On 2 November 2018 the Decree amending the 2012 Building Decree concerning the ‘C label requirement’ for office buildings (the Decree) was published in the Bulletin of Acts and Decrees.
From 1 January 2023 onwards, an energy label with an energy index of 1.3 or lower must be in place for office buildings larger than 100 sq. m. Currently, an energy index of 1.3 is equal to energy label class C.
In our newsflash of 29 June 2018, we explained in which situations this requirement does not apply. Those situations have not changed in the Decree.
Which measures are necessary in order to comply with the prescribed energy index will differ from building to building. Office buildings with an initial energy label D, E or F will usually not require structural alterations. Alterations in respect of, for instance, (climate control) systems and lighting may already be sufficient to meet the required energy index of 1.3. Buildings with an energy label G will generally require a more drastic approach, which might include isolation of the roof, flooring and windows.
However, it should be noted that if the alterations required to achieve an energy index of 1.3 have a cost-recovery time that exceeds 10 years, only those measures with a cost-recovery time that does not exceed 10 years must be taken.
For the avoidance of doubt, we also note that the C label requirement also applies for mixed use buildings, where, for instance, the ground floor is used for retail or hospitality purposes and the upper floors are used as office space. In such cases the energy label requirement will however only apply to the area used as office space.
Who has to take the measures and who will bear the costs?
In order to use, or to allow others to use, an office building, the building owner is required to have a C energy label from 2023 onwards. It follows from (the explanatory notes to) the Decree that the measures that need to be taken in respect of the building, must be taken by the owner. As a consequence the owner will also bear the related costs.
This raises the question for landlords whether or not they can subsequently pass such costs on to their tenant(s). The answer to this question will depend on what has been agreed as part of the lease. As such, energy efficiency should, in our view, be deemed an important item of consideration when negotiating the conclusion (or renewal) of a lease, both for tenants and landlords in the coming period.
Funding and subsidies
The government has not made a provision for specific funding arrangements; the rationale behind this is that the costs associated with obtaining the required energy label are cost-effective investments in most cases. That said, it may be possible for real estate owners to use existing tax and subsidy schemes, such as Energy Investment Deduction scheme (EIA), the Sustainable Energy Investment subsidy for solar water heaters, heat pumps and biomass boilers (ISDE) and the Sustainable Energy Production Boost (SDE+).
As far as private funding is concerned, various banks have staked on making real estate more sustainable. For instance, both ABN AMRO and Rabobank have announced that they are willing to finance 100% of the costs of the energy-saving measures and ING in its turn has stated in a press release that it will no longer fund real estate which does not meet the C energy label requirement.
Legal consequences and enforcement – who can be held responsible?
Responsible for the enforcement of the C label requirement are the competent authorities under the Building Decree 2012. In most cases the competent authority will be the municipal executive of the municipality where the office building in question is located.
If a competent authority detects a violation, it can choose between a number of administrative sanctions. Apart from a (simple) administrative warning, the available administrative sanctions range from the imposition of a periodic penalty order (last onder dwangsom), a coercive administrative action order (last onder bestuursdwang) or an administrative fine (bestuurlijke boete). The administrative penalty can only be imposed if a second violation has been committed within a period of less than two years. This is particularly important for parties with a substantial real estate portfolio, because an administrative penalty can also be imposed if the successive violation pertains to a different building of the same owner. This means that, after a first violation, an administrative penalty can, in principle, be imposed for each successive violation, even if the various violations pertain to different office buildings owned by the same entity.
In principle, enforcement measures may be initiated vis-à-vis the owner and the landlord as well as against the tenant, since the prohibition on the use applies to both the commencement and the continuation of the use of a building. In practice, the competent authority will often decide to (also) direct enforcement measures to the owner of the property, since the owner’s details can easily be retrieved by means of the land register.
Concurrence with other regulations?
Although the C label requirement for offices is not enforceable before 2023, alterations in order to achieve an energy index of 1.3 may in some cases already be (in part) necessary to comply with other regulations. We will explain this in further detail in a separate newsflash in relation to the amendment of the Environmental Management (Activities) Regulations that the Minister of Economic Affairs and Climate Policy made available for consultation on 17 January 2019.
Lastly we would like to note that the new ‘NTA 8800’ energy performance determination method has been published recently. This method is to be used to calculate the energy performance of both new and existing buildings, and will likely be designated as the prescribed determination method in 2019, replacing inter alia the currently used energy index.
The minister has indicated that the designation of a new determination method will be implemented without affecting current policies However, it remains to be seen whether this will be the case in the end.
Energy labels are valid for a period of 10 years. Therefore, if the C energy label requirement is complied with prior to the adjustment of the energy performance determination method no requirement to adjust to the new standards will exist until the label expires. It might therefore be wise to implement the energy-saving measures based on the current standards and apply for the C energy label prior to 2020.
In this regard it should be noted that according to the explanatory notes to the Decree, the Central Government aims at achieving an A energy label for all buildings in 2030 and an energy-neutral built environment by 2050. All the more reason for building owners to take a closer look at the energy efficiency of their real estate portfolio.
If you have any questions regarding this item, please contact Jan de Heer, Timo Huisman, Margot Dadi-Tailleur or your regular Real Estate team adviser at Loyens & Loeff.