very first impressions are that not many have noticed this. In particular, I feel that I have not seen enough “chatter” out there about the investment decision process necessary at acquisition, throughout the leasing cycle, and at sale. It looks as though the liability has not necessarily hit home. In specific:
- Compliance with the regulation is the owner’s responsibility on marketing
- Implementation lies with whoever the current owner is
- Which means it transfers with the interest in the property (if selling)
- There are multiple fines of up to £1000 for failure to comply
The regulations target the energy performance of existing properties so investment management and property pricing should at least nod in this direction. Particularly as, where the regulations apply, building owners are required to produce an Action Plan (by an accredited “Section 63 Advisor”) prior to marketing the property. The plan ultimately lists all that needs to be improved on the property, shining a spotlight on inefficiency. Unlike MEES, Section 63 is prescriptive and detailed, alerting buyers/tenants to what is substandard.
Compliance with the Regulations is the responsibility of the building owner; in the event of a sale, any obligations under the Regulations pass to the new owner (with a 3.5 year deadline or the requirement for annual Display Energy Certificates). I would expect that this would start affecting sales either on a rate per square meter basis or at the very least in terms of ease of sale. I feel that a property marketed with a zero action action-plan would complete quicker than a property with an action plan needing a fair amount of work; this alone should infer value through a tighter capitalisation rate.
Taking it (too?) easy
I feel that there are already issues that may dilute the effectiveness of the regulations, and perhaps this is why there is not as much discussion out there. Firstly and quite significantly, the fines are just £1,000 levied by the local authority and on a one-off basis. So the cost of the penalty may be significantly less than the cost of complying with the regulations. Some feedback I have received from training sessions and discussions indicates that, not having the appropriate documentation in place when offering a property for sale or lease will have a negative effect on a potential transaction and so this is deterrent enough to ensure compliance. I may be getting cynical in my old age, but I am not convinced.
I also wanted to write a full review of the compatible software capabilities but unfortunately the approved software suppliers are conspicuously absent. In fact, the big players (like IES VE) have said that they have not developed an interface for the latest version of iSBEM to determine the appropriate improvement measures for Section 63. Most do not intend to provide a solution as the Scottish market is just too small to bother. The consequence is more frustration and needs many “work-arounds”! I’ll explain the reasons for my consternation:
Existing buildings that are more complex than your bog standard L shaped two storey simple office building will have EPCs produced via one of these more rigorous dynamic simulation engines. This is as it should be (in EPC speak these are called level 5s). To comply with Section 63 new EPCs will need to be produced in the basic and comparatively simplistic iSBEM. Bearing in mind that iSBEM is not geared up for complex geometries and zones, the replacement EPCs may require considerably more modelling time and, therefore, cost a lot more to produce with less of the accuracy. In addition, unlike more sophisticated building simulation engines, iSBEM calculations cannot really be used for other studies (say assessing for overheating or indoor air quality). So EPCs, and consequently Section 63 action plans, going forward are likely to be less accurate than they otherwise would be. It does not bode well for a system of comparison that is viewed with considerable scepticism.
Making a difference
I am still optimistic though. This is an opportunity for improving the Scottish building stock one small step at a time and in a world that is still increasing its CO2 emissions instead of decreasing them it can only be a step in the right direction.
The improvements that are currently on the table are relatively simple and comparatively easy to implement. In particular, we are looking at 7 main options:
- Draught stripping
- Lighting control improvements
- Heating control improvements (such as a central timer for the system)
- Insulation to domestic hot water tanks
- Replacing inefficient tungsten and halogen lamps
- Roof insulation (where accessible)
- Replacement of older boilers
These improvement opportunities are relatively simple to do. In my experience as an energy efficiency surveyor these are the most common areas where older buildings can see almost immediate benefit with very quick simple payback. Combining the work with enhanced capital allowance eligible equipment makes things even easier.
Ultimately, I would anticipate most buyers and new tenants will be expecting to see these action plans in place, and I imagine some uncomfortable questions will be asked if they are missing.
For further information and guidance on Section 63 please contact Mariana Trusson, firstname.lastname@example.org