Commercial Property - Energy Performance Certificate Changes
Most people will be familiar with the concept of an energy performance certificate (EPC), whether it’s for a residential or commercial property. In short, an EPC shows the energy efficiency of a building, and makes recommendations on how to improve the rating. The property is given a grade for its efficiency from the most efficient (A) through to the least efficient (G).
The Private Rented Sector Energy Efficiency Regulations 2014 brought in place two key deadlines for EPCs and commercial property: -
1. That from 1 April 2018 it will be a criminal offence for commercial properties to be let with an energy efficiency rating with E or below. This includes renewing an existing lease, or extending an existing lease.
2. From 1 April 2023, all leases must have a greater energy efficiency rating that E. This means that any leases in place as of 1 April 2023 will need to be reviewed, and improvements to efficiency made if they fail to meet the grade.
There are a number of sanctions available for non-compliance, however this can include a fine of up to £150,000. Whilst there are a few exemptions that can be claimed, landlords are strongly advised to avoid reliance on these and instead seek to comply with the Regulations instead.
These Regulations, summarised below, have serious consequences for both landlords and tenants of commercial property.
If a landlord already has EPCs in place for their property portfolio, these should be reviewed so that it can be ascertained which properties fall below the required rating and early steps taken to try and obtain higher grade well in advance so as to allow time for the works to be undertaken, and to avoid sky-high last minute costs.
If the landlord does not already have a portfolio of EPCs available, these should be undertaken as soon as reasonably possible so that the potentially troublesome properties can be identified and steps then taken.
Future leases should include reference to the EPC Regulations, and stipulate that the tenant cannot prevent or block works being undertaken to the property to comply with the Regulations. Furthermore, it should start to form part of negotiations at the start of the letting as to who will be responsible for any improvement works, being either the landlord, the tenant, or shared.
Tenants will be encouraged to insist to view the EPC before they agree to a letting, and to consider the implications if it has a substandard rating.
The lease should be checked thoroughly to ensure who is responsible for improvement work costs. As I have highlighted above, this could fall to either party or be a shared cost. Costs involved may not be insubstantial and could therefore form part of a very large expenditure.
As part of the ongoing energy efficiency considerations of the Government, it is expected that standards will only rise and therefore properties currently on the cusp of a failed rating should be monitored as they could well fail to meet the standard when the last of the Regulations come into force in 2023.
It is therefore important to involve a solicitor at an early stage during lease negotiations, whether acting for a landlord or a tenant, so that the proper considerations can be given to changes that are coming up as well as those that are currently in force.
Our experienced solicitors are available to advise on these upcoming regulations to ward away legal action and avoid disputes between landlords and tenants. Call our professional property law experts on 01702 477106 to arrange a free, 30 minute consultation.