Changes to EPC Regulations for Commercial Properties

Jasmine Keeble, Legal Assistant | 4th April 2023

On 01 April 2023, changes to the Energy Performance Certificate (EPC) requirements for Commercial Properties in England and Wales will be coming into force.

From this date, all non-residential tenanted properties will require an EPC rating of ‘E’ or above as part of the government’s aim to achieve net-zero emissions by 2050.

Whilst this requirement currently applies to the granting of a new tenancy, it will be extended to also cover tenancies already in existence. This change could have a significant impact in reducing emissions, as the built environment currently generates 25% of the UK’s annual greenhouse gas emissions.

If you are a landlord and your property has an EPC rating below ‘E’, you will be breaching these regulations if you continue to let the property, which can have serious consequences.

Financial Penalties

The maximum penalties imposed differ depending on how long the breach has been ongoing.

If the leased property has been in breach of the regulations for less than 3 months, the maximum penalty will be the greater of £5000 or 10% of the rateable value of the property, up to a maximum fine of £50,000.

If, however, the breach has been ongoing for a period of 3 or more months, the maximum penalty doubles. The maximum fine in this instance is the greater of £10,000 or 20% of the rateable value of the property, up to a maximum fine of £150,000.

If you are a landlord, these penalties are significant extra costs on top of the usual management costs involved with leasing properties. As it is the landlord who is responsible for complying with EPC requirements, it is likely that the cost of these fines will not be able to be passed on to the tenant.

These penalties are also applied for each lease which breaches the requirement, rather than one penalty being imposed to cover the whole building in breach.

This means that if you own a building which has 5 leases which are in breach of these rules for 3 or more months, the maximum fine could be as much as £750,000 depending on the rateable value of the property.

Other Consequences

Enforcement authorities are also permitted to enter details of the breach into the publicly accessible area of the Private Rented Sector Exemptions Register (PRS Exemptions Register), including recording the address.

Provided that the Landlord is not an individual, the enforcement authority may also include the name of the Landlord within the publicly available details of the breach.

The address of the property, and potentially the name of the Landlord, being publicly recorded may result in your reputation as a Landlord being negatively impacted alongside affecting future valuations and lettings of your properties.

If a property has an EPC rating below ‘E’, this may also negatively impact the ability to market the property, including where the property is to be sold subject to existing leases. Difficulties may also be caused for tenants when assigning their lease or granting an underlease to a third party.

Time Limit for Service of a Penalty Notice

Enforcement authorities are provided with an 18-month time period in which to serve a penalty notice for a breach of the letting restrictions.
This notice may also still be served, and a penalty imposed, even if the breach has since been remedied.

This means that if the regulations are breached following 01 April 2023, the enforcement authority will still have 18 months in which to serve the penalty notice on the Landlord.

Exemptions

There are a variety of exemptions to the EPC regulations, including where all possible energy efficiency improvements have been made and the rating is still below the minimum required.

It is important to note that exemptions are not automatically applied to properties, and any applicable exemptions must be recorded within the PRS Exemptions Register. These exemptions are personal to the specific parties who registered them, and so it is not possible to rely upon the exemption registered by a previous landlord.

If you are a landlord, you should seek the advice of a building surveyor or an EPC assessor to confirm whether any exemptions may apply to your property and to ensure that these exemptions are correctly recorded in order to avoid a breach of these regulations.

Next Steps

If you are a landlord, it is in your best interests to ensure that your property meets the minimum EPC requirements and to carry out any work required to improve the rating.

This can be done by making energy efficiency improvements. An existing EPC will be accompanied by a recommendation report setting out general ways in which a rating may be improved, which may be a useful guide to the options available. A surveyor or an EPC assessor will also be able to inspect the property and ascertain what specific improvements can be made to increase the rating.

Landlords are responsible for ensuring that the properties they let out have the required rating and are responsible for carrying out works to improve this rating where required. Depending on the extent of the works required, the costs involved in bringing a property to the minimum rating may be significant, particularly if structural works are needed. There are a range of schemes available which assist with funding these works, and you seek the advice of a specialist to confirm whether you will be eligible for these.

The ability to pass on to a tenant the costs incurred by required works is dependent on the lease, and legal advice should be sought to confirm whether you are able to do so.

Future Changes

The minimum EPC rating is expected to increase to ‘C’ by 01 April 2027, and to ‘B’ by 01 April 2030.

Even if your property’s rating is currently E or above, you should begin preparing for these future changes now, by taking steps to improve the rating of your property.

As a landlord or tenant, you may also wish to consider the inclusion of green clauses within future leases or renewal leases to ensure that both parties work together to improve the energy efficiency and rating of the property.

If you require further advice on the EPC requirements for your property, or advice regarding the inclusion of green clauses in your lease, please do not hesitate to contact a member of our Commercial Property team.

You can view our previous article on EPC Regulations Here.