Minimum Energy Efficiency Standards

From next year, landlords will be unable to let properties that fall below the minimum energy efficiency rating on their EPC and this has the potential to impact on a large number of both residential and commercial properties.

What are energy performance certificates?
EPCs are required when a property is built, sold or let. Not all properties require an EPC (e.g. certain listed buildings, industrial sites, non-residential buildings with a low energy demand), but where they are applicable, they provide information concerning the energy efficiency of the property. This includes:

• asset rating;
• recommendations report;
• details of the property (including current energy-related features);
• date of issue.

EPCs rate properties on a scale from ‘A’ (most efficient) to ‘G’ (least efficient). Once a certificate is issued, it usually remains valid for 10 years.
The recommendations report will indicate what cost-effective improvements can be made to enhance a property’s energy efficiency.

Changes to the energy performance certificates
On 1 April 2018 Minimum Energy Efficiency Standards will come into force for all properties that require an EPC.
These Standards state that if a property falls below a minimum rating of ‘E’ on the EPC, it cannot be rented out. This means that properties with an ‘F’ or ‘G’ rating may no longer be legally marketable.
There are some circumstances where landlords will be exempt from meeting the minimum standard. These include where:

• all cost effective improvements have been undertaken;
• the landlord cannot obtain 3rd party consent (e.g. from the tenant or local authority) to do improvements;
• an independent surveyor determines improvements would devalue the property by over 5%.

These exemptions can only last for up to 5 years, however, as the regulations will apply to all leases that require an EPC, including existing leases, from 1 April 2023. The Standards will also, therefore, impact upon sub-letting and rent reviews as well.
Failure to comply with the Standards will lead to civil penalties, including financial penalties which can extend to 20% of the value of the rateable property up to a maximum of £150,000.

Protect yourself
With only 12 months to go until the 1 April 2018 deadline, if you have a property that risks falling below the minimum standard then and you do not qualify for an exemption, you will need to take steps in order to improve your rating should you want to be able to let the property. Consequently, it is important to understand the position of your property, whether it is exempt and/or whether necessary work is required. Failure to do so runs the risk of being lumbered with an unmarketable property or facing penalties.
Since many leases will run past the 1 April 2023 deadline too, and as the minimum rating may well increase further in future, it is essential to address any concerns as early as possible. Consideration will need to be given to the impact of lease clauses, issues of consent for alterations, and costs implications going forward.
Contact our commercial property team for further advice.

This content is correct at time of publication