Save the Date - Energy Performance Certificate (EPC) regulation changes for commercial property on the horizon

27 October 2021

As you’ll be aware from some of our previous articles, energy efficiency is a hot topic in the property world, and more changes are on their way regarding the minimum energy efficiency standards (MEES) for commercial properties in the UK.

 

1st April 2018- Minimum EPC rating of E for new tenancies

The current position regarding MEES which has been in place since 1st April 2018, is that it is unlawful for a landlord to grant a new tenancy of commercial property with an EPC rating of lower than E (unless an exemption applies).

1st April 2023- Minimum EPC rating of E for new & existing leases

This will change from 1st April 2023 when this same rule will apply to all existing leases. This means it will be unlawful for a Landlord to continue to let a commercial property with an EPC rating of less than E.

In December 2020, the government unveiled its energy white paper which sets out specific steps the government is planning to take over the next 10 years in order to meet its commitment to net zero emissions by 2050 and to “ensure the UK is at the forefront of the Green Industrial Revolution”.

Amongst other things, this white paper outlined a new framework to reach a target of increasing the MEES for all commercial property to an EPC rating of B by 1st April 2030.

The latest consultation undertaken in relation to the government’s 2030 target seeks to set out the framework for a phased implementation and to address some areas of concern and systemic changes which will need to be implemented in order to meet, monitor and enforce the new 2030 target.

The phased implementation will likely be made up of two “compliance windows” each lasting two years. At the start of each compliance window, the landlord would be required to present an EPC, and at the end of the compliance window, the Landlord would be required to have brought the property up to the minimum EPC standard.  

Compliance Window 1

1st April 2025- Start of compliance window 1 (First presentation of a valid EPC (with a view to achieving a minimum EPC rating of C))

Landlords will be required to submit a valid EPC by this date. This means that, if the property doesn’t have an EPC, or its current EPC (which only lasts 10 years) has expired, then a landlord will be required to obtain a new EPC. If the valid EPC is a rating of C or above, the property will be compliant for this compliance window. If not, the landlord will be required to undertake any works necessary to bring the property up to a C rating or above by 1st April 2027, unless an exemption applies.

1st April 2027- End of compliance window 1 (Minimum EPC rating of C)

By 1st April 2027 the property would need to have a minimum EPC rating of C. This means that a Landlord will need to have made the necessary improvements to the property in order to obtain an EPC rating of C, or have registered a valid exemption.

Compliance Window 2

1st April 2028- Start of compliance window 2 (Second presentation of a valid EPC (with a view to achieving a minimum EPC rating of B))

Landlords will be required to present a valid EPC. If the EPC already has a rating of B or above, the property will be compliant. If the property has a rating of less than B, then the landlord will be required to undertake any works necessary in order to achieve an EPC rating of B, or have registered a valid exemption by 1st April 2030.

1st April 2030- End of compliance window 2 (Minimum EPC rating of B)

By 1st April 2030 the property will need to have a minimum EPC rating of B. This means that a Landlord will need to have made the necessary improvements in order to obtain an EPC rating of B, or have registered a valid exemption.

Issues to consider

The consultation also dealt with the following points:

  1. Cost of works. It is proposed that the requirement to meet the MEES standards at each enforcement date is to be qualified by a seven year payback test.  This means that the installation of energy efficiency improvements will only be required to the extent that those improvements can achieve an energy efficiency payback of seven years or less. If the improvements necessary to bring the property up to the required standard do not pass the seven year payback test, then Landlord would only need to prove that they’d reached the highest EPC rating possible within those parameters.
  2. Central Register of compliance and exemptions. It is proposed that a new central database of compliance and enforcement be set up where Landlord will submit their compliant EPCs or details of any exemptions.
  3. Responsibility for compliance. Under the relevant regulations, it is the Landlord’s responsibility to comply with MEES. The consultation acknowledges that a collaborative approach isn’t currently encouraged and it’s possible that further legislation could be implemented to require cooperation between Landlords and Tenants or impose obligations onto Tenants.
  4. A move away from enforcement of EPC regulations at point of letting. This is of particular importance for property let in a “shell and core” state where the Landlord would be required to install certain energy efficiency measures in the property to comply with MEES at the point of letting, only for the tenant to immediately remove these when the property is fit out.
  5. Listed Buildings. A clarification has been provided that a Listed Building should have an EPC but will be able to apply for an exemption if the MEES standard cannot be achieved in relation to the property by virtue of such works being incompatible with planning and/or listed building regulations.  

The government is due to respond to the consultation later in 2021. The government’s response will be followed by legislation which will set in stone the framework for achieving their 2030 target.

Regardless of the government’s final response to the consultation, it is clear change is on its way. Be prepared and start planning now.

FURTHER INFORMATION 

If you would like to discuss anything raised in this article then please contact Matthew Copeland in our Real Estate & Construction team.

 

ABOUT THE AUTHOR

Matthew Copeland is an Associate in our Real Estate team. He has experience in most areas of commercial and residential real estate matters, acting for large property investors, landlords and tenants, developers, lenders, pension trustees, PLCs and entrepreneurs.  

 

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