Partner and head of litigation Sarah-Kate Jackson discusses how forthcoming changes to the EPC Regulations will affect commercial landlords.
From 1st April 2018 a minimum energy efficiency standard (MEES) will apply to rented commercial buildings. Landlords will not be able to grant a new tenancy, or extend or renew an existing tenancy of a commercial property with a rating of F or G on the Energy Performance Certificate, except in limited circumstances.
These changes, brought about by the Energy Act 2011 and the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 could have serious implications for some landlords, including:
- Costly works to upgrade the property to meet the minimum standards
- Inability to market the property and loss of rent if the property is vacant
- Diminished valuation
- Implications for rent review
- The possibility of the need to seek additional rights of access to enable works to take place on lease renewal
It is estimated that approximately 20% of commercial buildings in England and Wales have an EPC Certificate rating of F or G.
The regulations won’t however apply to buildings that don’t need an EPC currently; buildings where the EPC is over 10 years’ old, tenancies where the term is less than 6 months, provided there is no right of renewal and tenancies where the term is in excess of 99 years.
In addition there are three exemptions:
- Where an independent assessor determines that any improvements which could be made to the property would not pay for themselves through energy savings within 7 years, or all relevant energy efficiency improvements have been made to the property.
- Where an independent assessor determines that any improvements which could be made to the property would not pay for themselves through energy savings within 7 years, or all relevant energy efficiency improvements have been made to the property.
- Where consent from a third party has been refused, e.g. a planning authority, or where conditions have been attached to the consent that the landlord cannot reasonably comply with.
Landlords seeking an exemption must register with the PRS Exemptions Register. If granted exemptions last for 5 years.
The Regulations will be enforced by Trading Standards. Failure to comply can lead to fines of up to £10,000 or 20% of the rateable value of the property, up to a maximum of £150,000, if the period of non-compliance is more than 3 months. If the non-compliance is for a period of 3 months or less the fine may be up to £5,000 or 10% of the rateable value up to a maximum of £50,000.
The Government guidance on the minimum standards for private rented property was published on the 9th October 2017 and can be found by clicking here.
For further information or advice on the EPC Regulations contact Sarah-Kate Jackson on 020 8858 4236 or sj@grantsaw.co.uk or Hilary Palmer on 020 8305 4200 or hp@grantsaw.co.uk
This is not legal advice; it is intended to provide information of general interest about current legal issues.