New EPC regulations for commercial property – What you need to know
What are energy performance certificates and why do they matter?
Energy performance certificates or EPC certificates are a rating given to properties, both residential and commercial, that gives an idea of how much energy is taken to heat and run the property and how much the carbon dioxide emissions are likely to be, a key cause for concern with global warming. The EPC rating certificate goes all the way from ‘G’ extremely inefficient to ‘A’ extremely efficient, it will also give suggestion for energy efficiency improvements and what your score would be if all the suggested amendments were put in place. An EPC Certificate is valid for 10 years after the date of issue.
EPC ratings take into account window and door glazing, insulation (both internal and external), types of lighting, boiler and heating system type but are given based on the usage of a typical premises and aren’t tailored to meet individual requirements. Having an up-to-date EPC is essential when selling or leasing your property.
In fact, it has been compulsory for commercial landlords to offer an EPC free of charge since 2012, aside from a few exceptional circumstances where an EPC is not required (existing EPC exemptions are listed below) you could be fined up to £5,000 if you do not make an EPC available to the prospective buyer or tenant as a commercial landlord.
A property may be exempt from having a valid EPC certificate if:
- It is listed building, although not all listed buildings are exempt.
- If it is a place of worship or used for other religious activities.
- If the building is temporary and only to be used for less than 2 years.
- It’s a detached building with less than 50m^2 of floor space.
- If the building is due to be demolished.
- Certain industrial and agricultural buildings that don’t use much energy.
What are the changes for commercial properties?
Although having a poor EPC rating may have been a deterrent to a business looking to select a new business premises, prior to 2018 there was no minimum EPC rating for commercial properties. However, in line with reducing carbon emissions worldwide with the aim of achieving net zero carbon by 2050 and to protect business owners from rising energy costs, new EPC regulations have been put in place in the UK to ensure commercial properties do not have extremely poor and inefficient energy use.
Minimum Energy Efficiency Standards (MEES)
Minimum Energy Efficiency Standards (MEES) are regulations that mandate a minimum energy efficiency requirement for properties in England and Wales before they can be rented or sold. These standards aim to improve the energy performance of buildings and reduce carbon emissions by ensuring that properties meet certain energy efficiency criteria. MEES impose legal obligations on landlords, property owners, and sellers to make necessary energy efficiency improvements to their buildings, thus enhancing the overall energy efficiency of the property stock in the region.
What are the minimum energy efficiency standards now?
As of April 2018 the minimum EPC rating for a commercial property is now an ‘E’ rating or higher. This meant that a new lease cannot be signed or existing leases renewed unless the business premises meets the minimum EPC rating of a level ‘E’, with ‘F’ and ‘G’ ratings deemed unacceptable.
However, as of April 2023, this minimum requirement of EPC rating E or above now applies to all existing commercial tenancies. Therefore you cannot continue to let or lease a commercial building with it having a current valid EPC rating of ‘F’ or ‘G’, it is no longer lawful under the new rules and must be amended as soon as possible and a new EPC rating obtained.
What happens if the commercial property you’re leasing does not meet minimum EPC rating standards?
The penalty for letting commercial buildings that do not meet relevant energy efficiency measures and requirements in their EPC ratings is huge. For less than three months non-compliance up to £50,000 and for 3 or more months of non compliant commercial property leasing a fine of up to £150,000 can be given to landlords, although the exact amounts will be based on the market value of the property and severity of the breach.
Are there any exemptions to the new EPC rating rules?
Commercial property owners and commercial landlords should have been aware of this change, and the penalties for not following the new rules, for some time but there are still some exemptions for those who have yet to meet the new EPC rating requirements.
If you need assistance navigating the commercial conveyancing minefield then our commercial property solicitors can help with all aspects of property law, business leases and meeting the minimum EPC requirement as a commercial landlord. Contact one of the team on 01752 660384.
- There are exemptions for commercial property owners who have recently become landlords by purchasing commercial premises subject to existing tenancies to allow them additional time (6 months) to carry out remedial work to ensure a rating of ‘E’ or higher.
- If all possible energy efficient improvements have been carried out, or there are none that can be made. Or if the cost of making the improvements would not pay for itself within seven years.
- Where improvements would result in a decrease in the market value of the property of 5% or more.
- If third party consent has not been given for renovations to take place (e.g. local planning authority).
- These exemptions are not automatic and must be registered by the landlord on the PRS Exemptions Register in order to be compliant and avoid penalties. They last 5 years but need to be reapplied for should the commercial property change hands within that time frame.