Energy Rating of Commercial Property – Upcoming Changes

All property (with a few exceptions) that is sold or let must have an Energy Performance Certificate (EPC). These certificates have a range of ratings from A (most) to G (least) energy efficient.

Since April 2018 landlords of privately rented commercial property in England and Wales have been unable to grant a new tenancy unless that property has an EPC rating of E or above.

However, just a year from now, commencing 1st April 2023, every commercial property will need to meet this minimum level E rating to continue to be let on an existing lease unless an exemption applies and is correctly registered on the PRS Exemptions Register.

The main exemptions for commercial property are as follows:

• Seven-Year Payback

The expected value of savings on energy bills of a recommended improvement, or a package of them, over a seven-year period is less than the cost of carrying out the work. You are required to upload quotes and calculations to the Register in order to demonstrate this.

• All Improvements Made

The landlord has made all the ‘relevant energy efficiency improvements’ that they can, and the property still remains below EPC rating E. This must be assessed and certified by a professional such as a surveyor.

• Wall Insulation

Some insulation systems may not be suitable in certain situations and again expert advice is required.

• Third Party Consent

This might for example be permission to do the work from the local authority (e.g., planning consent) or a mortgage lender or even the occupying tenant. The landlord will need to upload to the Register any relevant correspondence/documentation and the refusal to give consent or the imposition of conditions which the landlord is not reasonably able to comply with.

• Devaluation

The landlord would be expected to obtain a surveyor’s report which states that the installation of specific improvements will reduce the market value of the property by more than five per cent. Note that the landlord will still have to carry out other recommended improvements which are not covered by the report.

Each of the above exemptions is valid for five years. After that the landlord is required to re-evaluate the situation and either carry out the work or register a new exemption. However, there is a further short-term exemption for new landlords who have six months to bring the building into compliance.

What happens if a Commercial Property is found in breach of the regulations?

If a lease is granted or continues in breach of the regulations, it will still be valid, but the landlord is at risk of being fined. Very short-term breaches are less costly but where non-compliance has occurred for longer than three months the penalty could be 20% of the rateable value of the property with a minimum fine of £10,000 and a maximum of £150,000. Thus, the fine may be greater than the improvement cost itself.

Will there be further changes ahead?

The issue of minimum EPC ratings for commercial properties is not something that is going to go away. There are currently proposals by Government to raise the bar in stages and to impose a minimum EPC rating of B (subject to the registration of legitimate exemptions) by 2030.

Owners who have not done so already would be well advised to start reviewing the energy efficiency of their properties and to put improvement measures into place whilst there is still time to spread the cost of so doing.

For more information or advice on all aspects of commercial property law speak to one of our team today on 0118 978 0099. We regularly advise clients across the Southeast, including Berkshire, Hampshire, Oxfordshire, Surrey, Wiltshire and London. Our solicitors will move fast to find a solution personal to you.