Time Running Out for Commercial Landlords with Low EPC Ratings

Landlords with buildings rated F and G on their EPCs only have until 31 March 2023 to improve the EPC rating or register an exemption. Failure to do either of these things could land them a fine of up to £150,000 and the risk of being “named and shamed”.

An EPC is an energy performance certificate, issued by an assessor, which details the energy efficiency of the property and is valid for 10 years from registration on the EPC Register.

From 1 April 2023, it will be unlawful for a landlord to continue to let a sub-standard property, unless an exemption applies and has been validly registered on the PRS Exemptions Register.

“Sub-standard” property means one having an EPC rating of below E.

If you have a sub-standard building, you will need to carry out energy improvement works to improve the rating to at least E or register an exemption.

The improvement works

The energy improvement works must be listed as a “relevant energy efficiency improvement” in the relevant regulations and must also be identified as a recommended improvement for the building in a green deal report, a recommendation report, or a report prepared by a surveyor.

Exemptions

If the following exemptions apply, then you can continue to let a sub-standard property. If an exemption applies (save for the first one listed below) then it must be registered on the Private Rented Sector (PRS) Register.

 ·       Lease term - Commercial properties let for more than 99 years or for less than six months do not need to comply.

 ·       Consent exemption - Can you enter the property to do the works if it is let? This will depend on the terms of the lease, which are not overridden by statute. If there’s no right of entry and the tenant doesn’t consent, you may be able to register a “consent exemption”. This exemption would expire when the tenant leaves the property.

 ·       All improvements made exemption – where you have made all the possible relevant energy efficiency improvements and the property is still below the minimum rating, or there are no improvements that can be made

 ·       Devaluation exemption - You might qualify for a “devaluation exemption” if a report says the installation of specific energy efficiency measures would reduce the market value of the property, or the building of which it forms part, by more than 5%.

 ·       Economically efficient exemption – where the costs of carrying out the relevant improvements will not be recovered within seven years.

 ·       Temporary exemption - if you buy a property subject to tenancies that is rated below E (which is of course a risk), then from 1 April 2023 you will be able to register a temporary exemption which lasts 6 months, designed to give you time either to improve the property (although you would need to check the leases to ensure you have a right of entry or get tenants’ consents) or to register a longer-term exemption.

Exemptions are personal, and do not attach to the property. So, if you buy a property where the seller has an exemption, you will need to register your own exemption after the transfer of ownership, and of course that means you would need to be certain you could do so.

Other than temporary exemptions (and the rule about length of lease term), exemptions generally last for 5 years.

Also bear in mind that the minimum standard of E is likely to rise in the coming years. The government’s 2021 consultation proposed raising the minimum standard for non-domestic properties to C in 2027, followed by B in 2030.

The government has yet to publish a response to that consultation, but it makes sense that if improvement works are undertaken that the opportunity is used to significantly improve a building’s energy efficiency, rather than aim for the bare minimum.