An energy efficient future

The Government must be ruing its decision to force together energy performance and other property reports into the new Home Information Pack (HIP) structure. Entry into force of the new regime was postponed from 1 June 2007 to 1 August, new regulations were only adopted on 11 June, and there will be further consultation on some of the most contentious energy issues. Further, the new rules will initially only apply to dwellings with more than four bedrooms, prompting some observers to say that property owners will turn their fourth bedrooms into studies.

It would be unwise to scoff at these present problems. Energy certificates are here to stay and those involved in buying and selling houses need to understand them. The requirement for energy certificates as regards new and existing dwellings has a life independent of HIPs and separate regulations implement the European Energy Performance in Buildings Directive (2002/91/EC) (See alternative energy feature on page 6). Energy requirements are already in place for new commercial buildings and similar rationales apply to both types of building.

Tackling global warming

Global warming is now generally acknowledged, as is the fact that CO2 emissions are the major culprit '“ at least as one that we can do something about. Twenty seven per cent of UK CO2 emissions arise from the construction and use of buildings. It makes sense to include new and existing housing stock in attempts to reduce emissions.

The government has introduced a two-pronged attack in the case of housing. The new Part L of the Building Regulations introduces stringent requirements for new building work to implement the European directive. There is now one universal measure: CO2 emitted per sq m of building over the lifetime of the building. New buildings and significant alterations will require submission of a preliminary assessment. Finally the building will be tested and assessed after completion to ensure that its performance is better than the preliminary assessment. If it is not, remedial work will have to be undertaken before a certificate will be issued under the Building Regulations. There are transitional arrangements while the building industry comes to terms with these new requirements, but a shortfall will show up in the energy certificate. This is something of a revolution for many house builders as it throws a spotlight onto initial design and the highest standard of construction and inspection. 

HIPs comes into the energy picture for both new and existing dwellings because one of the Government's objectives for HIPs is to improve the sustainability of housing by reducing CO2 emissions.

Existing housing

Where housing is not new, a special energy performance certificate (EPC) will have to be procured at the time the property goes on the market and the results included in the estate agent's particulars. Whether it was wise to separate this from the usual surveyors' tasks is debatable. The lack of approved inspectors for these reports was one of the reasons for the recent postponement. In May, there were only 520 accredited inspectors instead of the 2,000 needed.

Another reason was the recent success of the judicial review brought by the Royal Institute of Chartered Surveyors (RICS) claiming there had been a lack of consultation on energy certificates and overcompliance with the Directive. The RICS obtained an order that the Government should not introduce EPCs in HIPs until the court had the opportunity to examine the issues. The RICS then agreed a stay of the proceedings on the basis, inter alia, that there would be a

12-week consultation period before the certificates were required. In fact, the delay in implementation from 1 June to1 August does not allow for a 12-week consultation period, bearing in mind that the consultation documents have not yet been issued. RICS said it had not agreed to the government measure. 

Yet more new regulations are awaited which will make it very difficult for practitioners to plan ahead for 1 August.

The government has also introduced a new provision in reaction to another aspect of the RICS challenge. The regulations which we thought we were working to required a certificate issued in the three months before a property is put on the market, irrespective of the existence of previous certificates. The Directive gives a life of ten years to an energy certificate. The government has now suggested 12 months. Such a compromise seems pointless.

For most properties there will be no significant change in a short period of time. A succession of certificates will largely replicate the previous certificate '“ but at a new fee.

The government has also indicated that until 31 December 2007, it will be in order to market a property once the EPC has been commissioned, even if not received.

With the best will in the world, the present position is difficult to pin down in legal terms until the new regulations are fully assessed. Where an estate agent is employed, he will be primarily responsible for complying with the regulations.

But as the HIP and its Energy Performance Report (EPR) and recommendations will be an important part of the conveyancing documentation, so solicitors may well need to ensure the situation is clear and the purchaser has received all necessary information, at any rate before exchange of contracts. A contract conditional on acceptance by the purchaser of the EPR is a possibility but may be troublesome in practice. Most older houses will inevitably fall short of the best standards and the EPR will indicate areas requiring attention.

Penalties for non-compliance

With all these uncertainties and a shortage of inspectors, non-compliance may be a real issue. There are provisions for the local authority to issue a penalty notice for £200, with provisions for appeal. It is inconceivable that any notices will be issued until owners and their agents know exactly what they have to do and a real intention not to comply can be identified. It is uncertain whether there will be any contractual effect where a transaction proceeds in the absence of a certificate. Solicitors will no doubt make specific provision in these cases.

Effect on the market

Whether the EPC and its recommendations will affect purchasers in the same way as building survey reports remains to be seen. On the continent where such reports have been in force for some time, this does not appear to be the case, but in many countries they are not as reliant on surveys as in UK. Purchasers may use such a report, whether cynically or not, to require the seller to pay for some of the recommendations in the report. Some suggestions, such as sophisticated time clocks and thermostatic radiator valves, may not be a big deal, but increased insulation, changing the boiler or double glazing may involve substantial costs.

The real question is whether these reports will actually affect the attitudes of dwelling owners and make them more responsive to CO2 emissions. As the RICS pointed out in its response to the Government consultation, the Certificate itself simply measures existing energy performance. The Government has announced no programme to force house owners to increase the energy performance of their dwellings. Indeed, it has this month significantly cut the public funds available to house owners to install energy efficient measures such as micro generation. In the absence of a conversion to the Green cause, the only incentive to house owners is the desire to save on their energy bills. Looking to the future, energy bills are likely to rise very significantly, but in the here and now, the general feeling seems to be that buyers will be interested in the information, may be prompted to put one or two of the straightforward recommendations in the report into practice, but will not significantly alter their behaviour. In other words, an energy efficient house will continue to be at an advantage in the market but no drastic change is expected.

New housing

Energy Assessment for new housing is in one sense easier, but just at the moment there is a lot of uncertainty and bedding-in time needed.

New housing will have to be built in accordance with the new Part L of the Building Regulations in order to obtain the Energy Certificate under the Building Regulations. One would have thought that a Building Regulation Energy Certificate could have been used for the HIP's EPC, but this is not the case. This is being rectified but until l October 2007 (on today's advice) a completed new building will only have an Interim Energy Assessment. Where a building has not yet been completed, there will only be a Predicted Energy Assessment available. The appropriate certificate should be replaced by a normal EPC when this becomes available.

On a new build transaction, the solicitor will have to ensure not only that the energy requirements likely to have been imposed as part of the planning process have been implemented, but also that the energy certificate has been issued under Part L of the Building Regulations and that there is an appropriate HIP's EPC.

Beyond the teething problems

Once the immediate uncertainties have died down and we have the regulations, the inspectors, and everyone is used to the system, both purchasers and sellers will find EPCs useful.

It will be interesting to see how long it will be before people actively seek out high performing dwellings and whether there is a premium for them in the same way that petrol consumption and emissions are now relevant factors for car buyers. There is certainly scope for a very similar presentation of new build houses built to the best standards. Those certificates and the accompanying householder information on how to manage the house in an optimum way may yet become important documents in the sale and purchase procedure

Looking to a future, when use of fossil fuels becomes unacceptable in financial and environmental terms, we are likely to move towards mixed energy system combining hydrogen and nuclear fusion systems with other renewable sources. We may then find the government using HIPs to force householders into expensive improvements '“ and then the Energy Performance Certificate will be as critical a document as the title.