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Commercial property landlords will see their responsibility for the energy efficiency of their properties increase significantly from 1st April 2018 following the introduction of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the Regulations) which will make it unlawful for a landlord to grant a new lease or renewal lease of commercial premises in England and Wales with an Energy Performance Certificate (EPC) rating of either F or G (i.e. the lowest 2 grades of energy efficiency).
From 1st April 2023, Landlords will be prohibited from continuing to let such a commercial property within the scope of the Regulations
Unless exempted from doing so, improvements will need to be carried out to below standard properties to ensure compliance with the Regulations.
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Exemptions
Some properties such as industrial sites, workshops, certain listed buildings and holiday lettings do not require EPCs. Tenancies with a term of 6 months or less and tenancies with a term of 99 years or more will also fall outside of the scope of the Regulations.
For properties that would otherwise need to comply with the Regulations, landlords can apply for exemptions in the following circumstances:
- Where an independent assessor determines that all relevant energy efficient improvements have been made to the property or that improvements that can be made would not pay for themselves through energy savings within seven years;
- The required consent of any third party, such as a superior landlord, tenant, planning authority or lender cannot be obtained or consent has been given but with conditions the landlord cannot reasonably comply with; or
- The proposed improvements to comply with the Regulations would devalue the property by at least 5% of its market value.
Exemptions are only valid for 5 years and must be registered on the central government Private Rented Sector Exemptions Register. It is also worth noting that exemptions do not automatically transfer with the property on the sale or transfer of the landlord’s interest - any purchasers or transferees will need to either re register the exemption or ensure that the property complies with the Regulations.
Enforcement and Penalties
Non-compliance with the Regulations may result in enforcement action being taken by a Local Weights and Measures Authority.
The financial penalty will depend on the property’s rateable value, severity of the breach and length of time it has subsisted during a letting, and could potentially be as much as £150,000 per asset if the breach subsists for three months or more.
Practical Considerations
Landlords should therefore start considering what action to take – whether by auditing their property portfolios, carrying out energy assessments, reviewing leases to understand their rights, making any necessary improvements, preparing to apply for exemptions, or looking to dispose of properties where cost implications may be significant.