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Landlords: Are you aware of the minimum EPC ratings for commercial premises?

The Minimum Energy Efficiency Standard Regulations changed from the 1st April 2023 – Alicia Renshaw, property lawyer for Leonard Curtis Legal explains what commercial landlords need to know.

On 1st April 2023, the Minimum Energy Efficiency Standard (MEES) regulations set a new minimum energy efficiency level for domestic private rented properties – an announcement that landlords need to be aware of or face fines between £5,000 and £150,000.

Landlords can no longer let – or continue to let – properties covered by the MEES Regulations if they have an EPC rating below E, unless they have a valid exemption in place. Anyone planning to let a property with an EPC rating of F or G must improve the property’s rating to E, or register an exemption, before entering into a new tenancy.

New laws commercial property must now have an energy efficiency rating of at least E before a new lease or renewal lease can be granted but also a commercial property should not continue to be let if the rating is less than E.

There are some non-domestic properties which are exempt from the requirement to provide an Energy Performance Certificate (EPC) evidencing a rating of A – E.

Properties are exempt if:

  1. The property is a place of worship.
  2. The property is due to be demolished and have the evidence, such as the planning permission to do this.
  3. The property is a detached building with less than 50 square metres.
  4. The property is a temporary building only going to be used for 2 years (evidence will also be required for this, such as planning permission).
  5. The property is leasehold with a term of 99 years or more on the lease.
  6. The property is a listed or officially protected and the recommendations would unacceptably alter the property.

However, to determine this, the landlord would have to get an EPC issued by a surveyor to evidence that they cannot carry out the works to improve the property to a minimum E rating.

If the above exclusions don’t apply – what next?

It is important that landlords act before the new rules have implications on their ability to let or continue to let their properties.

What should you be doing now:

  • Check the EPC rating of each and every property you own and let and where an EPC certificate is in existence, check the expiry of that certificate. A certificate is valid for a period of 10 years unless the property has undergone significant changes.
  • Check if the property is classified as an exempt property for the purposes of the MEE’s Regulations (see above).
  • If the rating is less than E, can you rely on one of the exemptions from carrying out improvements? These include:
  • Any improvements made to the property would devalue the property;
  • Landlord cannot obtain the relevant consent from the tenant to undertake the improvements; Where the tenant restricts or obstructs the landlord from accessing the property to make the improvements to comply with energy efficiency, the landlord can register this is an exemption with the PRS Register as long as they provide evidence of this.
  • From a tenant’s point of view, if there are provisions in the lease to cooperate with the landlord, then it can be construed as a material breach of the terms of the lease and the lease could be forfeit as a result. The tenant should therefore consider whether restricting the landlord from gaining access to the property is in their best interest.
  • • You have carried out all energy efficiency improvements that can be made.

Where one of the above exemptions do not apply, you should take steps to increase the EPC Rating. It is important that you carry out the energy improvements as soon as possible and therefore you may want to seek advice from a surveyor or building consultant.

You may be concerned about the cost implications of carrying out such improvement works. Depending on the service charge provisions, you may be able to recover the costs of making the improvements to energy efficiency as part of the service charge provisions in the lease from the tenant(s) of the property. The tenant may also possibly find themselves liable, especially for leases terminating post April 2023 due to the statutory provisions in the lease.

Plan for the future! How will the MEE’s Regulations change over time?

The UK Government wants to raise the minimum EPC rating for commercial properties to C by April 2027. This means that all improvement works must be completed to improve the property by this date (unless exemptions apply). This applies to all relevant tenancies, not just new lettings.

By April 2030, the UK Government wants to raise the minimum EPC rating for commercial properties to B rating.

Being aware of the upcoming requirements is vital to ensure the future viability of commercial properties.