Cookies are used on this website. Click here to read our Cookies Policy.

articles

Don't be an April Fool! Make sure your Property is EPC compliant


As the government continues its ambitious programme to tackle climate change and reduce carbon emissions, Landlords should be aware that under the Minimum Energy Efficiency Standards (MEES) Regulations from 1 April 2018 they will be unable to grant any new lease of a property which has an Energy Performance Certificate (EPC) rating of F or G unless it falls under an exemption. This will apply to both residential and commercial properties although the rules do vary between the different types of property.  This note focuses on commercial property.  If you are a residential Landlord or agent needing advice please contact Claire Prince.

 

Properties which fall under the minimum EPC Rating of E will be viewed as “sub-standard”. However, there are of course a number of exceptions to the new MEES rules, for example they will not apply to tenancies of six months or less or leases of 99 years or more.

 

At any time after 1 April 2018 if a Landlord wishes to privately rent a property which is below an E rating on the EPC the Landlord will need to carry out the necessary energy efficiency improvements to bring the property up to at the very least an E rating before the property is rented out.   Failure to do this could result in hefty fines.  

 

Landlords should review their property portfolio to identify any properties which have an energy rating below E. The existing EPC should have a recommendation report attached which will highlight recommended works to be carried out to improve the energy efficiency rating.  It is likely that the minimum energy performance standards will increase in the future therefore it may be advisable to carry out more extensive works to the property.

 

Some Landlords are currently trying to push through completion of new tenancies to beat the deadline of 1st April 2018.  However they should bear in mind that this will be a temporary measure. From 1 April 2023 MEES will be extended to cover all commercial property which is tenanted. This means even where the property is occupied by a tenant, if the EPC rating is below E the Landlord will be required to bring it up to the minimum standard unless it falls under an exemption.

 

Landlords who continue to let properties which fall below an E rating without a valid exemption will face financial penalties of £10,000 or 20% of the rateable value of the property, whichever is the higher amount up to a maximum of £150,000.

 

There are four exemptions which a landlord may rely on as to why the energy efficiency improvements have not been carried out:

 

1) Value of the property- if an independent surveyor states the works would devalue the property by more than 5%;

 

2) Consent- the landlord is unable to obtain consent to carry out the works and the tenant will not grant the landlord access to do carry out the works.  

 

3) All possible energy efficiency improvements have been carried out to the property.

 

4) Temporary exemption - the granting of a renewal lease under the Landlord and Tenant 1954 Act or a property being sold to a new landlord.

 

A landlord will need to register the exemption they rely on, on the PRS Exemptions Register, for exemptions 1-3 the exemption is valid for five years, whereas for exemption 4 it is only valid for six months.

 

The MEES rules only apply to lettings at present but will have far reaching consequences to all those involved in any transaction.  Although the MEES rules do not apply on a sale, any investor Seller may be deterred from purchasing a Property which is sub-standard due to requirements which fall on a Landlord to make energy improvements.  This may affect the saleability of the Property and subsequently the value.

 

It’s important to note that many commercial lenders are requesting sight of an EPC and are hesitant to lend where the EPC rating falls below the minimum for the same reasons. Therefore it is important for all commercial property investors/landlords/developers and owner occupiers to organise themselves now.  They need to identity the properties which may be considered sub-standard and plan how they will deal with these properties going forward to ensure compliance with MEES.

 

Surina Cohen is a Partner at JPC Law

T: 020 7644 6098

E: scohen@jpclaw.co.uk

General Enquiries:

T: 020 7624 4424

E: enquiries@jpclaw.co.uk

 

Bookmark and Share