Commercial property, energy efficiency certificate, EPC, MEESCommercial landlords need to be up to date with changes in the law. So how prepared are you for imminent changes to legislation? Failing to make changes can mean a penalty.

Important dates in 2017

The landlord must register any exemption to have a higher than F rating for property on a centrally held exemptions register.

  • From 1 April 2017 – residential
  • 1 October 2017 – commercial

Why you must have an EPC

An EPC (Energy Performance Certificate) is needed when selling or renting a property, a new property is built (including when it is marketed) and other circumstances. An EPC is issued by an assessor and shows information about the energy efficiency of the particular property.

There are a few exemptions.

The general rule is that an EPC is valid for 10 years and included in the EPC register. The EU and the government believe that people will be influenced in their choice of property to buy or rent, by the property’s energy efficiency rating.

I have just bought an old property with a rating of 12 – an F rating. The good news is I am not renting it out so the new changes will not apply to me. The bad news is I am not looking forward to receiving my energy bills this winter! And it would not surprise me if the wind changes and forces owners to increase the energy efficiency of their properties.

Changes to legislation

Two of the key measures introduced by the Minimum Energy Efficiency Standards (MEES) are implemented by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015:

a)   If a property is sub-standard because its energy performance falls below the minimum level of energy efficiency of a band E (that is band F or G), a landlord may not:


Date arrow for EPC changes

Grant / extend / renew an existing tenancy (1st April 2018).

Continue to let domestic private rented property (1st April 2020).

Continue to let a non-domestic private rented property (1st April 2023).


b)   A Tenant of a domestic private rented property can request consent to make improvements to the property and that consent cannot be unreasonably withheld.

Exemptions

However, the minimum standards regulations recognise that there will be times where it will not be cost effective, or indeed practical, to improve particular properties. Therefore, a number of temporary exemptions are provided to protect landlords.

  • Landlords will not be required to improve a property to an E rating where planning consent is required and cannot be obtained.
  • Landlords will also be exempt where there is independent evidence that installation of a recommended measure would damage the fabric of their property or reduce its value by more than 5%.

For commercial property, landlords are exempt where an independent assessor determines that:

  • all relevant energy efficiency improvements have been made to the property, or
  • improvements that could be made but have not been made would not pay for themselves through energy savings within seven years.

Similar cost-effectiveness tests exist for residential property.

In all cases where a valid exemption applies, the regulations will require the landlord to register that exemption on a centrally held exemptions register.

A lease remains valid even if it is a sub-standard property.

Benefits

A more energy efficient property is better for the environment and should produce savings on energy bills (and therefore be more attractive to potential tenants). Non-compliance could affect the value and the market rent.

Enforcement

Where a local authority considers that a residential landlord may be in breach of the Regulations it may impose a fixed penalty or a penalty notice, or both.

The penalty notice is published on the private rented sector exemptions register for at least 12 months.

The maximum financial penalty for non-compliance in residential properties is £5,000. Civil penalties for commercial properties may be based on the rateable value of the property subject to a maximum cap of £150,000.

Summary

To achieve a more energy efficient, cost-effective building and to comply with the upcoming legislation, commercial landlords should be taking action now by:

  • assessing their buildings
  • planning for any necessary energy efficiency improvement works both practically and financially
  • reviewing their leases/tenancy agreements to establish their rights of entry under their tenancies for these kinds of improvements.

The effect of Brexit

One final thought is that, as the EPC rules are EU-driven, it remains to be seen whether there will be any impact on these changes now that the UK has voted to leave the EU.

If you have any questions about how you may be affected by these changes, for a free, no-obligation discussion, please contact Sian, one of our Commercial Property experts.