From 1st April 2023, commercial landlords will need to make sure their property has an Energy Performance Certificate (EPC) rating of at least ‘E’ or they may face penalties. The new requirement will apply to the grant of a new lease, renewal or extension of a lease. It will also include the continuation of any existing lease or tenancy of that property. A landlord may therefore face a penalty for continuing an existing tenancy where the EPC rating is less than ‘E’.
Why the new requirement?
The government is seeking to achieve net zero emissions by 2050. In 2018, the Minimum Energy Efficiency Standards (MEES) came into force which brought about the requirement that no new tenancy can be created without the property having an EPC rating of at least ‘E’. From the 1st of April 2023, this requirement will tighten so that all tenanted commercial properties will have to achieve an ‘E’ rating or more on their EPC, regardless of whether the tenancy is new or not. In addition, the government plans to enforce a minimum rating of at least ‘C’ to be achieved by 2027, and a minimum rating of at least ‘B’ by 2030.
What does this mean for landlords?
Before 1st April 2023, all existing landlords with a property/properties with an EPC rating lower than ‘E’ should review their leases to check whether works can be carried out to improve their EPC rating. The landlord may also want to check whether the costs of the improvements can be passed to the tenant. Furthermore, landlords looking to purchase a commercial building to let out should be looking for a commercial building that has a lease with a minimum EPC rating of at least ‘E’ or above. Purchasing a property with a lower EPC rating could lead to difficulties in leasing the property out with the new UK Law.
What does this mean for tenants?
A tenant looking to lease a commercial property should be very careful when checking the history of the building. The tenant must ensure the commercial property has an EPC rating of ‘E’ or above. This is essential to prevent any eviction or even the potential of having to pay a contribution towards the cost of energy rating improvement. The tenant should also be aware of the landlord’s rights (if any) to enter the property to carry out works to improve the energy rating.
Are there any exceptions?
Landlords will be exempt from having to comply with MEES if they can demonstrate one of the following:
- If all the improvements have been made but this does not result in an EPC rating of E or higher.
- Consent to undertake works is refused by a third party, such as a Local Authority or an incumbent tenant; or
- A suitably qualified expert provides written advice that the improvements would result in a devaluation of the property by 5% or more, or that the works would damage the property.
Exemptions last for five years and will need to be lodged on a centralised register that the government will create. It should be noted that exemptions are not automatic and require registration. In addition, penalties can range from £10,000 for cases of non-compliance for more than 3 three months or 20% of the rateable value of the commercial premises up to £150,000.
If you would like further information or advice on the above, please contact Nick Attwell in the Commercial Team at 01473 229200 or email Nick.Attwell@attwells.com.