CLS Holdings De-risks Entire UK Portfolio for MEES
15 September 2017
CLS Holdings De-risks Entire UK Portfolio for MEES
15 September 2017CLS Holdings has fully mitigated its UK portfolio against the Government’s upcoming Minimum Energy Efficiency Standards (MEES), which come into force from 2018. The CLS Holdings Sustainability team worked in partnership with EPC assessors to review properties at risk, providing assessors with complete information, giving them full access to properties and upgrading equipment where needed. All UK properties now have Energy Performance Certificate (EPC) ratings of D or above.
Key Facts
- 100% OF UK PORTFOLIO COMPLIES WITH UPCOMING MEES REGULATIONS
- ENHANCING INVESTOR CONFIDENCE AND PROTECTING ASSET VALUE
- SAFEGUARDING RENTAL INCOME AND INCREASING APPEAL FOR OCCUPIERS
Situation
CLS Holdings is a commercial property investment company with assets in the UK, France and Germany. In line with the company’s ongoing commitment to sustainability and to mitigate MEES risks, CLS Holdings set a new internal standard in 2016 for all properties to achieve EPC ratings of D or above, both for existing assets and for new acquisitions. CLS Holdings chose to exceed upcoming MEES requirements, to futureproof the portfolio.
From 1 April 2018, MEES regulations in England and Wales will prohibit new leases and lease renewals for properties that have EPC ratings of F and G, with few exceptions. From 1 April 2023, MEES will be extended to cover all leases, including existing leases where the property is legally required to have an EPC.
Actions
Review and tender process
CLS Holdings carried out a review to assess the ratings and expiry dates of all active EPCs across its entire UK portfolio (49 properties). CLS took the approach of defining assets as ‘at risk’ where EPCs were classified below D and/or expiring before 2019, that is, a year after MEES regulations come into effect. 18 assets were identified as being at risk.
The next step was to appoint an EPC assessor:
- For assets where EPCs were below D: to identify improvement opportunities for the Sustainability team and then lodge new EPCs for these assets.
- For assets where expiry dates were before 2019: to lodge new EPCs extending out the 10-year expiry date.
CLS Holdings tendered the project out to three suppliers. BWS Partnership was appointed based on price, timely delivery (completion within three months) and track record.
Assessments
- CLS Holdings provided BWS Partnership with full access to the properties, as well as associated information and plans, so that EPC assessors did not rely on default information and assumptions.
- The assessors visited each site and completed draft EPCs, which CLS Holdings reviewed to check accuracy (e.g. of floor areas) and to action opportunities for improvement where appropriate (e.g. upgrading lighting).
- BWS Partnership then finalised and lodged the EPCs.
For each building, the assessors also provided CLS Holdings with:
- An overview of the equipment and improvement opportunities, e.g. chillers, boilers, air handling units, lighting and PIR sensors, as well as additional information, e.g. identifying whether windows were single or double glazed and the quality of insulation. This information was shared with the operational teams.
- Summaries outlining the reason for changes in EPC ratings, e.g. reduced use of default values in comparison to the previous EPC, a more detailed and informed assessment and equipment upgrades.
Corporate
In addition to all the work at the property level, CLS Holdings reviewed its standard lease wording and investment policies, updating them where appropriate. In the case of leases, CLS Holdings has updated its generic terms to maintain its target of an EPC of D (100) or above in all areas of the building (including demised space) and prevent works which could have a detrimental impact on the EPC rating for the building.
On acquisition of any asset with an EPC below D, the Group Sustainability Manager is involved in decision making, to ensure that the building can be brought up to the D (100) standard if purchased by CLS Holdings.
Financials
- £15,000 investment in EPC assessments and lighting upgrades.
- £200 – £600 average cost per EPC assessment.
Benefits
- Preparing the portfolio for upcoming MEES regulations, with 100% of CLS Holdings’ UK properties achieving EPC ratings meeting MEES regulations in 2017, versus 25% of assets at risk in 2016.
- Enhancing investor confidence and protecting asset value, with no potential for stranded assets that fail to meet MEES regulations and might require significant investment to upgrade.
- Safeguarding rental income and increasing appeal for occupiers by upgrading building ratings, with the 18 assets at risk improving from an average EPC rating of F (144) to above D (100).
- Smoothing the disposal process, as accurate and up-to-date EPCs that meet the latest standards can easily be provided to legal teams.
- Enhancing CLS Holdings’ reputation, demonstrating professionalism and sustainability leadership as the first listed property investment company to declare 100% compliance against MEES.
Challenges and Achievements
INFORMATION
How can information improve EPC ratings?
The overwhelming area of focus for CLS Holdings was on providing accurate, complete information to the assessors and ensuring that facilities managers gave assessors full access during site visits, e.g. access to all equipment and locked areas. Facilities managers were involved from the outset, providing information on boiler and chiller ratings, the types of glazing, air conditioning inspection reports, insulation and more. None of the F and G rated assets needed major capital expenditure works to bring them up to D. The only physical improvements were lighting upgrades in three buildings. The negative impact of defaults and assumptions on EPC ratings can be underestimated. When assessors are submitting documents, they need to be confident that everything is accurate. If they cannot gain the necessary information or access, they cautiously underestimate. As a result, a building that could have achieved a D rating, is instead rated F or G.
PARTNERSHIP
How can a partnership approach improve EPC ratings?
The CLS Holdings sustainability team and facilities managers worked in partnership with the EPC assessors, reviewing drafts together. When CLS Holdings received draft EPCs below D, they worked with the assessor to understand what was needed to improve performance. For example, if an assessor said an E rating was due to halogen lighting, the sustainability team quickly got agreement from the asset management team to invest in lighting upgrades, typically £1,000 - £5,000. The assessors then updated the EPC and the rating would improve. Rowan Packer, Group Sustainability Manager at CLS Holdings, explains: “Pricing tends to be very competitive for EPCs, so assessors want to complete assessments as quickly and easily as possible, which is difficult if you do not engage at a detailed level. When you work in partnership with assessors, you are much more likely to get good EPC ratings. Working in partnership means that assessors have all the information and access they need, and you gain insights from them that enable you to improve the rating before the EPC is finalised and lodged. It is worth building a relationship with your EPC assessment partner and working with them across multiple projects.”
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