Landlords of commercial properties will be aware that (subject to an exemption) since 1 April 2018, it has been unlawful to grant or renew a tenancy of sub-standard property, being a property that has an Energy Performance Certificate (EPC) rating of ‘F’ or ‘G’.

From 1 April 2023, it will be unlawful to allow a lease of sub-standard property, which may have otherwise been lawfully granted before 1 April 2018, to continue unless an exemption applies and that exemption has been registered on the exemptions register.

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Key exemptions

Some of the key exemptions available to landlords include:

  1. Where the landlord has been unable to obtain any required third-party consent to undertake necessary energy improvement works (e.g. planning, superior landlord consent or tenant consent) or where consent has been given subject to conditions with which the landlord cannot reasonably comply.
  2. Where an independent surveyor determines that energy improvements are likely to reduce the market value of the property by more than 5%.
  3. Where an independent assessor determines that all relevant energy improvement works have been carried out (or there are none that can be carried out) and the EPC rating still remains below an E.
  4. Where an independent assessor determines that energy improvement works that could be made will not pay for themselves through energy savings within seven years.

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How to stay compliant?

If landlords have not already done so, they need to start thinking about what they should be doing to prepare and if any action needs to be taken to stay compliant and to minimise the risk of enforcement action, for example:

  • Landlords should start by auditing their portfolios and checking whether each property has an EPC rating of at least an E. An initial strategy can then be implemented to determine which properties need prioritising for further action. 
  • Landlords should, however, take caution when acting on an existing EPC as EPC ratings can be subject to significant change through various factors, including a tenant’s fit-out, an existing EPC having been carried out several years prior or a previous EPC simply being poorly prepared. It is important to ensure an existing EPC is completely accurate before using it as a baseline and considering improvement measures. 
  • Landlords should also consider certain factors to establish the urgency with which they should consider addressing a property’s EPC rating. For example, if a lease is due to come to an end, before looking at improvements, the landlord should consider whether the rating will improve through the tenant removing their fit-out or whether it is only poor because of the fit-out. 
  • Landlords must obtain accurate advice on the current EPC position before taking further steps. A draft EPC can be commissioned that does not have to be lodged, and if it is suitably accurate, then the landlord can use it to decide on the next steps. 
  • Landlords should not rely on recommendation reports to guide on required improvements as these are automatically generated by EPC software and may not be accurate. 

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In the event of non-compliance, an enforcement authority can impose financial penalties, which are set by reference to the property’s rateable value. There is a risk of fines of up to £150,000 for non-compliance.

Penalties can be levied in respect of each unlawful tenancy; therefore, in a multi-let building, financial penalties could quickly add up.

It is important to note that the Minimum Energy Efficiency Standards (MEES) regulations do not impact the validity of the letting or the tenant’s rights as against the landlord. A lease granted in breach of the regulations is still valid, but the landlord puts itself at risk of enforcement action.

MEES obligations are anticipated to step again in the coming years with government proposals for requirements of a minimum EPC rating of C in 2027 and B in 2030.

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A consultation proposed a series of deadlines for privately rented non-domestic buildings between 2023 and 2030. These are that:

  • By 1 April 2025 – buildings that are not exempt must present a valid EPC;
  • By 1 April 2027 – all buildings must meet a minimum EPC standard of C or have a valid exemption registered;
  • By 1 April 2028 – landlords must check their EPCs to help identify any properties that require further improvements; and
  • By 1 April 2030 – buildings must meet a minimum EPC standard of B or have a valid exemption registered.

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EPC provisions

It is common practice for leases to include EPC provisions which set out whether or not a tenant can commission an EPC for the property and, if so, what controls are in place surrounding this, such as the tenant only being able to commission an EPC if required by law and, in such a case, either having to use an assessor approved by the landlord or paying the landlord’s costs of obtaining the EPC themselves.

Some landlords have started to go further than this and now incorporate clauses into their leases relating to environmental performance and recoverability of landlord’s energy management costs that are incurred concerning things such as the supply and consumption of energy or emissions at the property.

Some leases also require the tenant to pay the costs incurred by the landlord in carrying out works to the property to improve its environmental performance but usually only in circumstances where the tenant consents to the landlord doing so.

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Contact Our Commercial Property Solicitors

If you need advice on how to ensure your commercial property is MEES complaint, or you have any other queries, please contact our commercial property team today on:

0161 941 4000