Energy Class: its importance in property purchase or rental
Starting in 2009, Italian law provided for the gradual entry into effect of the requirement to provide an Energy Performance Certificate (EPC, or APE from the Italian) for the property, prepared by professionals accredited to issue it, that documents its energy performance.
In addition to immediate legal and contractual relevance, the energy classification assigned by the EPC also has significant commercial ramifications because (all other aspects being equal) it means greater value can be attributed to units with higher energy performance and, together with the increasingly strict obligations imposed by sector regulations, provides guidelines for owners, users and operators in making ever-more efficient choices, including on renovation work for used properties.
The EPC is, therefore, an important tool in economic, energy and environmental policy in that it serves to orient choices towards solutions with low or zero energy impact.
When an energy certificate is required
For the last ten years, an EPC has been mandatory whenever a property unit or entire building is to be rented or sold, irrespective of its use—residential or “other” (service sector, industrial or commercial).
Only in the case of the rental of a single property unit is the inclusion of the EPC optional. However, appending it is easy and recommended, also because it is cost-free since inclusion of the EPC is not subject to registration or stamp taxes.
In other cases (rental of an entire building or transfer for consideration of property units or entire buildings), the EPC must be appended to the deed or contract.
In any case, it is mandatory to always include in the transfer deed or rental contract (subject to heavy fines for which the parties are jointly liable) a specific clause in which the buyer or tenant declares to have received the information and documentation, including the certificate, relating to energy performance.
If the owner uses the property himself, or does not rent it out, the EPC is not necessary.
However, this requirement does arise if and when the property is rented out or put up for sale because, by law, it is required that in the “announcements in all means of commercial communication […] the enclosure and overall energy performance indices of the building or property unit and the corresponding energy class be given”.
In addition, by law: “In all cases, the owner must make available the energy performance certificate to the potential buyer or new lessee at the beginning of negotiations and give it to them when concluded; in the event of sale or rental of a building before it is constructed, the seller or landlord will provide information regarding the future energy performance of the building and provide the energy performance certificate within fifteen days from the request for the issuing of the fitness for occupancy certificate.”
Depending on regional regulations, the EPC is valid for a maximum of ten years, but only if work is not performed that impacts on energy performance. Otherwise, an updated EPC must be issued in the event of rental or sale of the building.
Information contained in the EPC
EPCs contain a range of data and information regarding the following major aspects:
- identification of the building; energy-related services present within it (in particular, heating and cooling systems, hot water for sanitary purposes, lighting, presence or lack of a mechanical ventilation system);
- the building’s energy performance and classification and comparison with similar buildings; energy sources utilized, annual energy consumption under “standard use”, non-renewable and renewable energy performance and CO2 emissions;
- work recommended to improve energy performance and obtainable results;
- other significant energy-related data for the property and its systems; certifier data, information about the software used and the date the certifier performed the inspection to issue the EPC.
It should be noted that the EPC is issued in the form of a declaration in substitution of a notarial act, and is therefore valid for penal purposes as well as in terms of civil liability in connection with the trust that the content of the EPC generates for the client and third parties who conclude contracts (rental, sale, etc.).
The EPC as tool of economic and environmental policy
From what has been presented above, in addition to its very substantial juridical and contractual importance, the EPC is also an important tool in economic, energy and environmental policy given that the measurements, information and recommendations it provides are useful in orienting builders, owners and users of the building towards choices that are more energy efficient.
These choices can be made in various ways and at various times, for example:
- during the search period, those looking to buy a property can compare a number of properties and buildings, not only in terms of their location, architectural and aesthetic appearance, access to infrastructure (e.g., roads, highways, metro lines and other public transport, schools, etc.) but also on the basis of energy performance. The same is true when looking for a rental property;
- a landlord can assess the recommendations provided by the certifying expert and decide whether to carry out one or more of the improvements suggested to enhance the energy performance of the property. The same is true for the tenant who could decide to carry out efficiency improvements, with the prior agreement and authorization of the landlord.
These aspects have important consequences on a commercial level because the market tends to reward with a higher price (purchase price or rental fee) the properties with higher energy performance. This assessment could be launched through examination of the EPC and, of course, further assessments that could be carried out by commissioning specific energy-related investigations and diagnoses.
The amount of condominium fees—within which energy expenditure plays a primary role—is one of the first and most sensitive requests potential tenants and aspiring buyers ask owners.
Fiscal regulations and EPC
Precisely because of the enormous importance energy efficiency has come to play in a number of ways—for reasons connected to foreign supplies (the so-called “energy bill”), even more so in times of serious geopolitical instability; environmental protection; creation of new “green” companies and jobs; maintenance of commitments made by Italy to conform to international agreements; and so on—over time, lawmakers have increasingly issued sector regulations (construction, urban planning, plant and equipment, environmental, contract law, fiscal policy, etc.) aimed—depending on the case—at imposing or creating incentive for operators in making choices that are increasingly positive regarding energy efficiency.
The EPC is also an important and functional tool from this aspect, for example, in evaluating the requisites for accessing major tax benefits in the event of renovation and redevelopment of existing buildings and systems (i.e., ecobonus, bonus for building renovation, super-ecobonus, seismic bonus, heating allowance and other national and local incentives), and the purchase of buildings to demolish, rebuild and resell with high energy efficiency (for example, Art. 7 of Italian Decree-Law no. 34/2019 on “Construction improvement incentives” or Art. 21 of Italian Decree-Law “Unlock Italy” no. 133/2014 which includes “Incentive measures for investment in rental properties”).
Anything but just more (albeit not that expensive) bureaucratic red tape, a good EPC is an important “calling card” for property units.
Therefore, it deserves careful attention and, if possible, improvement of its results through the planning and carrying out of work designed to enhance energy performance (from the standpoint of both efficiency, and function and comfort), reduce operating costs, protect the environment and, thus, also improve the economic returns to be derived from the rental or sale of the asset, while also taking advantage of the major tax concessions currently available, with time frames extending to December 31, 2024.
Article by Stefano Baruzzi, chartered accountant and legal auditor, real estate tax expert,
Head of Real Estate Contracts, Tax & Fiscal for Morning Capital Srl