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New energy rules – are landlords ready?
However, whether your customers own properties in Scotland or England and Wales, they should be aware of new energy performance regulations that are coming into force, firstly in Scotland in September, and then in England and Wales in 2018.
We discuss what these changes will mean for your customers and why the regulations may prove challenging.
Scotland’s new energy performance regulations, known as Section 63, come into force on 1 September 2016 (see boxout).
The changes require property owners to produce an Action Plan for Carbon and Energy Performance (ACEP) at the point of marketing a non-domestic building for sale or let, outlining the measures the new owner should take to improve its energy performance. The required works could vary significantly from property to property, but may include changes to lighting, heating, cooling and ventilation systems.
David Melhuish, Director of the Scottish Property Federation, says: “The introduction of Section 63 regulations in Scotland are set to become a key issue for new tenants and landlords. It is important to consider the regulations carefully as there is a variety of eligibility criteria and alternative options for compliance.
In England and Wales, landlords will need to meet Minimum Energy Efficiency Standards (MEES), which require a building to achieve at least an ‘E’ Energy Performance Certificate rating.
Alastair Mant, Head of Sustainability at real estate advisors Bilfinger GVA, says: “One of the key differences is that in England and Wales, the regulations only apply when a letting takes place or there’s a lease renewal, whereas in Scotland, the regulations also apply when there’s a sale of a property.
“However, although the regulations in England and Wales don’t directly affect the sale of buildings, they will have a huge impact, because much of the value of a property relates to its existing or potential rental income.
Bilfinger GVA’s Green to Gold report identifies that nearly half (43%) of property portfolio managers have not yet assessed their portfolio’s risk profile in relation to MEES, as the general level of awareness of MEES amongst property owners is generally low.
There will be financial penalties – in Scotland, England and Wales – for letting out properties that do not comply with the relevant regulations.
“The first thing your customers should consider doing is review the level of risk in their portfolios,” says Alastair.
MEES also presents a challenge for customers with smaller portfolios.
Alastair says: “Those with just a few commercial units in their portfolio are less likely to have consultants or in-house sustainability teams advising them, and these smaller portfolio holders tend to be more likely to have properties rated ‘F’ or ‘G’.” Therefore such customers may need to consider further guidance on how their properties can be adapted to comply with MEES.
These new regulations present an opportunity to work closely with your customers to ensure that they are aware of the dangers of non-compliance, and the potential insurance implications. In the event of a substantial loss, it might cost significantly more to reinstate a property in a way that improves its energy performance to meet EPC requirements. The cost of reinstatement could exceed the sum insured, leaving your customers at risk of underinsurance.
Proactively working with your customer to manage their portfolio risks at an early stage will help customers to develop an adaptation plan to manage the process more effectively and sustainably, and avoid last minute adaptations.
For more information, or to discuss any aspect of this article further, speak to your local Zurich contact.

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