Murton & Co’s Jonny Murton and Brendon Taylor, Bradley Mason’s Head of Project Management, discuss how their partnership benefits the commercial chartered building surveyor’s work with counter-service retailer Toolstation
How did your working relationship start?
Brendon: We’ve worked with Toolstation since 2007 and Murton & Co came on board in early 2021 following a recommendation from another surveyor. Bradley Mason help Toolstation agree deals to lease existing and new-build counter service stores and Jonny has evaluated the fit out on about 40 sites, with five more in the pipeline. Hopefully this will increase in the future.
What does the work involve?
Brendon: We work with a trusted team of contractors and consultants, developing store layouts and providing advice regarding the fit out and occupation to satisfy Statutory Consents including Building Regulations and also the Landlord’s green lease clauses. On existing properties, we receive a copy of the current EPC which we check for validity to ensure it is compliant. If it isn’t, we ask the landlord to produce a new EPC. On new-build sites, if we are instructed early enough (and the landlord engages with our request for information) we obtain plans, a development specification and the ‘as-designed’ BRUKL, SBEM and EPC in order to assess the building’s proposed performance and whether the developer’s design assumptions are over-ambitious in order to obtain the best EPC rating for the developer. They may feel they are doing their best for their client, however an exceptional EPC rating can be detrimental to both the developer and tenant, as the tenant will be in breach of lease at the end of the fit out. This is where we take the pressure off Toolstation by working together and with the developers/consultants to ensure due diligence has been dealt with, so neither party have to worry once the unit is practically complete. Our roles and workload are increased if developers don’t engage, or we are instructed late in the property construction or after practical completion.
Jonny: The partnership has meant we’ve dealt with several landlords and developers, along with numerous Energy Assessors, which can be challenging as they aren’t always on the same page as us. There are complexities in the energy assessment of shell and core speculatively built units and all too often we find the Energy Assessor hasn’t followed the Shell and Core EPC Convention correctly. The other difficulty is getting confirmation from the developer/landlord of the as-built construction specification and the BRUKL Report from their Energy Assessor. The data in this report often differs from data in the developer’s building specification which means we have to raise questions, inevitably resulting in delays. It’s important to get the base SBEM model as accurate as possible to reflect the developer/landlord’s building specification before adding details of the tenant fit out. Being able to share the SBEM model would be a good starting point – a bit like a BIM approach – as then we’d only need to verify the accuracy of the model and add the fit out details. The problem with this arises with all the different software interfaces, so unless you have the same software you are basically starting from scratch.
What factors can affect the EPC rating?
Jonny: The geometry, fabric U-values and building services can all affect the EPC rating. Getting the correct information from the design team – either the developer/landlord and/or the tenant – is a good starting point. We can then advise whether the proposed specification is compliant with Building Regulations ADL2, the landlord’s green clause and/or MEES regulations, and suggest cost-optimal enhancements. With shell and core, there is a certain process to adopt for the SBEM calculations (to satisfy Building Regulations) and for the EPC. One element concerns the lighting. For Building Regulations compliance, the Energy Assessor can enter a lighting performance value (which should be reasonable and feasible) but when re-running the calculations for the EPC rating, the lighting should be changed to just the lamp type as per the EPC Conventions. It is this subtlety that many Energy Assessors don’t know, and which can distort the EPC rating so much that it becomes very difficult for the tenant to comply with the landlord’s green clause. Our ability to influence the developer/landlord’s Energy Assessor’s modelling will be determined by the amount of time that has lapsed from when they registered their EPC and their relationship.
If the developer’s Energy Assessor has produced an assessment with assumptions about the fabric and fit out, the resulting EPC for a shell might be zero carbon. Their solicitor would then write a lease clause that says Toolstation can fit out and make alterations, as long as they don’t degrade their EPC – but obviously, any tenant moving in will introduce carbon. It’s almost impossible for a tenant to better a landlord’s EPC if the lease clause says you can fit out but don’t degrade. From day one the tenant would be in breach of the lease. If they’ve made an assumption about lighting performance, for example and put a ridiculous figure into the software it can be impossible for the tenant to achieve compliance. If it’s not realistic, we’ll advise the landlord to either remove the green clause or go back to the Energy Assessor and tell them they’ve done the wrong assessment, in which case the EPC will need to be re-registered. With one of Toolstation’s sites, it had been given an A rating by the developer/landlord’s Energy Assessor but we could only achieve a B rating for the fit out. Luckily, I was able to explain the nuance with the lighting assessment and they made the necessary changes to their model which downgraded their EPC to a B. Toolstation was then able to exchange contracts on the lease without being in breach of the green clause. This did cause a delay, but it’s better to get it right on day one than wait several years and then fight it out in the courts. In a situation where the landlord has given consent to the tenant to carry out alterations, this fit out will affect the EPC rating. But if the building is then not compliant because the regulations have changed in the meantime, a landlord is obliged to make the necessary changes.
Brendon: We try to get all parties to understand the different situations around building, fit out, occupation and dilapidations. The current EPC methodology favours buildings without any fossil fuel, so if the tenant’s fit out includes a gas boiler, gas tube heaters or gas warm air heating for the warehouse, this could have a negative impact on the EPC rating, that in turn could cause the landlord to not be compliant with MEES. Obviously, any installation or alternations by the tenant would be subject to a dilapidations claim to remove and reinstate the building as it was at the start of the lease. Tenants can believe that just because the landlord has granted consent in an Agreement for Lease for the tenant to make alterations/fit out they are absolved from complying with the green clause. This is not the case.
How have you dealt with these challenges?
Brendon: There was an issue with Building Control approval on one building constructed to a shell where the floor was un-insulated, and the U-value demonstrated that it was non-compliant with Building Regulations. When we raised this with the developer’s approved inspector, their response was that the U-value was ‘almost correct’, so they were happy to accept it. However, when Toolstation or any other tenant went to fit out, they would have needed to demonstrate compliance with Building Regulations; they could not have done this as they would be inheriting a non-compliant element from the developer’s shell. If there’s not enough insulation (notwithstanding the potential non-compliance with Building Regulations), there’s more heat loss which will affect the cost of running the building. This then becomes a significant issue for the tenant, especially given the cost of energy. Rather than report to Toolstation to say we’ve got a problem, we worked with the developers and Jonny to work out how to overcome the issue rather than simply walk away, as a large amount of time and fees had already been expended by that point.
Jonny: Building Regulations are supposed to put the onus on developers to produce a building that avoids tenants’ need to spend excessive amounts on getting it to the necessary level. However, it seems that the way the Building Regulations Approved document L2 is written means it’s just about getting your building to emit less carbon. You can theoretically construct a building using cotton wool as long as you’ve got enough solar PV to offset the carbon!
Brendon: Landlords might not appreciate what green clauses mean and will simply accept what the lawyers tell them, so we try and educate all parties about how restrictive these can be on the tenant fitting out. We encourage the landlord’s team not to use wild assumptions that aren’t achievable as part of the fit out and instead give them the right actual fit out information so they can obtain the most realistic rating. They are not always interested in coming to the table, which is unfortunate as it would benefit all their clients as they could use this information to educate others and amend clauses in future contracts. At the Agreement for Lease stage we’ll also try to future-proof the tenant’s opportunities and include items such as the opportunity to install PV as you don’t know how much electricity will go up in future.
Why is your partnership so successful?
Brendon: We had been working with EPC Assessors who didn’t really understand the material, and in one instance, an Assessor was trying to apply new Building Regulations to a property which had been completed some years before, and to only subdivide it once tenants were found. He came to us with problems and didn’t look for solutions. I like to work with people I can engage with and who are willing to discuss the issues so we can achieve the solution. This helps take the pressure off me. That’s certainly true of Jonny; I can learn from him while he takes my views on board. We’re a good team.
Jonny: We learn from each other and take time to understand each other’s business. I’m picking up information about dilapidations, for example and understanding how I fit into each project as well as the project itself, which makes it easier for me to do my job. It also helps being a Chartered Surveyor with a background in property development and asset management. We’re both problem solvers, coming up with the best solution for each site that benefits Toolstation.
BRUKL: Building Regulations United Kingdom part L
SBEM: Simplified Building Energy Model
BIM: Building Information Modelling
MEES: Minimum Energy Efficiency Standard