If you are a landlord, you are probably already aware that in order to grant a lease to a tenant the property must have an “Energy Performance Certificate” (‘EPC’) showing that the building has an energy efficiency rating of at least “E”. However, you may not be aware that these rules will be changing over the next several years.
The importance of the minimum energy efficiency rules cannot be overstated. Not only do they affect a landlord’s ability to let property, but also of a seller’s ability to sell, and a borrower’s ability to borrow. Any buyer or lender will want to know that the rules have been complied with before they proceed with the transaction.
Presently if a commercial property with a rating of “F” or “G” is currently let, it will be incapable of continuing to be let after 1 April 2023 unless improvements are made to bring it to an “E” or an exemption is registered. This is the imminent threat that landlords need to be aware of and they will need to review their portfolio to ensure that they are compliant.
Going forward, the Government has proposed lifting the minimum energy efficiency rating for property to a “B” by 2030. There will be a phased implementation: firstly, by 2027 all property must have a minimum rating of “C”. To help landlords ensure that they comply with the new rules, the government has introduced what they are calling “compliance windows”. There will be two of these compliance windows between now and 2030. The upshot is that buildings need to achieve a “C” rating by 2027 and a “B” rating by 2030.
The first compliance window is from 2025 to 2027. From 01 April 2025 all property must have a valid EPC. A two year clock then starts, allowing landlords time to improve the energy efficiency of the building if required. Then, from 1 April 2027, the minimum required rating is “C”, so landlords must have completed the improvement works by then (or have registered a valid exemption).
The second compliance window is from 2028 to 2030. A landlord must have a valid EPC by 01 April 2028, and again a two year clock begins which allows the landlord time to make improvements to the energy efficiency of the building. The rating must be lifted to a “B” and a new EPC obtained by 1 April 2030 (or, once again, the landlord must have registered a valid exemption).
Currently, any landlord not in compliance with the minimum energy rules can face fines of up to £150,000 for commercial property. Such penalties are likely to continue under the new rules.
There are certain exemptions available and if one of them applies it would mean that the minimum ratings do not have to be achieved, but they only apply in limited circumstances and are personal.
At mfg we have an experienced team in commercial property transactions of all types and the various ways those transactions can be affected by the energy rating rules, so please do get in touch if you have any questions.