Bridging the energy divide: How EPC rules differ between Scotland and England

Energy Performance Certificates (EPCs) have become a cornerstone in the management and regulation of real estate. Designed to assess the energy efficiency of buildings, EPCs play a critical role in sustainability efforts and can influence lending decisions. As environmental, social, and governance (ESG) considerations increasingly shape the property landscape, EPC ratings are often pivotal in determining access to finance.

Navigating EPC regulations is far from straightforward, particularly for businesses operating in both England and Scotland. While both jurisdictions aim to enhance energy efficiency and reduce carbon emissions, their differing approaches to EPC requirements pose unique challenges.

When an EPC is required varies slightly both sides of the border; however, in both jurisdictions it must be provided on the sale, letting or construction of a building. In England, EPC regulations have evolved significantly in recent years. Currently, rented commercial properties must achieve a minimum EPC rating of “E”. This is set to tighten, with the UK Government proposing a minimum “C” rating by 2027 and potentially an “A” or “B” by 2030. Enforcement is robust, with fines for non-compliance reaching up to £150,000 (subject to certain exemptions).

The Scottish Government has proposed significant reforms to EPCs for commercial properties as part of its strategy to achieve net zero greenhouse gas emissions by 2045. These reforms aim to enhance the accuracy and relevance of EPCs by introducing new ratings and metrics that provide clearer information on a building’s energy efficiency, heating system emissions, and energy running costs. The format of EPCs will be redesigned to offer more comprehensive details, helping building owners and occupiers make informed decisions about energy efficiency improvements. While the change in methodology to align with England may be welcomed, the Scottish rating system will remain different meaning direct comparisons will still not be possible. In addition, the validity period for EPCs will be reduced from 10 to five years to ensure the information remains current. A key focus of the reforms is to encourage the transition from fossil fuel based heating systems, such as gas and oil boilers, to zero direct emissions alternatives like heat pumps and heat networks. These changes are designed to support commercial property owners in improving energy efficiency, reducing emissions, and meeting the evolving regulatory requirements.

While both jurisdictions are working towards similar goals, their approaches differ significantly. For instance, England’s regulations emphasise achieving minimum EPC ratings, backed by financial penalties for non-compliance. Scotland, on the other hand, incorporates additional layers, such as Section 63 action plans under the Climate Change (Scotland) Act 2009. These plans apply to larger commercial properties (more than 1,000 square metres) during sale or rental and require building owners to either implement physical improvements or report annual energy consumption through a Display Energy Certificate (DEC).

Scotland’s reforms further differentiate its approach. The new rating system will provide a more holistic view of a property’s energy performance compared to England’s focus on minimum standards. However, the reduction in EPC validity to five years introduces an administrative burden, particularly for businesses managing cross-border portfolios.

The process for developing a Section 63 action plan includes:

• a detailed energy assessment by an accredited professional;
• identification of improvement measures, such as insulation upgrades or HVAC system enhancements; and
• implementation timelines and compliance reporting.

For businesses, this requirement can be complex but also provides an opportunity to future proof assets. Understanding these distinctions is essential for cross-border compliance.

The influence of EPC ratings on lending decisions cannot be overstated. Banks and financial institutions are increasingly factoring energy performance into risk assessments, with many refusing to finance properties that fall below regulatory standards. Scotland’s move to a dynamic EPC user interface and updated rating system could enhance ESG reporting, but it may also require businesses to invest in more frequent updates as well as costly refurbishments to ensure requirements are met

Differing EPC regulations add complexity to ESG reporting. Legal advisers play a vital role in helping businesses navigate the complexities of EPC regulations. From providing guidance on cross-border compliance to identifying funding opportunities tied to sustainability improvements, law firms can help clients turn regulatory challenges into strategic advantages. Understanding EPC regulations is essential for businesses engaged in cross-border commercial property transactions. While England and Scotland share a commitment to improving energy efficiency, their differing approaches create both challenges and opportunities. Legal advisers are uniquely positioned to bridge this divide. By offering tailored advice on compliance, funding, and ESG alignment, they can help direct clients through the regulatory complexities and maximise their potential in a rapidly evolving landscape.

For businesses seeking further insights, Harper Macleod invites you to join the conversation at UKREiiF or contact us directly.