In England and Wales it is estimated that around 25% of all commercial properties have an energy efficiency rating of ‘F’ or ‘G’. Subject to certain exemptions, new energy efficiency laws which come into effect in England and Wales from 1st April 2018, mean that no new leases of property with this energy efficiency rating will be granted; and, from 1st April 2023 no leases with this energy rating will be able to continue.
Guidance notes published by the government In February to accompany the new energy efficiency regulations provide some helpful detail. The energy efficiency regulations will apply to all non-domestic properties which are required to have an energy performance certificate (EPC) which covers most commercial properties.
If an EPC for a property rates that property as an ‘F’ or ‘G’ rating then a landlord must avail itself of one of the exceptions in order to comply with the new regulations. The key exemptions are;
Despite the landlord having carried out all relevant energy efficiency improvements that can be made, the property still has an ‘F’ or ‘G’ rating. In this case, the exception will last for five years and then the landlord must again try to upgrade the efficiency of the property or apply for another exemption.
The landlord cannot get a necessary consent from a third party to allow it to carry out the energy efficiency works. This is most likely to be a sitting tenant’s consent. The landlord can claim this as an exemption if an existing tenant will not consent to the landlord carrying out the works. Nevertheless, the improvement works will need to be carried out once the tenancy ends.
If energy efficiency improvements works would decrease the market value this would be an exemption lasting for five years. After this time, the landlord must re-assess whether works can be carried out without adversely affecting the property’s market value.
All exemptions are self-certificated with claims for exemptions needing to be logged on a central register that can be accessed via the gov.uk website. There is no fee for logging an exemption and the register will be open from April 2017. Note that if you are purchasing a commercial property, the previous owner’s exemptions will not automatically apply to you, instead, as a new landlord, you must apply for your own exemption.
Responsibility for enforcement of these new energy efficiency regulations has been given to the local Weights and Measures Authority. From April 2018, it will be an offence for a landlord to allow a letting to continue in a property in breach of the regulations or to register false information on the exemption’s register.
The penalties for letting a property in breach of the regulations are:
- £5,000 or up to 10% of the rateable value of the property (up to a maximum of £50,000) if the breach has subsisted for less than three months;
- £10,000 or up to 20% of the rateable value of the property (up to a maximum of £150,000) if the breach has subsisted for more than three months.
Anyone submitting false information to the exemption register is liable to a penalty of £5,000.
When buying a property, it is essential that proper due diligence is carried out in respect of its EPC rating and any existing exemptions. When selling a property, you must ensure that the EPC certificates provided are accurate and that the exemptions register is up to date.
As a landlord, you are unlikely to be able to force a tenant to carry out energy efficiency works unless the terms of the lease include this. However, there may be scope to recover the costs for efficiency works carried out to common parts of a building, but this will have to be assessed on an individual basis. Tenants should be aware that landlords may try to include the cost of energy efficiency improvements within any dilapidations claim at the end of the lease.
Funders will want to make sure that their security is not jeopardised by the inability of the landlord to let the property once the new regulations come into force. What’s more, a funder may want to assess the potential costs that a borrower could face in bringing the property up to the standards required by the energy efficiency regulations.
As a landlord, make sure you take any necessary steps now or as soon as you can, to comply with the new energy efficiency regulations or to log an exemption. Be aware that as a seller or buyer, due diligence around EPC’s is likely to become much tougher.
If you have any queries about the regulations and how they may affect your property please do not hesitate to contact Ben Lamb on firstname.lastname@example.org or 0113 227 3639.