Is Time Running Out for Landlords to Meet EPC Requirements for Commercial Properties?
All commercial properties will need to have an Energy Performance Certificate (EPC) rating of E or higher from 1 April 2023, when the next stage of EPC regulations kick in. Landlords who fail to meet this standard could face substantial fines and be left with un-rentable property.
Commercial properties must already hold an E rating before a new lease can be granted or an existing lease renewed. However, the new rules in force from April next year mean this will also apply to properties with tenants who are mid-lease. The Government has also signalled its intention to increase the requirements even further in the future, so that commercial properties may need to achieve a B rating by 2030.
Any commercial landlord whose property does not currently have an EPC rating or has a rating of F or below must therefore take action swiftly. In this article, we discuss the likely impact on landlords, the issues they will need to consider, the penalties for failing to meet EPC requirements and what the future may hold.
What impact will the new EPC requirement have on commercial landlords?
The most obvious immediate impact will be the cost of carrying out the required works, which may be significant. Landlords who are unable to carry out the necessary improvements will be left with un-rentable property, and failure to meet the new EPC requirement will inevitably affect the saleable value of the property.
What issues do commercial landlords need to consider?
The cost of improvements
Obviously, one of the main considerations will be how much the work will cost and whether the landlord will be able to recoup these costs from their tenants. Landlords should get realistic quotes for the required works (including a contingency for cost over-runs) and then get expert advice as to whether or not they can recoup the whole or any part of such costs from the tenants under the terms of their leases.
Landlords will also need to check the terms of the leases to make sure they are allowed to carry out the necessary improvement works whilst the tenant is in occupation.
Conservation and listed building restrictions
If a property is listed or in a conservation area, there are likely to be restrictions on what improvements a landlord can carry out. There are some exemptions to the EPC requirements for listed and officially protected buildings but these need to be considered very carefully on a case by case basis. It is essential for landlords to take advice from an expert to check exactly what these rules are, rather than making assumptions.
Tenants’ works to the property
Tenants sometimes want to make changes to a property to ensure it meets their specific needs. Landlords will need to make sure that any such works do not compromise a property’s energy performance, as they could be held liable if the property were re-assessed and given an EPC of F or below.
What are the penalties for failure to comply with the new EPC requirements?
Any landlord who rents out a commercial property with an EPC rating of F or below may be subject to enforcement action by their local authority. They can also be fined up to £5,000, and the Government has proposed raising this fine to £30,000.
Failure to make an EPC available to a prospective tenant or buyer can result in a fine in the range of £500-£5,000, depending on the rateable value of the building.
What does the future hold for landlords’ EPC obligations?
As stated above, the Government has proposed that all commercial properties will need to have an EPC rating of B or above by April 2030. An interim target of a C rating by April 2027 has also been suggested. Landlords should therefore have an eye on these likely future requirements when considering improvement works to their properties.
Landlords should consider having their property assessed by a specialist energy performance consultant with a view to what changes would be needed to reach an EPC rating of E and also reach a B rating. They can then take an informed view on where it may be worth spending more money now to improve their properties’ energy performance above what is needed to hit an E rating rather than risk having to re-do key works within the next few years in order to hit a B rating.
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Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.