Tertiary Decree and Real Estate Asset Management: Complying with the First Deadline and Integrating This New Regulatory Requirement into Asset Management

The 2021 deadline has been simplified, but it is approaching!

By September 30, 2021, tertiary buildings with a floor area exceeding 1,000m² must have complied with the first deadline of the Tertiary Eco-Energy Scheme (DEET – formerly the Tertiary Decree), specifically their registration on the governmental platform OPERAT. The selection of the reference period has been deferred, postponed until September 2022 at the latest. The first deadline therefore includes:

The administrative registration of subject buildings and, consequently, of affected stakeholders;
The description of the subject buildings (Typology, Surface area, Lots, Delivery points, etc.);
Energy consumption for the year 2020 and the associated usage intensity.

Although known for some time, since the decree's publication, this first deadline is daunting for the following reasons:

Uncertainty surrounding the implemented OPERAT platform:
- Who is responsible for inputting which data?
- Who holds responsibility for what?
- How can multiple declarations be avoided?
How can the required data be retrieved?
How to address the numerous specific cases in tertiary real estate (Co-ownership and property management, single/multi-tenant occupancy, AFUL, ASL, shopping centers, vacancies, etc.)
Who is obligated? Am I required to act on behalf of my tenant?...
Are my leases robust enough to integrate this approach?
How can this approach be integrated with other regulatory challenges (Environmental appendices to the lease, Mandatory energy audit, SRI certification, Non-Financial Reporting, etc.)?

Compounded by the very specific context of 2020 and 2021, which could potentially strain landlord-tenant relationships, the first declaration in September 2021 promises to be challenging!

How to prepare for the decree's first declaration

The text itself constitutes an obligation of result. It ultimately leaves the door wide open regarding the method employed, provided that by 2030 (and subsequently 2040 and 2050), the objective is reliably and verifiably achieved.

To this end, the legislator provides the regulatory performance management tool, OPERAT (Administered by ADEME, and whose full range of functionalities is not yet available), which notably lists for each building:

The actual energy performance for each year (starting from 2020);
The actual usage intensity for each year (starting from 2020);
The actual reference energy performance (taken between 2010 and 2019)
The reference usage intensity.

The 2021 deadline for reporting on the year 2020 mandates the following prerequisites:

The declaration of subject buildings and lots on OPERAT;
The quantification of the actual energy performance for the year 2020 and the associated usage intensity.

To comply with this initial declaration, the following steps must be observed:

The first two 'individual' steps

Define the subject 'physical' scope: given that the building is the primary subject, it should be noted that regardless of the tenant, if it houses more than 1,000 m² of tertiary surface area, the entire building is concerned.
Define the subject functional scope: with this building being subject, who are the stakeholders associated with it in 2020?

The responsibility clarification stage:

Engage with and formalize stakeholder involvement to validate a building-level response strategy:
- Who initially declares the building?
- Who declares the entities?
- Who completes the information?
Clarify the exchanged data flows

Once all elements and their origins have been clarified, it is necessary to create a data mapping; the objective is to collect energy data as comprehensively as possible in order to:

Collect 2020 energy data;
Identify and implement data exchange flows;
According to the formalized responsibilities, enter your data on OPERAT.

As an example, for a portfolio of 30 sites, an extract of whose information mapping is provided below, the information collection stage was carried out as follows:

Initialization of the monitored scope with the management company;
Consolidation of the energy scope (meter listing) with the various property managers;
Launch of information collection from stakeholders:
- Property Managers and co-owners' associations: Historical invoices, automated collection mandate, tenant contact;
- Tenants: Historical invoices, automated collection mandate, tenant's internal organization for decree compliance;

The follow-up and tenant awareness phases are a joint step with the Property Managers.

Engagement with each party allows for the validation or rejection of automated data collection and the gathering of necessary and sufficient data for 2020 reporting.

Prepare for the 2^nd deadline of the decree and frame the management of the initiative

Whether by building, by lot, or by portfolio, the Tertiary Decree imposes a long-term vision on stakeholders that must be clarified and framed to become a strong strategic lever. For each building, complying with the Tertiary Decree involves:

Defining the initial situation;
Assessing the remaining path to achieve;
Managing intermediate deadlines and integrating the approach into day-to-day operations

1.1 Defining the Starting Point

This involves addressing the text regarding the concept of reference consumption. Taken over a period of 12 consecutive months starting from 2010, the sole requirement is that it be reliable and verifiable. Essential yet time-consuming, the collection of historical energy data is indispensable for a comprehensive performance analysis. When looking back in time, the selection of the reference year and its associated consumption is guided by:

Data availability versus the difficulty of obtaining it;
The progress already made that would be valuable to leverage.

By involving all stakeholders in the process, per building, the objective is to create an energy mapping of reliable data, which will serve as the basis for the energy assessment to be conducted to select the ideal starting point.

1.2 Assessing the Remaining Path to Achieve

As the validation of reference consumption has been postponed to September 2022, stakeholders have more time to review historical data and assess the energy performance of obligated entities. Therefore, for each building, it is necessary to evaluate the energy trajectory of each asset towards every possible objective typology to identify the optimal path to follow. This is then defined by:

The remaining energy savings potential to be achieved to meet either of the objectives;
The financial impact of deploying improvement actions, considering the building's financial performance;
The prospective planning of "just-in-time" improvements.

Evaluating the pair 'starting point / path to achieve' involves defining, asset by asset, the reference period and its associated consumption, as well as the target objective. Thus, the results for an office/public administration asset are schematically presented below, illustrating how the trajectory is obtained. Based on the collection of historical energy data, it is necessary to:

Evaluate the initial energy performance for the years 2017, 2018, and 2019, considering the climatic impact;
Identify the 2 possible strategies:
- 40% Strategy:
  - Most energy-intensive year: 2017;
  - Remaining progress to achieve -40%: 31% from 2019;
- Threshold Strategy:
  - Threshold evaluation based on site indicators: 114 kWhef/m²
  - Progress required to reach the threshold: 11% from 2019 (and even 9% if based on 2018 performance)

Strategically for this asset, it is therefore preferable to declare 2017 as the reference year and associated consumption, and to guide multi-year plans to achieve the threshold objective, which is only approximately 10% away from the currently observed performance. Furthermore, in this specific case, the 2017 data is reliable as it is invoice-based and verified by an energy audit; however, if this were not the case, 2018 or 2019 should be selected as the reference if they proved more reliable. Achieving the threshold, rather than the -40% objective, will remain the most realistic and feasible approach. Based on this validated trajectory, we will subsequently consolidate multi-year plans tailored to the ambitions. Given its proximity to the threshold objective and having already undergone a major renovation, the asset will likely be optimized through:

Awareness-raising initiatives for occupants (on best practices and understanding their building's operation);
Management and optimization actions for programming and controls;
Replacement of minor equipment.

1.3 Steering Intermediate Milestones

As the Tertiary Eco-Energy Scheme represents a long-term commitment, the legislator aims to ensure, as far as possible, that the roadmap is integrated by all stakeholders and that the objectives will be achieved. While OPERAT serves as the legal monitoring tool, this new obligation has led to the emergence of numerous new online energy monitoring providers, specifically online energy monitoring platforms. Regardless of the technologies employed to automatically retrieve energy data (and sometimes other relevant data), they all promise to deliver significant time savings in the administration and management of annual reporting. To ensure successful deployment across an entire real estate portfolio or a portion thereof, it is nevertheless essential to address a few preliminary questions:

Without the Tertiary Decree, would I have needed to automatically collect (at least as much as possible) energy data for my portfolio? If so, within what framework and for what scope?
Once deployed, who will use the tool and at what frequency?
What are the essential functionalities that the tool must possess?

By addressing these questions, the framework for the tool's deployment becomes clearer. It is then appropriate to identify:

Where to retrieve energy data:
- Where it is measured (on existing meters or those to be installed);
- Where the measurement is processed (by energy distributors or on in-situ energy monitoring tools);
- Where it is invoiced (by energy suppliers);
- Where it has been post-processed (generally by maintenance teams).
For what scope:
- Consumptions for which I am solely responsible;
- Consumptions of the entire subject building;
By what means to retrieve this data:
- By instrumenting in situ with meters and connected devices
- By capturing existing data (invoice flows, distributor data streams, existing in-situ metering, etc.)
If existing contractual relationships are robust enough to allow for seamless deployment.

Finally, even with a well-defined framework, the deployment of these tools requires significant time and human resources to ensure ultimately that all necessary and sufficient data is available for managing the intermediate (and final) deadlines of the decree.

A Tertiary Sector Decree compliance approach integrated into real estate asset management

The lease: a key issue for integrating this new regulatory requirement

Utilizing the lease to define responsibilities

If there is one fundamental principle to retain from the text, it is the necessity for agreement between tenant and landlord in the management and monitoring of the Tertiary Sector Decree compliance process. The legislator intentionally involves both parties in the process, based on their contractual relationship, to ensure maximum resources are available for achieving the objectives.

Therefore, revising leases and integrating key elements essential for understanding the implications and challenges of the Tertiary Sector Decree, which impact the asset in question, becomes a priority to remove contractual obstacles that impede the establishment of a coherent and reliable approach.

Ultimately, the lease should specify:

The asset's baseline performance;
The target objective;
Information exchange procedures;
The scopes of responsibility.

These key elements will enable the assessment of the asset's performance and attractiveness, potential risks for the parties, and so forth.

Broader application of the environmental annex

Ultimately, involving the tenant and all stakeholders in the process means applying the principles of the environmental annex to the lease, which is mandatory for all commercial leases exceeding 2000 m².

As a primary forum for exchange, the annual green committee (or monitoring committee), established for tracking environmental annexes, serves as a powerful and highly useful tool when applied to the various stages of a Tertiary Sector Decree compliance process:

During initialization, to collect mandates, energy consumption data, define reporting responsibilities, etc.
When defining the Tertiary Sector Decree strategy, the green committee is the ideal means to present the strategy to be followed and allocate tasks;
During ongoing operations, it allows this committee to serve as a milestone for monitoring the actual performance of each asset, identifying impediments, and initiating sustainable actions tailored to each stakeholder.

Integrating Tertiary Sector Decree requirements into asset renovation strategies

The lifecycle of real estate assets is punctuated by phases of occupation and vacancy.

If well-anticipated and aligned with the real estate strategy, these phases often present an opportunity for more in-depth work on the asset to enhance its attractiveness. Given the energy challenges of the decree, it will therefore be necessary to proactively develop envisioned renovation scenarios to integrate 'Tertiary Sector Decree compliance,' which is reassuring for the landlord and attractive for potential future tenants.

Numerous tools can then be deployed to optimize the scenario and provide key attractiveness elements:

The pre-works energy assessment, which establishes the current energy performance based on the occupancy conditions at that specific time. It allows for validating the pre-works situation and identifying all potential improvement levers;
The Tertiary Sector Decree energy analysis of the renovation. This allows for evaluating the intrinsic performance of the scenario;
Performance commissioning. Highly favored in certification processes, commissioning sets the performance targets, ensures project compliance with objectives during various phases, particularly during arbitration, and validates achieved performance upon completion;
The assessment of operating costs, simulating the financial impact of renovations on building operations. As energy costs are volatile, it is essential to provide future tenants with conclusive evidence to assess financial performance in addition to energy performance.

All these elements aim to address the need for attested performance, whether energy-related or financial, and to align the "regulatory" energy performance (historically assessed through RT studies, for instance) as closely as possible with actual energy performance.

Ultimately, to counteract a real estate stock renewal rate that is insufficient to address the climate emergency, the text aims to align the performance of existing buildings with that of new constructions, soon to be built under RE 2020. This is further achieved by focusing on attested and actual performance, rather than solely intrinsic and regulatory metrics.

While the initial deadline currently garners significant attention, particularly concerning the availability of the government tool OPERAT, it effectively structures the energy reporting for various stakeholders, equipping them with the necessary insights to manage the process. To leverage this regulatory requirement as a performance driver, it will be crucial to identify all related initiatives that can benefit from this validated data.

Extra-financial reporting, building certification processes, regulatory energy audit campaigns, and climate impact assessments of real estate activities are all domains where energy (and fluid) consumption serves as a critical input. The origin and reliability of this data are paramount to ensure robust analyses and conclusive outcomes in the future.