From asbestos management to future energy efficiency upgrades, environmental risks can have a major impact on commercial property ownership. Mark Plewes, Head of Pensions Technical at WBR Group, highlights the questions advisers should be asking.
Commercial property remains a popular asset within a Small Self-Administered Scheme (SSAS), but environmental considerations are becoming an increasingly important part of the due diligence process.
From asbestos liabilities to evolving energy efficiency standards, trustees and their advisers need to understand the risks that can affect both the suitability of a property and the ongoing obligations attached to ownership.
While environmental issues do not necessarily prevent a property from being acquired, identifying and addressing potential concerns early can help avoid unexpected costs, regulatory challenges and future liabilities.
Environmental due diligence forms an important part of the assessment process when a SSAS acquires commercial property.
An environmental report can help identify any environmental risks associated with a property and may provide valuable insight into its historic use.
Understanding the background of a property can help trustees make informed decisions and ensure that any potential issues are properly considered before acquisition.
For advisers, these reports can be a useful starting point for identifying areas where additional investigation or specialist advice may be required.
Understanding asbestos responsibilities
One of the most significant environmental considerations for commercial property investors is asbestos.
Under the Control of Asbestos Regulations 2012, landlords of commercial properties built before 2000 are required to understand whether asbestos is present and, where necessary, ensure that it is appropriately managed.
The consequences of failing to comply with these obligations can be severe. Asbestos remains a serious health risk, and breaches of the regulations can result in substantial financial penalties and, in serious cases, criminal sanctions.
The presence of asbestos does not automatically make a property unsuitable for SSAS ownership, although particular attention needs to be paid to blue asbestos, brown asbestos and damaged or deteriorating white asbestos.
A property containing white asbestos may still be suitable for acquisition, provided an asbestos survey confirms that it does not present a material risk. It will typically need to be fully repaired and an insuring lease put in place.
This lease should transfer responsibility for asbestos management and associated costs to the tenant, with the tenant also providing an annual asbestos management plan. These measures help ensure that appropriate risk management arrangements remain in place throughout the period of ownership.
Where a property is vacant, does not have a fully repairing and insuring lease, or contains common areas outside a tenant’s responsibility, trustees should be aware that the responsibility for asbestos management and associated costs will generally rest with them as landlord.
Trustees should also remember that if refurbishment or development works are planned at a property containing asbestos, an asbestos management plan must be provided to relevant contractors before work begins.
EPCs
Energy efficiency has become an increasingly important consideration for commercial property owners. An Energy Performance Certificate (EPC) is required for most commercial properties and provides a rating from A+ to G based on the building’s energy efficiency.
The EPC is usually accompanied by recommendations that identify potential improvements. In most cases, an EPC must be available before a commercial property can be sold or let, although certain properties are exempt from the requirement.
For advisers, the EPC should not simply be viewed as a compliance document. It can provide valuable insight into potential future expenditure and help assess whether a property’s energy performance could become a challenge during the period of ownership.
Navigating MEES
The introduction of Minimum Energy Efficiency Standards (MEES) in England and Wales has added another important consideration for trustees and advisers.
Initially applying to new lettings from 2018, the regulations were expanded in 2023 to encompass existing leases. As a result, properties generally need to achieve a minimum EPC rating of E unless a valid exemption applies.
Although some properties may qualify for exemptions, there is a formal process that must be followed, and professional advice may be required before pursuing an application.
Properties with F or G ratings can still be considered for acquisition. However, trustees must have a clear and achievable plan to improve the property’s rating, supported by realistic costings and evidence of available funding.
This approach helps ensure that trustees understand both the short-term and long-term implications of ownership.
Questions advisers should ask
Before proceeding with a commercial property purchase within a SSAS, advisers may wish to consider:
- Has an environmental report been obtained and reviewed?
- Is there any evidence of contamination or historic environmental concerns?
- Does the property contain asbestos and, if so, how is it being managed?
- Is there a fully repairing and insuring lease in place?
- What are the property’s EPC and MEES positions?
- Will future energy efficiency improvements be required?
- Have the associated costs been identified and budgeted for?
- What’s the property being used for by the current owner, and what do the client’s want to use it for?
Environmental due diligence should not be viewed as a box-ticking exercise. Whether dealing with asbestos management obligations, EPC requirements or broader environmental risks, early investigation can help trustees understand the responsibilities that accompany commercial property ownership within a SSAS.
Careful assessment before acquisition can help trustees avoid unexpected liabilities and ensure that environmental risks are appropriately managed throughout the life of the investment.
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