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Is your Property ready to meet the new minimum energy efficiency standards?

25/05/2017

The energy used for heating and powering commercial properties is responsible for around 12% of the UK’s emissions. 

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (henceforth “the Regulations”) are designed to tackle the very least energy efficient properties in England and Wales – those rated F or G on their EPC. These properties waste energy – not only contributing to the country’s greenhouse gas emissions, but also an unnecessary cost on businesses and the wider economy.

From 1 April 2018, Landlords must ensure that all new lets and tenancy renewals of commercial property have a minimum energy performance rating of E on an Energy Performance Certificate (EPC), subject to exclusions and exemptions. There are separate regulations for residential property. 

Then, from 1 April 2023, Landlords must not continue to let a property that has an EPC rating below an E to existing tenants (even where there has been no tenancy renewal, extension or indeed new tenancy) or to new tenants, unless: 

  1. an exemption applies and has been registered; or 

  2. all relevant energy efficiency improvements have been made (or that there are none that can be made), the energy performance remains below E, and the exception has been registered on the Exemptions Register. 

In February 2017, the Department of Business, Energy and Industrial Strategy (BEIS) issued guidance, which provides a useful summary of the effect of the Regulations. Below are a few interesting points observed.

  • The guidance is intended to help Landlords to meet their obligations and is not legally binding, and ultimately it is for the courts to give interpretations of the law. 

  • Where an enforcement authority is satisfied that a property has been let in breach of the Regulations it may serve a penalty notice on the Landlord imposing financial penalties. The authority may also publish details of the breach.

  • Since the Regulations only apply to properties which are let under a tenancy, commercial properties which are occupied under other arrangements, such as let on ‘licence’ or ‘agreement for lease’, are unlikely to be required to meet the minimum energy performance rating.

  • The Regulations state that commercial properties will not be required to meet the minimum standard if it is let on a tenancy which is:

    • granted for a term not exceeding 6 months (unless the tenancy agreement contains provision for renewing the term or extending it beyond 6 months from its beginning, or, at the time it is granted, the tenant has been in occupation for a continuous period of more than 12 months); or

    • granted for a term of 99 years or more.

Landlords may however still wish to improve the EPC rating to an E or higher, to enable the property to benefit from energy efficiency savings.

  • Listed properties and buildings within a conservation area, will not necessarily be exempt from the requirement to have a valid EPC. If it is required to have an EPC, it will be subject to the regulations. However, an EPC is not currently required for a listed property or building within a conservation area when it is sold or rented, in so far as compliance with the minimum energy performance requirements would unacceptably alter its character or appearance.

  • In situations where an owner or occupier of a building which is not legally required to have an EPC has obtained one voluntarily (that is, at any time other than when the property was to be sold, let or modified as mentioned above), the landlord will not be required to meet the minimum standard.

  • In certain, limited, circumstances landlords may be able to claim an exemption from this prohibition on letting sub-standard property, this includes situations where all improvements which can be made have been made, and the property remains below an E. Where a valid exemption applies, landlords must register the exemption on the database set up for this purpose – the PRS Exemptions Register.

  • Importantly, the exemption will not pass over to a new owner or landlord on sale or other transfer of a property. So, if a let property with an F or G rating is sold or otherwise transferred with an exemption in place, the exemption will cease to be effective. The new owner will need to either improve the property to the minimum standard, or register an exemption where one applies if they intend to continue to let the property.

  • Where subletting is permitted in a lease, the original tenant should not sublet the property until the minimum standard is reached and they are responsible for carrying out all the improvement works, subject to the necessary consent and licences from the Landlord. 

  • Landlords should be aware that nothing in the regulations interferes with the rights, validity or enforcement of a tenancy under any other legislation, such as Landlord and Tenant Act 1954 rights. So the landlord may not refuse consent to a statutory lease renewal on the basis that the property is ‘sub-standard’ (that is, below E). Likewise, tenants may not use a landlord’s failure to comply with the minimum energy efficiency standards as a reason to prematurely terminate their lease.

  • From 1 April 2023, a temporary exemption of six months will apply from the date from which a person becomes the Landlord on purchasing an interest in a property let on an existing tenancy.

Landlords are being encouraged to make sure their properties comply with the energy performance regulations now rather than waiting until 2018. Some properties may only need a couple of tweaks to bring them in line such as installing low energy lighting, while others may require substantial works. 

The majority of a building’s heat is lost through poor sealing of doors and windows and through poor insulation in the roof and walls so checking and renewing or adding new window and door seals can eliminate drafts, while insulation, if missing in attics can be installed or existing insulation thickened to reduce heat loss from roofs.

Planning now will also have the obvious benefits of spreading the cost and making sure that the relevant third party contractors are available to undertake any necessary work and that they are completed in time. 

If a Landlord or Tenant is in any doubt about tenancy renewal rights in relation to any tenancy, they should seek the appropriate legal advice at an early stage to ensure they are able to comply with all of their obligations.

For any more information about energy performance regulations or any other queries, please contact Charlotte Nutting on 01743 266280 or email: c.nutting@fbcmb.co.uk. Alternatively, please visit Commercial Property page


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