In June 2022, there was a significant change in commercial EPC assessment, which resulted in properties heated by gas-powered means (e.g. gas central heating, 4-pipe Fan Coil systems, etc.) achieving worse results, and those which are conditioned by electric systems (e.g. air-conditioning, comfort cooling, heat pumps) gaining much better EPC ratings when reassessed.

The cause of this change was a recalibration of EPC assessment based on updated data on the carbon factor of electricity. This is essentially a measure of the carbon emissions associated with the production of the electricity supplied by the national grid; this measure hadn’t been changed in EPC assessments for ten years prior, so therefore dropped significantly in the June change, reflecting the ‘greening’ of the electricity grid over that period and the shift to renewable energy.

A large proportion of EPCs registered on the government database do not reflect the accurate rating the property would achieve today, and particularly any EPC registered before 15 June 2022 inevitably will now be different.

Any investment decision made on a property – be this purchasing, leasing, undertaking works, etc. – can only be made well if it is based on accurate information.  Doing this without advice on the accuracy of the EPC is like purchasing a property based on an entirely different set of agent’s particulars.

EPCs tend to be inaccurate due to one or more of the following:

• The EPC assessor lacking in knowledge or experience: the identification of elements of a building – in particular heating, ventilation and air-conditioning elements – is crucial for an accurate assessment.
• Assessor diligence: an EPC assessment takes time and care to do correctly, including accessing all areas and identifying (as far as possible) all relevant equipment. Many assessments are lodged using ‘default’ values where the assessor has not identified these elements and these default values in turn cause inaccuracy in the result.
• Age of the EPC: EPCs are formally valid for up to 10 years, but this does not mean that they remain accurate for this period. For instance, many properties will have been changed in this time, be it tenant alterations, LED lighting being installed, or even the property’s use being changed.  These are all factors which could mean the rating is much better than the registered EPC.
• 2022 ‘Carbon Factors’ change: in June 2022, there was a significant change in commercial EPC assessment, which resulted in properties heated by gas-powered means (e.g. gas central heating, 4-pipe Fan Coil systems, etc.) achieving worse results, and those which are conditioned by electric systems (e.g. air-conditioning, comfort cooling, heat pumps) gaining much better EPC ratings when reassessed.

• Unnecessary expenditure on improvement works – the rating may well be a lot better than the currently registered EPC and works may be unnecessary;
• Purchasing a property with a good EPC rating, which subsequently turns out to be much worse, reducing the property’s value;
• Selling a property at an reduced price due to a poor rating on the registered EPC – where either the rating may be much better when reassessed, or the works to improve it could have little or no impact upon the property’s value.

RICS-registered valuers devalue a given property with a poor EPC, based upon their anticipation of how expensive it would be to improve the EPC to an acceptable level.  The value impacts, however, are far greater and compounded by impacts such as:

• Tenants negotiating lower rents/greater rent free periods due to poor EPC ratings;
• Landlord difficulty in claiming service charge or dilapidations costs due to challenges based on a property’s poor EPC;
• Rent review increases refused, based on tenant evidence of the property’s poor EPC rating and lack of comparable evidence supporting uplift.

The only solution comes from certainty – establishing the exact current EPC rating and projecting the improvement of this, where necessary, through careful measures including:

• Tenant management – avoiding works being carried out which worsen the EPC;
• Property management – ensuring planned maintenance/service charge works improve the EPC rating;
• Asset management – careful dealing of lease transactions to ensure actions taken at each turnover benefit the EPC rating.

Through a considered approach, the cost of future MEES compliance can be greatly offset.