New EPC regulations for commercial properties from 1st April 2023

MEES

As a result of the Energy Act 2011, regulations have been introduced to improve the energy efficiency of certain private rented property.  These regulations are contained in the Energy Efficient (Private Rented Property) (England and Wales) Regulations 2015.  These regulations affect both residential and commercial property.

The Minimum Energy Efficiency Standards (MEES) came into force on 1st April 2018, which brought about the requirement that properties must attain a minimum energy performance rating of at least an “E” standard before the property could be let.  Subject to limited exceptions, a landlord must not grant a new lease for a term of more than 6 months (unless the tenant will have been in occupation of the property for over 12 months at the time of the new letting) but less than 99 years where the EPC rating is below this minimum “E” standard.  However, MEES does not apply to existing leases.

New Regulations

From 1st April 2020 in respect of residential property and from 1st April 2023 in respect of commercial property, this requirement has tightened, so that a landlord must not continue to let any existing property where this minimum “E” standard is not met.  This means that the prohibition on letting a commercial property with an EPC rating below an “E” will apply to continuing and existing leases as well as new leases (unless a valid exemption has been registered).

It is the landlord’s responsibility to undertake any necessary improvement works to the property and commission a new EPC at the landlord’s cost in order to reach the minimum standard of ‘E’ before the property can be let out.  

Whilst failure to achieve the relevant minimum standard without a permitted reason will not render a lease void or unenforceable, it may result in both substantial financial penalties for a landlord and a requirement to implement the physical changes.  The penalty is based on the rateable value of the property and will be between £10,000 – £150,000 per breach.  Details of the breach may also be made publicly available. 

Copies of EPC certificates for all residential and commercial properties, if valid, are freely available to download here.

Steps you can take

If you are a tenant, you should:

  1. Check the current EPC rating of a property before you enter into any negotiations to take a new lease.
  2. Check the current EPC rating of your property if you are an existing tenant.
  3. Check whether any proposed alterations you are planning to make to the property will have an adverse effect on the property’s EPC rating.  It is now usual for modern leases to prohibit such works.
  4. Check the current EPC rating before you propose to assign or underlet the property, as any potential assignee or undertenant will likely require evidence that the property satisfies the above regulations.

If you are a landlord, you should:

  1. Check the current EPC rating of your property before you enter into any negotiations to grant a new lease.
  2. Check the current EPC rating of your property which you have already let to a tenant as the EPC rating will need to be achieve the minimum “E” standard throughout the term of the lease.
  3. Diarise dates that are well in advance of any expiry dates on your EPC certificates.  It is important to ensure that you have sufficient time to not only obtain a new EPC but to carry out any improvement works to the property in order to achieve the minimum “E” standard if necessary.

Band “E” and beyond?

Over time, this minimum “E” standard is likely to rise as regulations provide for the review of energy standard at intervals of no more than 5 years.  There are currently future proposals for the minimum standard to be increased to band ‘C’ by 1st April 2027 and band ‘B’ by 1 April 2030, according to the government’s white paper released in 2020.  Although any future legislation is still in draft form, it seems likely that the EPC ratings for commercial buildings are only going to tighten further.

If you have any queries regarding commercial property matters, please get in contact with our commercial property department on 020 8680 2638 or visit our commercial property page to find out more.