Energy Performance Certificates for commercial properties
Commercial landlords need to ensure their property has an Energy Performance Certificate (EPC) rating of at least E or face potential penalties.
Energy Performance Certificates and Minimum Energy Efficiency Standards
From 1 April 2023, the requirement for non-domestic landlords to obtain at least an EPC E rating, unless they have registered a valid exemption, applies to all privately rented non-domestic properties (even where there has been no change in tenancy).
The Minimum Energy Efficiency Standards (MEES) requirements came into force on 1 April 2018 and introduced a minimum EPC rating of E. This though only applied in relation to the grant of a new lease or the extension or renewal of an existing lease. The existing position is that a tenancy cannot be granted to new or existing tenants if the property has an EPC rating of F or G. The only exception is when the property is registered on the Private Rented Sector PRS Exemptions Register. Read more about the exemptions register here.
What properties are covered by the regulations?
To determine whether a property falls under the Regulations, check if it is a non-domestic rental property that legally requires an Energy Performance Certificate (EPC). Generally, the Regulations apply to all such properties that have been marketed for sale or rental or have undergone modifications within the past 10 years.
However, the Regulations do not cover non-domestic rental properties granted for a ‘term certain’ of 6 months or less, unless the tenancy agreement allows for renewal or extension beyond 6 months from the start of the tenancy or the tenant has occupied the property for over 12 months. Additionally, the Regulations do not apply to properties granted for a ‘term certain’ of 99 years or more.
Penalties
As of 1 April 2023, commercial landlords will face fines if they continue to let or rent out a property if it does not have a rating of at least E. Non-compliance will result in the issuance of penalties unless a valid exemption has been registered. The penalty is based on the rateable value of the property and will be between £10,000 – £150,000 per beach. Further, details of such breaches may also be made readily available to the public.
Landlords don’t need to take any steps to enhance the rating of their vacant property if they don’t intend to rent it out until they make that decision in the future.
What does this mean for tenants?
Tenants may face restrictions from landlords on making alterations or undertaking any work that may negatively impact the property’s EPC rating. Landlords may also increase service charges to offset the costs of improving the building’s energy efficiency.
How can landlords get ready for the minimum standards for commercial properties in the future?
There are proposals beyond April 2023 to tighten the requirements further which will result in commercial properties requiring an EPC rating of C or higher by 1 April 2027 and B or better by 2030.
A consultation was conducted from March 17, 2021, to June 9, 2021, regarding the possibility of an interim increase to a minimum level of ‘C’ by 2027.
“The government’s consultation on a future regulatory target for the Non-Domestic Private Rented Sector Regulations of EPC B by 2030 gained large support. As a result, the 2020 Energy white paper confirmed that the future trajectory for the non-domestic minimum energy efficiency standards (MEES) will be EPC B by 2030.”
The energy white paper sets out how the UK will clean up its energy system and reach net zero emissions by 2050. Read more here.
Landlords should start preparing for the changes now by reviewing their properties to determine if they fall below the proposed new minimum threshold. We recommend landlords consult with and involve their tenants in any proposed works and costs.
Tenants, both new and existing, should be aware of their property’s EPC rating. If it falls below the new minimum standards, tenants should review their leases to understand if costs can be passed on to them. This will help them budget appropriately and engage with their landlords early on regarding plans to meet the new minimum standards.
Read more on the gov.uk website here.
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This is not legal advice; it is intended to provide information of general interest about current legal issues.
