Navigating the Evolving Landscape of Energy Efficiency Regulations in Real Estate

Season 2, Episode 3 – with Edward Glass, Senior Associate at Forsters LLP

Welcome to a fascinating conversation with Edward Glass, from Forsters, as we dive into minimum energy efficiency standards, energy performance certificates, green lease clauses and data sharing between tenants and landlords.

Edward Glass:

Edward Glass is a Senior Associate in Forsters Commercial Real Estate team. He has experience in a broad range of commercial property work, including acquisitions/ disposals, development projects, real estate finance and leasing. He also assists with the real estate aspects of corporate transactions.

Edward is particularly interested in trends impacting the real estate sector, including developments in sustainability and the impact of technological innovation. He has published a number of articles in Estates Gazette. He is also on the advisory panel for a charity working within the sharing economy to make otherwise empty commercial property available for community use.

Forsters LLP:

The Forsters Real Estate Team stands as a prominent force in the real estate sector, boasting one of the largest dedicated practices. Renowned for its high-quality and seamless services, it adeptly handles complex issues and maintains close ties with clients through every stage of an asset's life-cycle.

Real estate, in all of its various forms, sits at the heart of the Forsters business – it is the sector on which the firm was founded. With over 120 lawyers specialising solely in real estate, they are well positioned to guide their clients through every situation whether it be an acquisition, disposal, development or property dispute. 

Their clientele is diverse and prestigious, encompassing institutional investors, private and publicly listed property companies, funders, developers, and a range of occupiers, including rural and urban estates, charities, high net worth individuals, and landowners. Notable clients include BA Pension Fund (via BlackRock), Knight Dragon Developments Limited, LaSalle Investment Management, and The Crown Estate, to name a few.

Episode summary:

Listen in as we uncover the intricacies of global real estate decisions impacted by changing regulations with Edward Glass. We explore critical topics such as minimum energy efficiency standards, energy performance certificates, and the rise of green lease clauses. Edward has been tracking the E in ESG closely since 2013-14, and his expertise shines as he discusses the change in the industry that EPC regulations have instigated and how Forsters is dedicated to sustainability.

We venture further into the financial implications of current and future regulations on real estate investments, emphasising the potential costs and risks for asset owners. We tackle the important question of how landlords should approach energy performance certificates, particularly with the looming necessity of capital expenditure to upgrade buildings to comply with future regulations. Listen in as we analyse the proposed uplift in minimum energy standards, its potential impact on the UK real estate, and strategies for budgeting for OPEX costs.

The episode concludes with an insightful look into the changing landscape of green lease clauses, data sharing, and its enforceability. Edward shares his observations on the evolving narrative for both landlords and tenants and key considerations when drafting leases. We discuss innovative approaches like the Chancery Lane Project, the challenges of enforcing sustainability clauses in the commercial sector, and the importance of a strong landlord-tenant relationship in the residential sector. So, tune in and equip yourself with knowledge about the changing regulations in real estate, whether you are a landlord, tenant, or investor.

• Energy Efficiency Standards and Green Lease
• Implications of Energy Performance Certificates
• Changing Green Lease Clauses Landscape
• Green Lease Clauses and Data Sharing

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Highlight 1:

Adam Hinds

"Edward, just on that. You're saying in the event of an existing landlord having an exemption to be technically non-compliant with the minimum energy efficiency standards, in the event that they were to sell that building and a new buyer was to come in, that exemption status may not transfer is that right?"

Edward Glass

"Yeah, the exemptions are personal. So you start afresh. There is the availability of what is a six month breathing space exemption that enables a buyer to bring up to C. But, for example, if a previous owner is sought consent an exemption from the tenant on the basis that it couldn't seek tenant consent, then the same scenario would apply post acquisition you can't rely on that exemption that the previous owner has already put in place. So, whilst it might look on a DD, you might look and see F or G rated property exemption alongside it. At this point, clients ought to be aware that that won't apply to them without doing something positive in order to continue, and the circumstances in which that exemption is sought may be different to that which has been sought before."

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Highlight 2:

Adam Hinds

"Let's say, a landlord owns a commercial asset, the tenant in there has a tenancy and they were to do a fit out, for example, of their space, which may then impact the energy performance certificate for the whole building or that area without the landlord realising, and then therefore that would put the landlord at risk. Is that what you mean?"

Edward Glass

"Absolutely, and that's probably a sort of a core clause now that you would see in any commercial leasing contract, particularly with what is going on and on a practical level, of course, many commercial leases here in the UK have provisions that allow a tenant to make alterations to the premises, typically with consent of the landlord, and never again has it been more important to actually check what a tenant is doing, because what a landlord would not want to do is inadvertently give consent to some alterations that may significantly have an impact on the EPC rating. So very close attention needs to be applied to what tenants are up to."

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Highlight 3:

Jordan Relfe

"So an interesting point you made around landlords going directly to utility companies to access that data and actually that kind of irons out a lot of the risk of sort of personal data collection from site and mismanagement of information. So that's an interesting point and something we've not actually seen before is having that direct link to energy source. So that was very interesting. I guess it would probably be good to have some closing thoughts, advice, a bit of a crystal ball on what you see and where the industry's heading."

"I think we've obviously got a good seven years ahead of us of change and every quarter, every six months, everything seems to be turned on and it's head once again and actually amazing how much consumer or investment sentiment changes towards these changes and risks. But I think something we haven't really touched upon which would be good just to kind of as a wrap-up, is the real opportunities here as well. I think we've spoken quite a lot around the impact and spoken about the commercial impact and the viability impact, but actually there's a huge, huge opportunity here and actually the bigger picture of why this is happening is to decarbonise and to achieve net zero goals. I guess it'd be useful to kind of wrap up with your closing thoughts really on where this is all heading?"

Edward Glass

"Yeah, I couldn't agree more, Jordan, about the opportunity here, especially as we sort of move to a sort of and the acknowledgement that we just can't simply knock all buildings down and start again."

"There is a lot of buildings out there where, if you've that, potentially may look vulnerable at the moment but at the same time, maybe an opportunity to move forward and start refreshing those buildings if you've got the finances to do it, and certainly there's been fundraising out there by clients with that very purpose in mind. So plenty of opportunity moving forward, I guess. In terms of just sort of wrapping up on a couple of key thoughts, one thing we haven't spoken about is operational energy ratings. I think that is certainly something to watch and whilst the government legislative machine seems to move very slowly at the moment in this area, those EPC B, C ratings are not in law yet. The other consultation that is also outstanding is in relation to a neighbour's based operational rate energy rating system with mandatory disclosure. I think that's certainly something to watch on the radar and again underlines the importance, the ability to access data."

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Highlight 4:

Edward Glass

"Perhaps the final point to add, instead of closing remark, is…This is obviously a changing landscape, but it is moving in one direction for the better and obviously it's very important to keep pace with that and certainly some clients are starting to push boundaries, et cetera that are testing us as lawyers and testing the industry and I think increasingly those, what will be seen as novel right now will be the norm in five years time. "

"A couple of my own thoughts on how quickly that will happen."

"I think I can already see it to a degree, looking at assets on the market, where they are being marketed on the basis of, for example, having green lease clauses in their leases. That to me is quite a fundamental step because I don't think in marketing brochures three years ago that would have been the case. But ultimately the big underlining incentive for client landlord clients to move forward will be when lenders start requiring particular provisions, speaking more particularly about green leases here, when lawyers are required to report to lenders on what their expectations are in relation to green leases. That really is the next step in my view, and I wouldn't for those that are familiar with the certificate of title, standard certificate of title that we use here in the UK at the moment doesn't have any provisions in relation to that, but I can see that changing quite soon, and so that for me is the next crunch move, and I think the perhaps one of the key clauses there would be data sharing that could find its way into that certificate."