Commercial Properties & EPCs
What are EPCs?
An Energy Performance Certificate, often known as an EPC, is a certificate issued by an assessor which shows information about the energy efficiency of the property to which it relates.
An EPC issued on or after 9th January 2013 must contain an asset rating which is a hypothetical measure of the energy performance that a type of property could be expected to achieve based on its method of construction, insulation, the services for heating or cooling it, and some standardised assumptions about how it will be used. It is not a realistic prediction of the actual energy performance that has been or could be achieved because this is influenced by the way in which the current occupants use the property. The asset rating is a sliding scale from A (being the most energy efficient properties) to G (being the least energy efficient properties).
What does an EPC include?
EPCs must also include a recommendation report, which is the assessor’s recommendations for cost-effective improvements that could be made to the property to improve its energy efficiency. The report should indicate where to get more information about the proposed works and how to go about making the changes.
Other essential information for an EPC includes the data reference number, details of the property, the date the EPC was issued and Green Deal information (being details of any funding provided to the current or any past homeowners to carry out work to reduce carbon emissions which is being paid back over time and will continue to be paid back by future homeowners via an additional charge to the electricity bill for the property). An EPC must not contain any information that identifies a living individual other than the assessor who produced the EPC or his employer. This is to protect the privacy of owners and occupiers, particularly from unsolicited marketing.
When is an EPC required?
EPCs are required when selling or letting an existing property, when a new property is built or where fairly substantial alterations have been carried out to an existing property. They are also required when a property is subject to a Green Deal plan. This can be checked online.
Certain properties are exempt from the EPC Regulations and these include properties which do not have a roof or do not have walls, properties which use no energy to condition the indoor climate, religious properties, temporary properties, industrial sites, workshops and non-residential agricultural properties with a low energy demand, residential properties which are not used for much of the year, buildings earmarked for demolition and listed buildings and buildings in conservation areas, but only in certain circumstances.
How are EPCs regulated?
From the 1st April 2022, the relevant legislation is the Energy Performance of Buildings (England and Wales) (Amendment) Regulations 2022 (SI 2022/413) which slightly amends the Energy Performance of Buildings (England and Wales) Regulations 2012. The EPC Regulations affect both residential and commercial property.
MEES (Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962)) also sets out the Minimum Energy Efficiency Standards for commercially-let properties. Since 1st April 2018 MEES prohibits landlords granting new leases for properties with an F or G EPC rating. Commercially-let properties must, therefore, have an EPC rating of E or higher.
Both sets of regulations seek to address issues relating to energy performance. However, the implementation of both sets of regulations often leads to confusion and this is particularly apparent with the issue of EPCs on lease renewals.
Do you need a valid EPC on the grant of a renewal lease?
The EPC Regulations set out the obligation to provide an EPC when “selling” or “renting out” a property. However, neither of these terms are defined in the EPC Regulations.
The Department for Communities and Local Government subsequently set out a guidance note in 2017, specifying that certain transactions would not fall within the scope of a sale/letting. Lease renewals (i.e., where the tenant is not changing) are listed as being outside of the scope. Therefore, there is guidance (not law) setting out that an EPC is not required for a lease renewal under EPC Regulations.
The MEES Regulations, however, go in the opposite direction to the EPC Regulations.
The MEES Regulations prohibit the letting of sub-standard non-domestic private rented property as a result of an extension or renewal of an existing tenancy on or after 1 April 2018.
The non-domestic MEES guidance note suggests that in the absence of a valid EPC, a new EPC would be required on a re-letting to a current tenant.
This is a common bone of contention between landlords and tenants on otherwise straightforward lease renewals. Given that from 1st April 2023 all commercial properties will require an EPC, it makes sense to be getting the EPC on any renewal.
In practice, this means that landlords of commercial property need to have a valid EPC for their property with a rating of E or higher. If the rating is F or G then landlords will need to carry out works to the property to improve the energy efficiency. If they do not already have a valid EPC for their property, then they ought to obtain one prior to any sale or lease, even if the lease is a renewal or extension to the same tenant.
If you would like any further information or advice, please contact our Commercial Property Team via the details below: -
Wokingham 0118 978 0099
Reading 0118 957 3425
Farnham 01252 733 733