EPC Requirements – Commercial Property

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Jasmine Keeble, Legal Assistant | 20th July 2022

What are EPCs:

Since 2012, an energy performance certificate, often referred to as an EPC, has been legally required for the sale and leases of commercial properties. It is the responsibility of the Landlord or Seller to ensure that a valid EPC is in place prior to advertising or agreeing to a lease or sale of the property.

These certificates are granted after an inspection of the property to determine its energy efficiency. The Property is then given a rating, with ‘A’ being the most efficient and ‘G’ being the least.

Required Ratings:

Since 1 April 2018, these requirements were developed to create a legal requirement for a rating of at least ‘E’ for a new commercial lease of a property to be granted.

This will be developed further from 1 April 2023, when it will apply retrospectively. This means that the law will require that all properties subject to a commercial lease are rated ‘E’ or above, even if a new lease has not been granted since these provisions came into force.

Exemptions:

It should be noted that whilst this will generally affect all properties subject to a commercial lease, there are certain exemptions to this which can be applied.

If a Landlord has made all relevant energy efficiency improvements that have been suggested by the inspector but the rating is still below ‘E’, the Landlord may still be able to grant a lease.

This also applies where suggested energy efficiency improvements cannot be implemented, particularly with listed buildings where these improvements can be detrimental to the character and status of the building.

If a property is subject to a lease with a term of fewer than 6 months, or more than 99 years, the ‘E’ or above-required rating will not apply.

Consequences of EPC requirements and non-compliance for Landlords:

There are consequences if a Landlord continues to let, or grants a new lease of, a property that does not hold the required rating.

If the breach has occurred for a period of less than 3 months, a maximum fine of £5,000 or 10% of the rateable value of the property can be imposed. Where this breach occurs for over 3 months, the maximum fine payable doubles to £10,000 or 20% of the rateable value.

The Landlord will also be unable to continue to let the Property or grant a new lease of the Property in the future, whilst this rating remains below the required standard. It should also be noted that the costs of the works to bring the property up to the required standard could be substantial depending on the works required.

Consequences for Tenants:

There are also potential implications for Tenants to bear in mind when considering EPC requirements of an existing or new lease.

Should works be required to increase the EPC rating to bring it in line with the required standard, a Landlord may decide to increase the service payments to account for this additional work.

A Tenant may also be prohibited from carrying out works or alterations to the property that could result in a decrease in the EPC rating.

Future changes:

The government has proposed that the EPC requirements for commercial leases are increased over time in order to ensure that properties within the UK are sufficiently energy efficient. A required rating of ‘B’ or above has been proposed to be implanted by 2030.

It is therefore essential that Landlords and Tenants, both existing and new, are aware of the EPC rating of their property, and make preparations to increase the energy efficiency in anticipation of future changes.

If you would like to discuss EPC requirements, please don’t hesitate to contact Jasmine Keeble or a member of our Commercial Property Department.