Energy-inefficient properties will not be able to be leased after April 2018
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 apply to commercial (strictly non-domestic private rented) properties. These are more commonly referred to by the nickname MEES (minimum energy efficiency standards). From 1 April 2018 landlords must upgrade the energy efficiency of their properties to band E or better. This is determined by an energy performance certificate, carried out by a qualified assessor. A building scoring more than 54 assessment points – when assessed according to the EPC process – will require improvement before the property can be leased to a new tenant, or within six months of sale of the property or of a change of landlord. From April 2023 this will apply to all property leases, not just new leases.
An EPC can be obtained for as little as £49. The recommendations of an assessor must not damage the property or devalue it by more than 5% and improvements must be capable of paying for themselves within seven years. Therefore, properties without an EPC, come next April, will be properties with a potentially substantial liability hanging over them, making them quite unattractive. If they are assessed and don’t make the E grade they will not be allowed to be leased until they are sufficiently improved.
Quite a lot of properties have tenants whose lease has existed for ten years or more. It is quite likely the landlord has not had an EPC done, unless perhaps it was suggested during the process of drawing up a deed of variation, transfer or change to the lease or the exercise of a break option. This seems potentially short-sighted when the EPC could have provided an opportunity to plan improvements that are potentially disruptive to tenants. Note that there has not yet been a case testing whether or not the improvements to a property to comply with MEES constitute repairs. On the assumption that they do, the tenant might be entitled to a significant rent abatement. They might have to vacate for a period of time, which could lead to significant requests for compensation.
Landlords may also have the right to increase the rent after such work, which means they may be missing out on revenue by delaying the grasping of this nettle. Note also that tenants’ running costs will significantly decrease and this in turn reduces landlords’ risk of arrears and default by improving the tenants’ cash position. But most importantly of all, this legislation should help to further drive down building-related greenhouse gas emissions that are a significant contributor to climate change, which of itself is a serious risk to UK building stock because it increases the chances of serious flooding and hurricane damage.
All this suggests that, if you haven’t got an EPC yet, go get one. As you can well imagine, assessors may feel after April 2018 that £49 is too cheap for such a valuable piece of paper.