Commercial Property Update

EPC changes from 1 April 2023

Changes to Energy Performance Certificate (EPC) requirements for non-domestic properties on 1 April 2023

Landlords of both domestic (residential) and non-domestic (commercial) properties are required to ensure that their rental properties meet Minimum Energy Efficiency Standards. There is an exception to this requirement which is that the property is exempt and that the landlord has registered such exemption on the Private Rented Sector Exemptions Register.

Position Prior to 1 April 2023

A new lease of either a residential or commercial property to either an existing or to a new tenant cannot be granted unless the property being let has an EPC with at least an E rating. Further, residential properties must have a minimum E rating where a lease is already in place and the property is occupied by a tenant.

Position After 1 April 2023

From 1 April 2023, the requirement for a minimum E rating is being extended to commercial property where a lease is already in place and the property is occupied by a tenant.

Accordingly, landlords of commercial properties need to:-

review their property portfolios to check whether each let property has an EPC with a minimum E rating;
if the property does not have an EPC or if the EPC has an F or G rating then an EPC with a minimum E rating will need to be obtained (unless an exemption is registered);
if the EPC has an F or G rating then the landlord will need to either carry out works (subject to obtaining any third party consents) so that an E rating is achieved or register an exemption.

Exemptions

The exemptions for commercial properties are:

‘7 Year Payback’ Exemption - the cost of purchasing and installing recommended improvement does not meet a simple 7 year payback test (ie the energy saving costs over 7 years is less than the cost of the works).
‘All Improvements Made’ Exemption - a landlord has made all the ‘relevant energy efficiency improvements’ that can be made (or there are none that can be made), and the property remains below an E rating.
‘Wall Insulation’ Exemption - cavity wall insulation, external wall insulation systems, and internal wall insulation systems are deemed by an expert not to be appropriate for the property due to its potential negative impact on the fabric or structure of the property.
‘Consent’ Exemption –consent for a relevant energy efficiency measure is required and sought, and consent was refused or granted subject to a condition that the landlord is not reasonably able to comply with.
‘Devaluation’ Exemption - the installation of specific energy efficiency measures would reduce the market value of the property, or the building it forms part of, by more than five per cent.

‘New Landlord’ Exemption – a temporary exemption for specified, limited circumstances which include a lease granted by court order and a renewal lease granted under the Landlord and Tenant Act 1954.

Where an exemption applies, an application to be entered on the Private Rented Sector Exemptions Register will need to be made by the landlord or landlord’s agent. There is no cost to register an exemption.

If an exemption is registered, it will last for 5 years (other than the ‘New Landlord’ Exemption which only applies for 6 months from the date the party became landlord). After this time, the landlord must try again to improve the property’s EPC rating to meet the requisite minimum level of energy efficiency. If the landlord cannot meet the minimum standard again, a further exemption may be registered. Exemptions do not pass over to a new owner or landlord upon the sale, or other transfer, of a property.

Future Rating Requirements

Please bear in mind that, under current proposals, the required rating is expected to be upgraded to a C rating or higher for new lettings in 2025, applying to any continuing tenancies in 2028, and further raised to a B rating by 2030. This should be taken into consideration where works have to be carried out as bringing the EPC up to a higher rating now will be likely more cost effective than having to carry out more than one set of works over the coming years.

No April Fool

Landlords who fail to comply with the EPC requirements face civil and criminal penalties, with fines of up to £5,000 per property (expected to be raised to £30,000 per property by 2025).

Wallace LLP is happy to advise clients on these new requirements for non-domestic properties. Please contact Martin Otvos or Janey Wayne for further information.