Energy Performance Certificates for Commercial Property

UK government propose to tackle climate change and meet their greenhouse gas emission reduction targets, which is an 80% carbon reduction by 2050. This can be done through greater energy efficiency, including energy efficiency in buildings. Buildings have been identified by the government as a major contributor to greenhouse gas.

Since 1 April 2018, the regulations regarding Energy Performance Certificates (EPC) for commercial property have changed. The Minimum Energy Efficiency Standards (MEES) will apply to both the domestic and non-domestic property, meaning that whether a landlord is letting out a commercial property or a house to a tenant, it could be unlawful to do so should the building not meet these new minimum EPC requirements. The MEES were designed to tackle energy efficiency within older buildings.

EPCs rate how energy-efficient a building is, from A (the most efficient) to G (the least efficient). Since April 2018, it is unlawful for a landlord to let a commercial property with an F or G EPC rating, unless there is a valid exemption. A property with an F or G rating would be deemed to be sub-standard. From April 2018, landlords wishing to rent out a commercial property or renew a lease must ensure that the building has an EPC rating higher than ‘E’.

There are exemptions to the new rules. These include listed buildings, temporary structures, industrial sites or workshops, and detached buildings with a floor space of less than 50m sq. Some vacant properties and buildings which are due for demolition are also exempt.

If you fail to bring your property in line with the new EPC regulations, your local authority can serve a compliance notice on you requesting that you inform them of the steps you are taking to remedy the situation. If the information is not forthcoming, the local authority may serve a penalty notice of up to £5,000.

EPC and Rent Review
It is not clear at this stage whether the EPC rating of a property has a direct effect on their market rental value. The relationship between the EPC rating and the market rent is likely to come into sharper focus for premises rated F or G, because the MEES regulations prohibit the landlord from letting or continuing to let F or G rated premises in certain circumstances.

EPC and Alterations / Licence to Carry out Works
When the tenant applies for consent to carry out works, the landlord should consider carefully whether the works are likely to have an adverse effect on the EPC rating for the property, or for the building as a whole. This will depend on what works are proposed. If the works proposed will potentially reduce the energy rating of the property, then the landlord may refuse consent to the works or grant consent, but insist that the property is reinstated at the end of the term.

A landlord's prime concern is if a tenant has obtained an EPC which shows a worse EPC rating than an existing EPC. This could be as a result of the tenant carrying out works, which make the property less energy efficient e.g. changing glazing from solar reflective glass to plain glass. A landlord will want to avoid a lower EPC rating, as this makes the property less appealing on the open market. The fact that it is not energy efficient will discourage potential tenants. It is vital that the landlord controls the works a tenant does, and should prohibit the tenant from commissioning an EPC without the consent of the landlord.

If you think your commercial property may contravene the EPC guidelines, you should obtain an accurate EPC rating from a qualified and accredited energy assessor. If the results show that your commercial property has a rating of F or G, you should take steps to make it more energy efficient. Not only will this help with future EPC ratings, but the changes will attract new tenants to occupy the property.