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As of 1 April 2023, commercial landlords will need to make sure their property has an Energy Performance Certificate (EPC) rating of at least E or face possible penalties. The government estimates that in order to meet this standard the percentage of commercial properties in the UK that will need to be upgraded will increase from around 10% to around 85%.
I previously wrote about green leases in August 2021 to summarise the ways in which landlords and tenants can meet their environmental targets and how a green lease can be used to improve the energy efficiency of a building or to preserve an existing standard. To recap, a green lease is a term used to describe a lease that includes a range of environmental obligations agreed between a landlord and a tenant. The obligations will usually be drafted to encourage the landlord and the tenant to reduce their environmental impact, in turn making a property more sustainable.
The biggest implication for green leases are the Minimum Energy Efficiency Standards (MEES) in relation to the obtaining and/or maintaining of an Energy Performance Certificate (EPC). MEES relates to commercial properties in England and Wales. The current median EPC rating in England and Wales is D with 18% of commercial properties holding the lowest EPC ratings of F or G.
The legislation creating MEES came into force on 1 April 2018, introducing a minimum EPC rating of E but only in relation to the grant of a new lease or the extension or renewal of an existing lease. Non-compliance carries the potential of penalties for the landlord unless a valid exemption has been registered.
As of 1 April 2023, the EPC rating requirement will be extended to be a minimum of E on the grant, renewal or extension of a lease (as previously) but now also including the continuation of any existing lease or tenancy of that property. A landlord could then be liable to a penalty also for continuing an existing tenancy where the EPC rating is less than E..
Beyond April 2023, the government proposes that staged rises in the required EPC rating for commercial properties are due in 2027 and 2030. By 2030, the government plan to enforce a minimum rating of ‘B’, with a lower minimum rating of ‘C’ to be achieved by 2027.
Penalties can range from £10,000 for cases of non-compliance for greater than 3 three months or 20% of the rateable value of the commercial premises up to £150,000. Exemptions can range from third-party consent refusal or if all the improvements have been made but this does not result in an EPC rating of E or higher. It should be noted that exemptions are not automatic and require registration.
FURTHER INFORMATION
If you have any questions about any of the real estate issues covered in this blog, please contact any member of the real estate team
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