Energy Performance Certificate Changes from April 2018 – Is Your Property Ready?23rd March 2018
Energy Performance Certificates (EPCs) are certificates which set out the energy efficiency rating of a property and contain recommendations for ways in which its efficiency could be improved. Almost all domestic and non-domestic buildings sold, rented or constructed since 2008 must have an EPC. An EPC may also be required where a property is significantly altered or developed since its original construction.
The Energy Efficiency (Private Rented Property)(England and Wales) Regulations 2015 (the Regulations) set out Minimum Energy Efficiency Standards (MEES) for privately rented property in England and Wales with the changes coming into effect on 1 April 2018. From April the legislative changes make it unlawful to let either residential or commercial properties with an EPC Rating of F or G (i.e. the lowest 2 grades of energy efficiency).
Under the Regulations, from 1 April owners of both domestic and non-domestic properties granting new tenancies will need to ensure that their properties have an EPC rating of at least E before the tenancy can commence. This applies to agreements made with new tenants and to new tenancies (renewals) with existing occupiers.
The requirements will be extended to all private rented properties in England and Wales even where there has been no change in tenancy arrangements – from 1 April 2020 for domestic properties and from 1 April 2023 for non-domestic properties.
What are the potential implications?
The changes could have significant implications for both landlords and tenants if their property does not meet the MEES.
The impact on landlords will be greatest with the key obligations and restrictions in the Regulations falling on them to bring any non-compliant properties up to standard.
Key considerations are:
· What is the cost of the works required to bring the property up to the minimum standard?
· How long will these works take?
· Will this impact on the market value of the property?
· Are the works likely to impact the marketability of the property to tenants?
This will not only affect traditional landlord/tenant tenancy relationships but also sub -lettings and assignments, the grant of which will trigger compliance with the MEES.
Given this risk to property owners and occupiers it is clear that a full understanding of the energy efficiency of your property should be attained. Thereafter owners and occupiers will need to assess the costs and viability of carrying out energy efficient fit outs or refurbishments and where possible look to re-gear leases where works are likely to be required.
What are the penalties?
The Regulations will be enforced by Local Weights and Measures Authorities (LWMAs) who will have powers to impose civil penalties which are set by reference to the property’s rateable value. It will therefore be essential for landlords and tenants to know the rateable value of their property in particular in light of last year’s revaluation exercise.
The penalty for renting out a property for a period of less than three months in breach of the Regulations will be equivalent to 10% of the property’s rateable value, subject to a minimum penalty of £5,000 and a maximum of £50,000.
After three months, the penalty rises to 20% of the rateable value, with a minimum penalty of £10,000 and a maximum of £150,000.
Please do note that where a property is let in breach of the Regulations or where a penalty is imposed, the lease as between the landlord and the tenant remains valid and in force.
What can you do?
Considerations for all rental properties:
· In the first instance, we would suggest that you check the EPC Register https://www.epcregister.com/ to confirm your property’s current EPC rating.
· If your rental property does not have an EPC, obtain an assessment as soon as is possible.
· Where your property has an F or G EPC rating (or is at risk of becoming so) a plan should be put in place to improve the energy efficiency of the property with any works to be carried out as soon as is possible.
· In light of any works carried out to improve its energy efficiency, does the lease need to be re-negotiated?
Considerations for on-going tenancies
· Does your property/the property that you occupy have an EPC and what is its EPC rating?
· If no EPC is available, an assessment should be carried out as soon as is possible.
· If your lease is due to expire and has a F or G EPC rating, works will need to be carried out before a new tenancy is entered into to bring the property up to standard.
· Where works are required consider whether this will affect the repairing obligations within the lease in going forward and on renewal?
There is a high likelihood that the minimum energy standards coming into force in April 2018 will be raised in the future as the Government is committed to implementing this policy.
Although the full implementation of the minimum energy standards legislation is still a number of years away time is short to minimise risk. Energy efficiency improvements for tenancies not effected until April 2020 (domestic) and 2023 (non-domestic) should be carried out now so as to take advantage of void periods, lease breaks and/or be included as part of the on-going maintenance and renewal timetable for non-compliant properties.
For further information, please contact commercial property solicitor Gwen Jones