The Energy Act 2011 brought about many new changes but possibly the most significant of these was the obligation for the Secretary of State to improve the energy efficiency of rental properties in the private sector.  This is therefore being achieved through the use of the Energy Performance Certificate (EPC) and introducing a minimum standard which they must meet.

EPC Origins

EPCs were first introduced on 1 October 2008, forming part of the Home Information Pack for domestic properties and being a legal requirement for commercial properties which have a new tenancy granted on or after this date.  Whilst the Home Information Pack only had a short life span from 2007 until 2010, the EPC continued being a requirement in the sale of a residential property and is still a key component of any transaction for commercial property.

What does an EPC do?

The compulsory EPC determines and subsequently presents the efficiency of a property, in respect to carbon emissions and energy usage.  The marketing of commercial properties is prohibited unless an EPC has been obtained from an energy assessor.  In the case of a new building, the builder is required to have an EPC before the building control inspector issues a completion certificate.

Forthcoming changes affecting the EPC

From April 2016, residential private landlords will not be able to unreasonably refuse consent to a tenant’s request to make energy efficiency improvements where Green Deal finance or subsidies are available to pay for them.

As from the 1 April 2018, private rental properties must meet a minimum standard.  Both commercial and residential properties which do not obtain an EPC rating of E or above will no longer be allowed to be let.   Landlords will be required to take further steps to improve the efficiency of the property before a lawful letting can occur if they have an F or G rating unless they qualify for an exemption.  It is currently estimated that 18 per cent of commercial stock has EPC ratings of F or G and another 20% are rated E.

Exemptions

There will be two main exemptions and then numerous additional temporary exemptions which will only be valid for 5 years, after which the Landlord must comply with the regulations or apply for another exemption.

The main exemptions will be:

Properties where the lease term is 6 months or less or the property is let on a term of 99 years or more
Non-domestic properties which perform so poorly that they do not hold an EPC

The temporary exemptions will be based on:

Cost-effectiveness if the measures are not cost-effective either within a seven year payback or under the Green Deal’s Golden Rule.
Third party consents: Where the landlord cannot obtain necessary consents to install the required energy efficiency improvements, including from tenants, lenders and superior landlords.
Property devaluation: Where a qualified expert states that any amendments will reduce a property’s value by 5% or more, or that wall insulation required to improve the property will damage the property.

The Consequences

There will of course be penalties in place for those who do not comply with this legislation.  Whilst non-compliance will not affect the validity of a lease, it will have substantial repercussions which the landlord will be subject to.   Depending on the period for which the property has breached the rules and what the rateable value of the property is, fines imposed could vary from £5,000 up to £150,000.  There is also to be a penalty of £5,000 for providing false or misleading information to the exemptions register.  This is not something to be taken lightly when it comes into force and all landlords should take note.

Whilst this would certainly appear to be a step in the right direction to help the environment there will no doubt be opposition to such regulations. The information currently available on this is limited but further publications are expected which will give guidance on how the regulations will work. Of course this could all depend on the outcome of yesterday’s election.

If you require further information or any general commercial property advice, please telephone 01206 835300 and speak to a member of our Real Estate team or email [email protected].