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Part of the United Kingdom’s effort to reduce its carbon footprint and foster a sustainable future has been shown in the evolution of the Energy Performance Certificate (‘EPC’) regulations. The regulations have undergone several changes in the last few years, which has significant implications for landlords.
EPCs are certificates which set out valuable information on the property’s energy consumption and carbon emissions. They grade properties on a scale from A to G, with A being the most energy efficient. The certificates are valid for a period of 10 years.
Commercial landlords have been subject to the Energy Efficiency (Private Rented Property) Regulations (‘MEES Regulations’) for some time. Certain changes came into effect from 1 April 2023 that commercial landlords and tenants need to be aware of. The key change is that, from this date, landlords will be unable to continue renting out a property that has an EPC rating lower than E, unless there is a legitimate reason for doing so. Ratings of F or G are considered to be substandard.
It should be noted that the MEES Regulations only apply to properties that are required to have an EPC. The requirement for needing an EPC is contained within the Energy Performance of Buildings Regulations 2012. Certain types of commercial property and certain very long and short leases are also expressly excluded from the MEES regulations. This includes leases not exceeding 6 months, where occupation does not exceed 12 months and there is no right to renew, and leases exceeding 99 years.
Where the MEES Regulations do apply, the prohibition on letting the property is not absolute. A property can be let out with an EPC rating of less than E where the property remains substandard but all the relevant energy efficiency improvements for the property have been carried out, there are no improvements that can be made or a valid exemption applies. The following are some of the exemptions contained in the regulations:-
It will need to be assessed on a property-by-property basis whether the MEES Regulations apply. Therefore, if you are unsure whether the MEES Regulations apply to your property, it is best to seek advice.
Looking ahead, the Government proposals indicate stricter regulations in the future. Proposals include aiming for a minimum rating of C by 2027 and B by 2030.
The MEES Regulations make it a criminal offence to continue to let or rent out a property if it does not have a rating of at least E. The penalty is set based on the rateable value of the property and will be between £10,000 and £150,000 per breach. There is also a risk of reputational damage for a breach, as the details of the breach are placed on a public register.
Landlords should carry out audits of their properties to ensure they do not fall foul of the regulations and also consider the likelihood of the obligations becoming stricter when making improvements to their property.
If you have any queries about EPCs, please contact our expert Commercial Real Estate team.
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