As a result of the the current energy cost crisis EPC ratings have become even more important to tenants trying to keep their costs under control. Read on for a little EPC background and the low-down on the current state of play in respect of commercial properties and the minimum energy efficiency standard.
When must a commercial property have an EPC?
Commercial property owners must commission (and subsequently hold) an EPC in three scenarios:
- Where a property is to be let or sold or where an existing lease is to be renewed;
- Where a building under construction is finished; or
- Where there are changes to a property in respect of the number of parts used for separate occupation and these changes involve providing or extending fixed heating, air conditioning or mechanical ventilation systems.
There are some limited exemptions to the requirement to commission an EPC in the above circumstances for certain buildings (i.e. listed buildings) however they are not always complete exemptions. You cannot make assumptions that your property is exempt from the requirement to commission an EPC. If you believe that your property may be exempt for whatever reason then specific and detailed consideration and evidencing is both recommended and required. Please get in touch and we can recommend a suitable planning expert/advisor.
Do I need to display the EPC at the property?
Generally the certificate does not need to be displayed, however if you can answer ‘yes’ to all of the questions below then the certificate will need to be displayed:
- Is the total useful floor area over 500 square metres?
- Is the building frequently visited by the public?
- Has an EPC already been produced for the building’s sale, rental or construction?
Minimum energy efficiency standard
What is changing?
For nearly five years (since 1 April 2018) the EPC (Environmental Performance Certificate) minimum rating for commercial property buildings (professionally known as the “minimum energy efficiency standard” or MEES for short) has been set to ‘E’ for landlords when offering new tenancies or renewals. On the 1st of April 2023, legislation will change in relation to MEES meaning that landlords need to be aware that in addition to offering new leases (or renewals), they will be unable to continue to let existing tenancies if the property’s EPC rating is less than E.
Penalties
It will be an offence to continue to let a commercial property with a rating beyond E after April 2023, unless you have a permitted legitimate reason for failing to making improvements to the EPC rating (which has been validly registered on the PRS Exemptions Register). Enforcement action could include public exposure and financial penalties. The financial penalties vary according to length/type of breach, as follows:
- Breach for less than three months: greater of 10% of the rateable value or £5,000 (subject to a maximum of £50,000)
- Breach for three months or more: greater of 20% of the rateable value or £10,000 (subject to a maximum of £150,000)
- Providing false or misleading exemption information: penalties up to £5,000
- Failing to comply with a compliance notice: penalties up to £5,000
How can I prepare myself or my business?
In order to be prepared landlords should immediately identify any buildings they currently have with an EPC rating of either F or G (with G being least efficient) and consider what energy efficiency improvements could potentially be made in respect thereof. Recommendations as to how to improve a property’s EPC rating can be found in the recommendation report provided when the EPC was commissioned and can include: insulation, lighting, draught prevention, windows and glazing, boiler and air conditioning efficiency.
With rising costs across the board, it is understandably difficult for landlords to consider this additional expense, however, the new rules from April 2023 are mandatory and the penalties outlined above can be severe. In addition to ensuring that you do not fall foul of the law, making improvements to a commercial property will have the benefit of futureproofing it and ensure that it maintains its value in the coming years, so the cost burden of complying with the laws surrounding EPCs is potentially not as uneconomical as it might seem.
I have no properties with an EPC rating of F or G, what is next?
After immediate properties in the F and G bracket are identified, landlords need to plan for the longer term as they will be required by 2027 to have a minimum of a C certificate and B by 2030, as part of the government’s commitment to net zero by 2050. Act now to avoid any complications or unwanted surprises later on down the line!
How can Stephensons help?
At Stephensons we can help you review your property portfolio or advise in relation to individual properties. We can review your leases and the service charges contained therein (if applicable) to assess if some of the cost for improvement work can be worked into service charges or otherwise borne by your tenants and we can help with negotiations around rent reviews.
We have a network of professionals who may be able to assist you in relation to specific building efficiency issues or EPC issues and we can put you in touch with the right person for the right job. Additionally, we can assist with drafting future proof leases to deal with potential issues in relation to improvements to EPC ratings so that you are not cold in the coming years. Call our commercial property team today on 0161 696 6170 to prepare yourself for the energy efficient future.
Comments