If you own commercial premises that have an Energy Performance Certificate (EPC) rating of “F” or “G”, you will find it very hard to let your property in 3 years. Equally if you are a commercial tenant, you may be interested to read about the energy efficiency changes that will be needed by law.
By 2018 regulations will come into force making it unlawful to let properties in England and Wales which do not meet a prescribed minimum energy performance standard (MEPS).
How will this work?
From 1st April 2018, if you lease or rent a property, that building will need at least an “E” rating on its EPC before the contract is agreed and signed.
From 1st April 2023 all privately rented commercial properties will need at least an EPC rating of “E”. This includes properties already leased and an existing tenant occupies the premises.
Who does it apply to?
All rental properties, which require an EPC, will be within scope. Exemptions include:
- Third party consents exemptions: landlords will have to demonstrate lack of required consent e.g. from tenants, from superior landlords, or refusal of planning/listed permission;
- Cost-effectiveness exemption: landlords will have to demonstrate both that there is no Green Deal available for the relevant improvement works; and that the works would not pay for themselves over 7 years, based on energy bill savings;
- Devaluation exemption: landlords will have to demonstrate that the relevant improvement works would reduce the market value of the property by over 5%.
What are the timescales?
A landlord will have six months to comply with the regulations where, for example:
- The tenancy is granted by operation of law- e.g. renewal under the Landlord and tenant Act 1954. The 6 months runs from the date of the new lease;
- A non-compliant property occupied by a tenant is sold, or is transferred to a lender in the case of receivership. The 6 months runs from the date the new landlord acquires the property.
What penalties are involved?
Below are the penalty rates for renting out a non-compliant property for a period of:
- Less than 3 months- the greater of £5,000 and 10% of the rateable value of the property, and publication of the breach;
- 3 months or more – the greater of £10,000 and 20% of the rateable value of the property, with a maximum penalty of £150,000 and publication of the breach.
Depending on the terms of the lease, the landlord may be able to recover the costs of works necessary to bring the property up to the required standard, as part of its dilapidations claim.
For information on this legislation click here.
For information on EPCs for commercial properties click here.