New EPC Rules Explained: What Every Commercial Property Investor Needs to Know (with Jonathan Murton)

[Music] Welcome to the Commercial Property Podcast. My name is Susie Carter. I am a charge surveyor. I've been involved in commercial property in the UK 30 years and I've done hundreds of commercial property deals. I'm here to be your guide through the commercial property market, whether you're an experienced investor or whether you're literally thinking about dipping your toe in the world of commercial real estate. I will be here talking to you about all kinds of things commercial real estate in the UK and I've also got some fantastic guest experts who are joining me. So please do subscribe if you'd like to follow and if you'd like any more help or information on commercial real estate please do click www.susiecarta.com where it is my website and you can find out all the ways I can help you. So stay tuned for this week's episode. Welcome back to the commercial property podcast and this is my great pleasure to welcome back our first returning guest on the podcast Johnny Merton of Merced and K. Johnny welcome back. Well thank you for having me. I was just looking back at my diary and my calendar and it's almost a year to date that we were last talking so yeah, it was lovely to be back. Yeah great to have you and I got so so much fantastic feedback from the last episode that we did last summer which basically taught. I think EPCs are a bit of a feel like a bit of a dark art to a lot of investors so we've really simplified it and of course we've had loads of announcements and changes in the EPC regulations so we've got loads to talk about but before we do could you just give us a give us a little bit of an introduction into you and your your organisation. Sure so I lead a small niche practice in the north west of England where a surveying practice focusing and specialising in the energy performance of buildings so that includes EPCs, MES consultations and compliance and compliance with building regulations for new bills domestic and non domestic. Perfect okay great and we will touch on domestic today but we're mainly going to talk about commercial aren't we because it's the commercial property podcast so great so so we've been waiting very patiently I imagine in your line of business you'd be waiting very patiently or impatiently for this new guidance to be announced and it's finally arrived in June so could you just give us a pricey of kind of what's changed or what's been announced by the government with regard to let's talk about non domestic EPCs and then we'll talk about kind of ready as well. Sure so the it's probably worth just a little bit of backtracking and look at the the the the timeline so the current regulations for minimum energy efficiency standards is EPC band E across the board now that came in in 2018 in about 2019 2020 there was a consultation with the government's proposal and suggestion to raise that threshold to a band C from 2027 and then onwards to band B from 2030. We haven't had we've been waiting for their confirmation of that consultation for about six years that came about in June this year but it came about in as almost a half-hearted approach where they are now looking at EPC B from 2031 for buildings over a thousand square meters we're doing away with the interim band C and so everything other than oh buildings over a thousand square meters stays on the current minimum threshold of band E so we're effectively having a two-tier market anything over a thousand square meters EPC B everything else EPC E but what do you reckon the rationale for that was that for this two-tier approach so in their announcement they did say that the larger buildings did about 10% of buildings over a thousand square meters that contribute to 50% of the carbon emissions so they're going they're supposed attacking the higher or the big emitters of carbon to get the bigger impact on energy savings carbon savings yeah yeah okay that makes sense and I wonder was as well whether the government thinks that people who own properties that big maybe have deeper pockets as well or on my bsynic no I think you know I have that view as well that it's like well it's a bit is that a bit of a cop out because those buildings are typically owned by institutional investors with better access to finance and funding and perhaps have that driver through ESG to achieve more energy efficient buildings anyway so they're already doing it yeah it's not like it's a big ask so yeah we can be cynical we can be you know whatever but I think there is some perhaps some method in their in their madness around that or some truth in that as well so yeah yeah and we were talking about this beforehand in terms of I mean I definitely agree we've maybe over 50,000 75 a hundred thousand square foot units but that kind of 10,000 to maybe 25, 50 it probably is still medium sized businesses isn't it SMEs who are in there so maybe that doesn't fall in either either store maybe 10,000 is too small I don't know but you know that will come out in the washroom too but we'll see about that still a lot of detail to understand what that thousand square meter mark that 10,000 square foot marker is in how it's defined yeah no that'll be existing to watch and see because that might include more or take more buildings out of that new threshold yeah yeah no the devil's definitely the detail on that isn't it for sure and so domestic so residential EPCs what's the announcement on that one is it the same or is it different so more more complicated on the domestic front because we have changes both in terms of a structural structural changes and policy changes so with domestic EPCs it's all part the EPC reform that we've got changes to how EPCs domestic EPCs are calculated and presented so we're moving away from a single metric of fuel price to I think four metrics with a headline metric of being fabric efficiency and then the secondary metrics around heating efficiency smart readiness so in effect the software is needing to change substantially in order for the EPC to present these new new targets or new ratings how that also then plays out in the market we have yet to find a detail you know are we going to have a two tier system going on for a period of time we've got a change in staff which is dealing with new builds moving to home energy model which will then have a wrapper dealing with new builds and existing builds so the software from our DSL reduced data standard assessment procedure into home energy model standard reduced data calculations so so in effect it's an almost like an all-seeing and all-dancing piece of software that can be used for a number of calculations whether it be new builds compliance with building regulations or whether it be on an existing building so yeah did a whole raft of changes there on the domestic front and that's not due to be rolled out until late 2027 we were expecting October this year but that's been pushed back I think because of issues around the software changes okay so commercial 2031 yeah the 2020 so end of 2027 endless no no so so right so in terms of minimum EPC standards the domestic EPC is EPC C by 2030 okay commercial EPC B for larger buildings over a thousand square meters 2031 yeah and everything else EPC E okay yeah so I went off on a tangent I suppose because the way that these EPCs are being calculated are totally different commercial just purely about carbon yes domestic is about has been just about fuel price but that is then changing into fabric efficiency and others okay yeah that's going to give a bit of a head-aid for residential landlords to try and get to to with what they are needing to comply with. Yeah, yeah. And so just pausing on that before we go back to the commercial, that fabric first is actually going to be more difficult to achieve, isn't it, I would think, than the heating led changes. So call me a cynic. I think the change, the change has been driven to a degree by the fact that EPC, the MetcupiC's do not recommend heat pumps. The government has got this rollout of heat pump technology and the current EPC methodology, because it's all about fuel price, does not recommend it. So moved to a fabric efficiency, then starts to open up a different set of recommendations, because you're not just purely talking about fabric efficiency. That's an energy price. Fabric efficiency has a bearing on heat pumps, because obviously the more efficient the building is, in terms of insulation, heat loss and so on and so forth, means that the heat pump is going to deliver more efficiency and therefore could recommend it for more modern buildings. Older buildings might struggle with that recommendation, but the heat pump in older buildings. Yeah, and for what I remember, and I'm kind of going back in my memory bank now, because we installed a heat pump in a rental property, and for what I remember to get the grant, or all of the funding for heat pumps, you need to have a minimum level of EPC. So I wonder if there's a bit of a roundabout argument there, in terms of that. Yeah, I think that's all changed. So because yeah, we've got a number of, there's been a lot of changes around grant assistance and financial support for residential landlords. We had the renewable heat incentive, which was all about having no recommendations for improving the energy insulation measures. Moving on to what we've currently got is the boiler upgrade scheme, where that's essentially about trying to move away from fossil fuel and decarbonized homes, and you get a seven and a half thousand pound grant for a heat pump. There's no other criteria other than just a requirement for moving from a fossil fuel heating system to a heat pump. And then obviously there's air conditioning, so cooling and heating, aircon. I think that's two and a half thousand pounds. And if you're moving from oil or LPG, you might get nine thousand pounds to move to a heat pump wet system, so replacing your oil boiler with a heat pump. Central heating. Lots of lots of changes, and trying to keep up with all of it is, can we quite challenging? Yeah, I suspect the dust has a settle on some of this stuff, doesn't it? To kind of really look at the implications of it as well. Yeah, and I suppose it is an element of letting the dust settle, but also not leaving it too long, because the moment that it's like, "Oh, I now know what I need to do." It's like, "Oh, running out of time." And then trying to find the materials, the labor, people to actually implement all of this work, that is enough to be needed, is to be challenging. And it's a great point. And definitely raising up to the strategic level, looking up fully in the light of this is really, really important, isn't it? And also buying decisions as well, but we'll hold that thought, we'll come onto that in a minute. So just a go, so let's pivot back to commercial, where I'm definitely on more comfortable ground. In terms of, so the methodology, because we talked, and by the way, if the listeners haven't listened to your podcast, when you came on as a guest last time, please do. We'll put a link to it in the show note, so you can listen to it, listen to it, because it's useful context for this discussion. And we talked at last time quite a little bit about the methodology for calculating commercial. Has that, will that have changed? Is it still kind of carbon lead or, or it's just the same, really? Carbon lead. And in fact, it is just purely about carbon. The government today, sort of consultation and proposal, just recently, is that that isn't changing. So through the EPC reform. So what might change is the way that the Notional Building is calculated. So the Notional Building is effectively a hypothetical building that is used as a comparator. So you need to compare your actual building with a comparison. And that's what helps get your ratings. And obviously, and a reference building. This episode is brought to you by Bond Finance Limited. Your trusted partner for commercial property mortgage solutions. Are you an experienced residential property investor about to diversify into commercial property looking for funding options? Bond Finance can help. Whether you're planning to expand, refinance, or make a major property investment. Bond Finance provides expert advice with access to a wide range of lenders. From High Street to Specialist. Book a free discovery session today to explore how we can tailor commercial funding solutions to your unique investment strategy. Visit www.bondfinancelctd.co.uk and take the next step in your commercial finance journey. Um, you values. So we. Yeah, so it could be that you values might change. Now in June 2022, when the last revision to EPC methodology occurred, that. And when. When there's a change in building regulations, so building regulations part L or proof document L, when that is updated, then the EPC methodology is updated. Because they go hand in hand. Yeah. Because you've got to go. You need the EPC as part of a compliance tool for building regs. Um, and it's effectively the same methodology as used to spit out an EPC on an existing building. So we had a change in both the carbon intensity and fuel in the last iteration, um, which effectively meant that electric or reflected the lower carbon intensity in electricity, due to the way that electricity is produced more renewables. So it reduces that carbon intensity. Um, and, um, fossil fuel was, uh, obviously seen as, as, as more carbon intensive. So what that meant is that had an impact on EPC ratings that were, uh, certainly in commercial buildings, um, that if you didn't have fossil fuel in your building, you had a big spike, uh, in your, uh, an improvement in your EPC rating. Because we're just talking about carbon. So we just removed a hell of a lot of carbon out of the, you know, calculation engine. Yeah. I'd reduce in the carbon intensity and electricity. Um, conversely, buildings with fossil fuel heating had a dampening effect. So you therefore had to spend a lot more in trying to offset that carbon, uh, unless you remove that heating system, than you have to think about how you're going to replace that, heating system to satisfy the needs of your tenant. At the same time, we had changed it in the U-value, the notion of building and the reference building were constructed, if you will. In the next iteration, which is March 2027 of part L, we're not seeing as significant a movement in U-values. In fact, U-values are staying the same. I think we've got to a point where the walls can't get any thicker. We've put enough insulation in the walls, certainly from a new build point of view, that it's now just purely around carbon intensity and fuels and what sort of fuels are going to help with improving the energy efficiency, meet compliance with building regulations, meet compliance with EPC standards. So yeah, did nothing fundamentally different in the way that commercially PC is going to be calculated moving forward? Okay, now that's super helpful. And we talked last time about how, if you had a pre- 2022 EPC, it was always worth getting that redone because of this recalculation in how we're going to be able to do that in the carbon. So definitely pre- 2022 EPC, considering that done because you might just see a hike anyway. And obviously, there's relatively, in some buildings, there's relatively straightforward ways of doing this. So for example, buying an industrial building where there's space heaters, gas space heaters and just taking them out, I've seen a massive hike in here. the EPCs as a result of that. So there are some, this is what you need an expert in your court, like you don't need to help you with these things. And I would say, you know, an expert in terms of EPC and MIECE and people that understand that side of things, but also you'll need somebody that understands land law and tenant law because just removing the heat, you know, land law turning up to the tenant and say, you know, "No, I need to remove your heating because, you know, it's affecting my EPC score." You can't just do that. The rules and regulations around protecting the tenants and, you know, and if you were to do that, then surely the tenants in their right to sort of turn around and go and ask for a discount in their rent. And, you know, so it has to be balanced. And I think, you know, it's what we've been saying in our, sort of the 2031 MIECE newsletter campaign or series where it is not just about chasing the EPC grade. You have to look at the building in a holistic way that it's not just about compliance. Compliance is one thing, absolutely. But there are other aspects to consider that could affect value, could affect the marketability, the lending, a number of factors. So, yeah, fundamentally, remove the heating from a fossil fuel heating from a building. You're removing all that carbon. So yes, your EPC rating is going to improve. Yeah, yeah. No, I'm silly. And I was referring to an empty building rather than going bundling in there and removing from a tenant, but absolutely, you're. The point might still be the same. You know, you then putting it out to the market, a building that's unheated. Yes, exactly. How does that impact on its asset value? Yeah. And then, you know, inevitably, the tenant then comes along and says, yeah, we'll take it, but, you know, request for an alteration to introduce heating. Yeah. How's your then deal with that? You know, you can't refuse it unresibly. Yes, you can accept it, but then you've got a factor in how are you going to manage that from a dilapidation point of view. So you then not captured by either EPC regulations moving forward or me standards moving forward. So, yeah, having an EPC assessor in your corner, but also somebody with, you know, lease and land-alone tenant knowledge and expertise, absolutely. No, totally agree with that. And, you know, and I would just say to everybody listening, don't do anything until you've had that advice because it's easy to rush in and make changes, which is like a immediate spike in the short term. But as you say, you know, if it's unletterable because it's got heating or whatever else, then obviously that's not good. So, you know, there's definitely a balance between these things. OK, so let's go on, move on to exemptions. Because there's always a death, devil's always in the detail, isn't it, in terms of these things. So at the moment, there's quite a lot of exemptions to, you know, if you can't take certain boxes or whatever, then you can get, you can register exemptions on the exemption register. So let's talk about non-domestic to begin with. How's that change? Have there a number of exemptions increased or kind of how's what's different? And thanks to nothing's changed. And I say thankfully because there's so many changes going on. That remains a constant. Yeah. So you've got your, and I can't remember how many there are. There's your seven-year payback, which is probably the most common mis-exemption that would be applied for. So effectively, that is if your energy efficiency improvements do not pay back within seven years, and there is a formula within the regulation. So it's not just, you know, you make up the formula, there are guidance, there's strict guidance around that and how to calculate the seven-year payback. So if it doesn't pay back within seven years, it means that you can continue to rent out that building, even though the EPC is below standard. Yeah. OK. So you're still legal. You're compliant. You're not going to get that fine. Did I see a whole host of issues around that in terms of, well, who's going to want to rent a building that is substandard that potentially has high costs of running costs on this side of the other? Is it going to be marketable? Is it going to be letable? Yeah, letable. Is it going to be fundable? All of these sort of things. But at least, you can still be compliant without having to shell out a load of money on a building that perhaps isn't worth spending a load of money on. Yeah. You've then got the non-consent exemption. So that non-consent could be your tenant saying, over my dead body, are you going to change all the heating, the lighting of this side of the other? It could be that it's a planning condition or it's because it's a listed building. And you know, no, you're not going to put EWY on this building. No, you're not going to put solar panels. No, we're not giving you permission to do anything to change the look and feel and the character of that and appearance of that building. So you can-- but you need evidence. And the semi-aupay that, again, it's all evidence-based. So you need your quotations from contractors to then plug it into the formula to then upload all that documentary evidence into the EPC exemptions register. Measuring exemptions register. You've got an exemption around if the measure de-values a building by more than 5%, then you don't need to do that work. But you need to evidence that with a charted valuation surveyor. You've also got a measure or an exemption around-- so you've got semi-aupay back, no consent, 5% de-valuation. I'll maybe confusing myself now with a domestic. Basically, if the improvement is going to destroy the building or have a negative impact on the structural integrity of the building, such as-- say, capital-walled insulation-- that very much a domestic exemption or an exemption for domestic buildings. But yeah, so there are get-out of jail cards. It's evidence-based. So you do need to go through proper process because there may be some changes with EPC register in the way that the trading standards officers can check and validate because the moment is self-certified. So yes, you could claim an exemption without any evidence. And nobody's really been checking it because local authorities haven't had the resources-- financial resources or personnel resources-- to deal with minimum EPC enforcement. Moving forward, they could do. Yeah. EPC exemptions last five years does plenty of time for trade standards to look and check and then potentially issue a fine for non-compliance. Yeah. OK. And we'll talk about the valuation and lending implications in a minute because obviously, as you just said, it's not just about your EPC. It's about whether actually you could get an exemption, but you might not get lending on it or whatever else. And there was rumors before this was announced that because obviously, if there's a commercial lease in place and the tenant is in situ and quite enjoyment in the lease, et cetera, as you just said, you can't just barge in there and bundle in and take out heaters and make EPC improvements. So I presume this is still on letting, rather than for existing buildings, because obviously, there was rumors that it might be for all buildings. And obviously, that would be very challenging for a commercial perspective. But also, are there any provisions now where there's rights to go in when it's tenanted or have the government kind of drawn away from that? Because there was some rumors about that at one time. I think fundamentally the EPC and minimum EPC regulations, many minimum EPC regulations, does not, what's the word, take precedence over other acts of parliament legislation, like Landle and tenant act. - Yeah, I think. - So, yeah. And that's set out in the Miss regulations that, Landleurs cannot just go in and take action if there is a lease in place that may be protected by the Landle and tenant act. You have to work with a tenant to find a compromise or an acceptable solution that allows the landlord to me. It's legal obligations under EPC standards. But I think, don't forget, EPCs are the triggers for an EPC, is a letting or a sale or maybe a construction of a building. Yeah. The EPC standards is a secondary legislation. So if a bit, and it first of all looks at the EPC and checks to see whether it's compliant, and if not, then you need to do something about it. So if a building does not have an EPC, because let's say the lease was started 25 years ago, and we're coming to a lease renewal, and the lease renewal is our outside scope of EPCs. And so long as it is a lease renewal, the lease doesn't come into play. Interesting. Because you don't need a new EPC for that lease renewal. Yeah. If however the lease was started, say five years ago, and we're coming up to a lease renewal, and five years ago it should have had an EPC. Then we've got a valid EPC, 'cause it's got five years left on that, that term, that validity period. Then lease does come into play, because we have an EPC registered on that building. Yes. And therefore if that EPC is below standard, then it needs to do something. Now, it could be that it's above standard, because it was done under an old set of EPC calculations, where gas was good. So it might already have a compliant EPC rating. So I would say that if you, let's say you're an investor, looking at acquiring a new building, as a, you know, with a sitting tenant, have a look at that EPC, when was it registered? Is it under current methodology? While that landlord looking at a lease renewal, then fine, you know, you might take advantage of an EPC that's valid, but done under old calculations, you're still well within your rights to continue, and if that gives you that sort of commercial advantage that you can re-let without spending capital, but at some point in the future, it's gonna come and bite you in about. Yes. That's it. It's just factoring all of that into play. Yeah, and just put it in your numbers. If you don't need to do the work now, just make sure it's in your cash flow for five years time or whatever. Yeah. So yeah, just think just. Absolutely. I think that's the thing is that, you know, losses, you know, people who invest in commercial know this, but if you're new to commercial, it's not just a point in time that you're calculating returns. Your calculation returns over, you know, five years, 10 years. And so just make sure you put that in your forecast for sure. And then, so just slightly pivoting onto domestic because we've talked about it now, so those will carry on. So what are the exemptions? Do the existing exemptions continue on domestic EPCs or have they changed at all? I'm not as clued up on domestic, but I'll give it a go. So I think it stays the same. Yeah. So some slight changes to each of the exemption routes. So you've got a high cost cap. So land laws at the moment have a cap of three and a half thousand pounds, including VAT for energy efficient improvement works. What that means is if that, if, if, let's say, putting, you know, I don't know, a new heating system into the building that will bring that EPC rating into compliance, but that cost is more than three and a half thousand pounds, being done, I have to do it. Yeah. You have to demonstrate, again, evidence-based, get the quotations, apply, blah, blah. Again, you've got a no consent. So tenants says, no, I don't really want, you know, central heating. I'm happy with my electric panel heaters or one, have you? OK. You've, I'm also planning and, you know, disability consent and all of those things, everything to do with, you can't get permission to carry out that work. You've got the devaluation argument, again, if improvements reduce the value by 5%, then, no, don't need to do it. And you've definitely got the, by implementing that energy efficiency works, it's going to destroy the building, like cavity wall insulation, then, no, you're not doing it. Yeah. But I think, yeah, you touched on listed buildings, listed buildings aren't outside the scope of EPCs, and therefore not outside the scope of minimum EPC standards. So listed buildings do require EPCs, and certainly need to go through that process. It might be that the improvements would not be permissible due to the status of the building, and therefore, you may not need to register that EPC. Yes. Yes. But you've almost got to go through that process. Your energy assessor needs to almost like record everything. You as a landlord, the investor needs to have some system to record the process and the evidence so that if it is asked of sometime in the future, then you've got some evidence to say, we've evaluated this. Yes, absolutely. And I think there's a bit, I think a lot of people think that you don't need one. So I think that's a great clarification, because we own a number of listed buildings, and we absolutely have got EPCs on them. And you can, Sue, you can improve the energy efficiency of a building, of a listed building, change the heating. And a lot of the heating system is not going to be part of the listing. So yeah, exactly. Yeah. OK, great. So let's go back onto non-domestic. I will stay there now, I think, for the rest of the-- OK. --you've been pleased to hear. OK, so I'd love to touch on lending and valuation, because I suspect it's too early to really think about this. And the RICS is probably scratching their head, because they tend to give guidance notes, don't they, eventually, on-- when significant things like this happen. But what was your-- I mean, we could both give our view on this, I guess, in terms of valuation and lending. Well, what's your kind of take on-- so smaller buildings, you don't need to necessarily do the EPC works. How will Lenders view that? How will investors view that? How will Values view it? Equally, like, larger buildings. Like, what was your initial thoughts? I appreciate it that we haven't had very much time to think about this. So I think Lenders and Values are probably still scratching their heads on it. Yeah. I'd say it's a bit of a bugger's muddle, if I can say that. And you might need to edit that out. I don't know. But I think we've got a 2-tier market coming down the pipe. Potentially, we've got a risk or a reality of perhaps a yield diversion. So you might have some building, some sectors where there's going to be some yield compression. And there'll be other areas where there's a yield expansion or stabilization. And that will all depend on, I think, perhaps the size of the building, the type of building, what its EPC rating is, and what its value is, and what its rental income is, and where all of that sits will have an impact on how that yield behaves. I think the government in their announcement said we're giving some reprieve to SME landlords, high streets, retail units, and this out the other. Because obviously, the high street is really struggling. And therefore, they think that the EPC and relaxing the requirements on energy efficiency in the high street is going to be a helping hand. A lot of retail units come out with a B rating anyway, even a really crappy building, and even with no heating. Because from an EPC, a investment point of view, a building with no heating, the default assumption is electric fan heating. So a lot of retail units will have aircon or no heating or electric panel heaters or fan heaters. So that just got pretty pretty decent. I think if the government was wanting to help the high street, then maybe this would go off on a different tangent. But business rates is the obvious area to support the high street. I think the challenge is going to be the industrial units, where typically it's gas-fired heating systems. And obviously, you've got a lot of carbon with that. Yes, removing the heating from an industrial unit will improve its EPC rating. But also changing, and we've got new technology, we've got other fuels, like drop-in fuels, like. HVO, bio gas and what have you that could be used, but you then got to think about the practicalities of the deliveries because they drop in fuels as opposed to mains fed. It's a halfway house, but that will improve the EPC rating. But also changing it to a heat pump technology. So there are possibilities. It's just what is the cost, the capex of doing that? What are the running costs of doing that? The comfort levels, it all needs properly assessing and evaluating. I fear that I've gone off on a tangent. We were talking about the value of a building. That all, I suppose, factors into the attractiveness, the letability, the audibility of that building. Lenders, perspectives and risk. We had some of that 300 in just the units to survey before the announcement. The announcement came and a lot of that was put on the back burner because the majority of those buildings were under a thousand square meters and were compliant. They were above an E. So they didn't need to. So before the announcement, everybody was aiming for a B. This is given us or the market an opportunity to reset. But how does that then have a bearing on yields, rental values and so on and so forth? So yeah, very much a welcome breath of fresh air for a lot of landlords, especially rural landlords of buildings that are off the gas grid. Yeah, yeah. But yeah, so yeah, and the cost and what's obviously going to affect yields and values is the cost of improvements. So if that has been removed, then that must have a positive bearing on asset value. Yeah, no, absolutely. I mean, I think, like I said, I think lenders are probably mulling this over, I think that the RICS valueers will be mulling this over at the moment. So I think it's too early to say kind of what, but I think from a from an investment strategic perspective, I've definitely got some thoughts on it. I mean, two team markets are never good. It's always interesting, but they always do present opportunities as well. So there's definitely some form of opportunities in there. And obviously that will start to come out in the washes that weeks and months go on. I mean, I think one of the biggest risks is that lenders, you know, I think lenders at any event are in some sectors are giving better rates for higher EPCs and things. And I think that trend is just going to continue. So even if you don't need to do the PC changes, it would always be worth finding out how much it would cost to do that because you never know with governments, do you? They might actually introduce this later and you've not budgeted it on your buy strategy and therefore, you know, just just budget it anyway. And then if you decide to do it, you do it or if you have to do it, you know, you've got the money in there and your returns reflect it. I think in terms of buy strategy and opportunities, I think that, you know, you could have a you could have a sustainability led strategy where you only buy things where you could put solar panels on or you, you know, or you buy things that have already got sustainability in there and then you just future proof, don't you? That might just be a buy strategy. But I think, yeah, so I think there's lots of lots of things to think about when you're when you're doing this and as with everything, there's always problems or always opportunities. So, but I do think the yeah, that that reprieve for smaller SMEs will be a big sigh of relief, I think in terms of in terms of that because I think that, you know, there was there was a lot of fear around that. But definitely, it's even just getting pre 2022 EPCs redone, you know, from the, you know, if you're buying something, which has got a pre 2022 EPC and just getting that redone, that that that's a competitive advantage before you even started, isn't it? So yeah, absolutely. No, no, I'm just saying I'm talking to a client. It's a bit of a model in some respect. So we've got a landlord with an existing tenant, but we've got vendor. So we've got a purchase looking to buy this this investment, but not for the the the setup as it currently is looking at it from a redevelopment point of view. But because it's a transaction, it triggers a need for EPCs, it's, you know, it's an MOT garage with a dirty, great oil boiler. So that can't be ignored. It's a not a particularly young building. It's an old building. So the the fabric single brick, it's going to have a poor EPC rating. The the purchaser needs finance. The bank is saying, you know, bit nervous. The vendor is saying, well, I'll tell the tenant to remove the heating. It's like, well, that could, you know, elongate the whole process. Maybe we need to deal with what we've got and let's look at an exemption. Yeah. Yeah. Because we know we can do those calculations very quickly to evidence the cost of improvements. And we know that the cost of improvements are going to be more than going to pay back in more than seven years, just from experience. So purchaser is spoken to the bank and said, you know, if we did go down that MES exemption route, what's your attitude? Yeah, quite relaxed. So now we know that the venture said can buy that building with with with a commercial mortgage, we just need to get some exemptions in place. We've just got to be careful who is applying to that exemption because it's not transferable. Okay. Okay. So vendor needs to give consent to the purchaser to apply for an exemption and you can do any, you know, you don't have to own the building to register an EPC or an exemption. And this is also something just a factor in for, you know, land laws, SME land laws to make sure that their lease is protect them because anybody can register an EPC. So it's always, you know, just make sure that you're not you know, the EPC, your incontrol of registering that EPC, it's like that building that you are letting otherwise you inadvertently could become fullfile of the regulations because once an EPC is registered, that's it. Yeah, great point. So, so make sure your tenant can't apply for EPCs and make sure they do nothing without landlord consent, obviously. Yeah, that's okay. And make sure they do nothing the building that that will affect the EPC. They can improve it, obviously, but not again, anything. And they're quite standard lease clauses now aren't they, but you just need to make sure they can sell, yeah. Yeah. And the other thing just occurs to me as well is that if you bought a 15,000 square foot industrial unit and divided into two and a half thousand square units, then obviously suddenly the regime changes, doesn't it? Because you're falling below that 1,000 square meters or does it? Yeah, and Susie, there was in the detail, we don't know. And you see, this is where we need that. We need the clarity of the government. And it's all well and good saying, you know, buildings over 1,000 square meters need to get to a V, everything else stay on on on on on band-a. And I suppose that's one of the main considerations that we're not quite sure of because we don't know how to advise our clients, you know. But if we go back to the definition of a building and what the guidance of the EPC said back in the original guise is that a building is defined by the regulations as having roof walls and uses energy to condition the indoor climber. And an EPC should reflect the accommodation being let or sold. And the third element is that where you've got a common heating system, you have a choice of either doing an EPC on the building, so a building wide EPC or to revert back to just EPC for that part of that building being let. Okay. So you've got a choice, essentially. So that building that is multi occupied that's 15,000 square meters, you're thought by floor is less than a, you know, a thousand square meters, you potentially could do one EPC per floor. Yes, it costs more. Yes, it doesn't give you as much clarity on the energy efficiency improvement because some of the EPCs might say replace the windows on certain floors, but you're not going to do that without doing it elistically. Or it might say yes, you know, replace the heating system. Well, I can't because that will affect the whole building. So it could give you a distorted view by splitting the building up. But if that gets you over the line in terms of compliance, people are going to do that. Yeah, absolutely. Yeah. It's a great point. So yeah, as always, with these things, it doesn't as always in the detail, there's always a strategy. So don't buy a building about your strategy in place. And so moving on from that, Leigh-Jellith, and I presume that the, well, I mean, my recommendation would be that before you buy a building, you absolutely work hand in hand with somebody like yourself to understand the building, to understand the EPC and, you know, the art of the possible in terms of what you can and can't do. Any other recommendations of what people should be actioning now in the light of these kind of this new dance? I say some basic checks and balances, you know, check the EPC register. Check that the EPC reflects the accommodation under, you know, in terms of floor area, the description of the building, when was EPC registered? Does it reflect the current methodology? So is it pre-2022, post-2022? You know, it's not going to be long before we'll be saying actually post-2027. Yeah. Yeah. Because that's going to be a slight change in the EPC ratings. So simple checks and balances that the EPC is as you see it. And those are things that you can do quite simply, you know, go onto the EPC register www.epcregister.com, put in your post code, have a look at EPC, it will describe it, it will give it its floor area and it will give its EPC rating. Then have a look at your least terms, you know, least expiry, least events, and tally that with EPC expiry date because that will give you an idea of what you might need to do when you might need to do it. Have a look at your least terms because there may be improvements that you have to do that you might be able to recover through either a service charge or, you know, usual least terms. I'd also factor that in with the asset value, you know, what is the building? Where is it located? How valuable is it? What is the cost of improving it versus what is the current value post improvement value? So it's not just chasing the EPC grade, it's factoring it all in proper asset management if you will. So those are some really basic things that you can do yourself. If you want more help and assistance, then, you know, reach out to me more than happy to help, have a conversation, you know, have a go at our misreadiness checker, which is a very simple answer, like a a dozen questions and you will get an EPC and misguide that is bespoke to you. Yeah, fantastic. And we'll make sure that link is in the show notes for this podcast. So do check the show and make sure that's in. But yeah, some some great points there. I mean, I think don't be so channeled down one group on EPCs that you're affecting the letability of a building or the capital value of it. Like as Jonathan rightly says, it's about looking everything in the round. Look at, you know, understanding the system so that you can work work around it or work through it. But nothing is more important than your letability, your rent, your lease terms, because ultimately that's going to form your value. And I think if done the right way and if you buy strategically, you can actually have it have all that together, I would suspect. Bye, but you need to be highly strategic and then the way you approach it. So fantastic. And fantastic tips there, Jonathan. And thank you so much as always, because it's really really useful to, I mean, I know it's been quite a long episode, but it's been really useful to kind of really delving to this because I think it's an area that so many people don't understand particularly well. So I think, you know, certainly it's been really helpful for me. So people can do your check your kind of questions, your means, means, ready. Check that. Yeah, that's that's the one. Well, also put your details in the show notes, but just just finish with how people can get in touch with you otherwise. I think the simplest way is get onto our website, www.murtlandco.uk. Do you fill in the contact form and that will come through to me and then we can contact you, booking a call and yeah, and also on the website, there'll be a button for you know, signing up to our newsletter and to the for the Miss Readiness Checker as well. So yeah, website contact forms probably the simplest easiest way to get in touch with me. Perfect, great. And do you do you work nationwide or are there certain areas that you particularly deal with? No, we have nationwide coverage. Obviously it depends on the size of the building, the complexity of the building, but we have a network of energy assessors that we have used over the years, tried and trusted. So yeah, we can cover buildings of all shape sizes across the UK. Fantastic, brilliant. Well, thank you so much and please do, you know, I can't stress the importance of when you're buying or when you own a building to work with somebody like Johnny to make sure that you're doing things right. So as always, thank you so much. Really, really interesting and insightful chat with you today, Jonathan. So thank you so much and maybe we'll see you in 2027 when things start to be refined for the next iteration and where we are with our APCs. I can say we should die rise for I would probably say early to mid-2028 because I think realistically that's when this means 2020, 2031 regulations are probably going to come into force. It still needs to go through Parliament. It needs to be designed, debated and agreed. So anything, everything that we've said today or the advice could go out window. Yes. If there's a change of government or a change of heart. So there's still a lot of time left, but I think the message, as you quite rightly said, is don't ignore it. Have a look at it. It costs you nothing to take those, have those basic checks and balances. Yeah, and we have a new Prime Minister and we, yes, you say there might be a change of government in between now and then. So all up for grabs, but I don't think yeah, as you rightly say, nothing changes in terms of you need to look at things highly strategically, do scenario testing and just make sure your base is covered basically. That's the message, isn't it? So Jonathan, thank you so much for joining me and thanks everyone else for listening and I look forward to seeing you next time on the commercial property podcast.