Property Management Committee Update by Jordan Moss
Around the globe, regulations targeting greenhouse gas emissions in the real estate sector are gaining momentum. For commercial landlords, capital expenditure in new technology and equipment is crucial to ensure compliance, but is not without its challenges. Specialised insurance solutions and proactive risk mitigation can facilitate efforts to secure funding, and offer protection should projected efficiency gains fail to materialise.
Tightening energy efficiency regulations
| UK | EU | US |
|---|---|---|
| In the UK, landlords are required to upgrade inefficient properties before renting them out, as per the Minimum Energy Efficiency Standards (MEES). Under the MEES, all advertisements for commercial properties to rent (or purchase) must include an Energy Performance Certificate (EPC). The EPC must also disclose cost-effective ways and financial instruments for tenants to improve the building’s energy performance. Since 1 April 2023, it has been illegal to rent commercial premises with a low EPC rating (‘F’ or ‘G’), whether on a new or existing basis. According to UK government figures(opens a new window), 7% of commercial properties in England & Wales had an EPC rating of F or G in 2023. Currently, there is a proposal to see the minimum EPC rating raised to a C by 2027, although this is yet to be reaffirmed by the new Labour government. | In Europe, similar requirements for commercial buildings are set out under the Energy Performance of Buildings Directive (EPBD), introduced in 2010. In 2024, the EPBD was also revised, introducing the concept of ‘zero-emission’ buildings (ZEBs), defined as those which do not cause any on-site carbon emissions from fossil fuels (among other requirements). By 2030, all new non-public buildings must be ZEBs. The EPBD also requires EU member states to set timelines for non-residential buildings to meet progressively lower maximum energy performance thresholds. | In the US, efforts to regulate energy efficiency have largely taken place at the city-, county-, and state-level of government. As such, policies to improve energy performance vary, but include the implementation of Building Performance Standards (BPS) and other benchmarking protocols. In California, for example, owners of commercial buildings above 50,000 square feet and no residential utility accounts have been required to report their energy performance on an annual basis since June 2018. Owners of buildings found to be noncompliant may be fined.
A full list of commercial building and energy benchmarking policies across the US can be found via the Institute for Market Transformation(opens a new window). |
Investing in efficiency
As efficiency regulation tightens across the globe, there is a growing incentive for landlords to upgrade their property. The matter of compliance aside, capital expenditure in more efficient technology and equipment could also lead to higher return on investment (ROI) through lower energy consumption. Improving the energy rating of a property can also make it more attractive to potential tenants looking to profit from lower energy costs.
Common measures to reduce emissions and costs include:
- LED lighting
- Thermal window films
- Energy-efficient boilers
- Heat pumps
- Smart thermostats
Crucially, upgrading a property takes time. Property owners should act soon to ensure their buildings remain compliant, especially in jurisdictions with progressively stringent regulation. Waiting until the deadline to upgrade a property could prove costly.
Securing your cost savings
Choosing to invest in energy efficiency is not without risk. Before financing energy saving initiatives, lenders often require any project to be secured against its future cost savings. To realise these savings, landlords must protect the physical assets to be installed, as well as the revenues and/or savings they generate.
Insurance solutions can provide vital security when investing in energy efficiency by protecting against a series of risks, including:
- Technology failure or breakdown
- Damage to equipment
- Business interruption
- Lower-than-expected energy savings
Crucially, securing relevant insurance cover in advance may alleviate lender concerns around future revenues, facilitating efforts to obtain initial funding.
Additional benefits of such policies can include access to regular inspection surveys, and experienced loss control engineers in the event of a loss.
Proactive mitigation
No insurance policy is a substitute for proactive risk mitigation.
Analysis tools may be available to gather data on installed technologies and optimise performance. Additionally, proactively monitoring new and existing technology can help to minmise the risk of breakdown or loss. For instance, tools may be able to reduce clams by suggesting early part replacements, avoiding business interruption.
Source: Lockton.com, 2024