From the 6th April this year, all newly built commercial properties in England and Wales over 10,000 sq m will have to have an Energy Performance Certificate (EPC), which will have to be produced when the building is constructed, let or sold.

From the 1st July 2008, commercial buildings over 2,500 sq m will also be required to have an EPC.

From the 1st October 2008 this criteria will be extended further and all other buildings including existing commercial buildings, regardless of their size, must have EPCs, and present them on construction, lease or sale.

This is all part of ever increasing EU legislation requiring member states to cut greenhouse gas emissions. The introduction of EPCs to commercial properties is the next stage of the EU Energy Performance of Buildings Directive (EPBD) which brings with it significant changes for all commercial property owners, developers, occupiers and investors.

The EPCs have been introduced by the Government to encourage commercial buildings to be as energy efficient as possible and to assist in reducing the UK’s carbon emissions. They will provide energy use information to investors and occupiers in determining a building’s green credentials.

There are certain cost implications, not least of all in the case of rented properties. For example, who will pay for the EPCs – landlords or tenants?

The EPCs are also likely to create a new negotiating ground for landlords and tenants, and sellers and purchasers. For example, a building with a poor EPC will imply an increased potential expenditure on fuel bills resulting in tenants negotiating lower rents. Conversely, those properties showing a high level of energy efficiency will be more likely to attract a higher premium.

A hot topic of debate at the moment is the possible introduction of so called ‘green leases’. The idea behind these is to create maximum energy efficiency for the benefit of both landlords and tenants. These may include provisions imposing energy efficiency targets or commitments on the landlord and the tenant for example in water usage, waste production and recycling. This may also necessitate the use of financial penalties or incentives for a party that fails to meet those targets. A tenant's performance against these targets could even be used as a factor when negotiating rent reviews on existing tenancies.

The success of these green leases will inevitably depend on the co-operation of all parties to achieve maximum energy savings without imposing excessive and costly obligations on each party. The knock on effect for developers is that they will also have to look to the terms of their building contracts to ensure contractors comply with standards of energy efficiency.

Looking forward, investors will be more likely to invest in energy efficient buildings and may even offer more attractive terms to the developers of these ‘green buildings’.

Developers, landlords and tenants should start thinking now about working together to achieve a painless transition to greater energy efficiency for the benefit of all parties and, of course, in the long term, towards a greener environment.

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