Environmentally aware landlords who attempt to reduce their property’s carbon footprint are continually penalised for their efforts. And changes due to come in over the next few years will only make this situation worse, warns North-East rating surveyor Chris Wilkinson.
One of the biggest obstacles to making commercial property “greener” is the non-domestic rating system.
“Following years of green initiatives in the commercial property sector, there has been a lack of joined-up thinking which means the rating system is negating many of the political incentives to go green,” he explains.
Regulations introduced in 2008 amended legislation relating to the treatment of micro-generation plant and machinery so that any small scale scheme for generating heat or power would be exempt from inclusion within the calculations for rates.
The exemptions only apply to schemes installed after 1 October, 2008, and to schemes where the output is less than 50Kw, or 45Kw in the case of heat production. They are also confined to the current rating list.
“At the end of this exemption period the occupier may effectively find themselves paying double for their initiative, when the cost of the micro-generation equipment will stop being rated as plant but the rating assessment may also be increased due to an enhanced rental bid that a hypothetical tenant would make for a building with reduced energy bills,” says Wilkinson, of commercial property consultants Lambert Smith Hampton.
The 2011 Localism Act gives councils the ability to retain 100 per cent of any revenue collected from renewable schemes which, he adds, is a powerful incentive for local authorities to collect rates and ensure the Valuation Office Agency (VOA) does not omit any green or environmental schemes.
The Energy Act of the same year requires that, with effect from April 2018, it will be unlawful to “rent out residential or commercial premises that do not reach a minimum energy efficient standard.” That proposal is based on the Energy Performance Certificate (EPC) rating so that a landlord would not be able to lease a building with a rating of F or G unless they have carried out all possible improvements under the Government-funded Green Deal. This, he warns, will have a serious impact on the commercial letting sector.
A rateable value is intended to reflect the market rents of accommodation under a hypothetical lease, on certain prescribed terms.
If the property is incapable of letting because of its EPC rating until energy efficient improvements have been carried out, should not its rating assessment be reduced to nil or should the rule be that only works that can be funded under the Green Deal are required and, therefore, the impact is ignored?
“If the conflict between non-domestic rates and environmental policy are not to continue then changes need to be made to this legislation,” he said.
“Without these there is the potential for very real problems from increasingly stringent environmental requirements over the next few years.”
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