Landlords of commercial premises will potentially have to upgrade the energy performance of their buildings to at least an ‘E’ rating within Energy Performance Standards before they can let them out says commercial property agent Prop-Search, under plans put forward for consultation by the UK Government.
The consultation is seeking views on the proposed regulation under The Energy Act 2011, which places a duty on the Government to impose minimum energy efficiency standards for commercial buildings by no later than 01 April 2018. It will become unlawful to let commercial properties that fail to achieve a prescribed minimum energy performance standard until qualifying improvements have been carried out.
Samantha Jones, an Associate Director at Prop-Search, said: “Statistics show that as at September 2013, approaching 80,000 commercial properties had EPC ratings below E – accounting for 18% of all certified units. The proposed regulations will compel landlords of these properties to achieve and maintain a specified level of energy efficiency. A breach of the regulations could result in a fine.”
Samantha added: “Where a property has an F or G rating, it is proposed that landlords will be required to make improvements that meet the ‘Golden Rule’. Broadly, the Golden Rule requires that repayments for improvements, including interest charges, must be the same or less than the expected energy bill savings.”
This could be provided by the Green Deal – a mechanism to repay the costs of improved energy performance – once it is opened up to commercial properties, without the need for consumers to pay-up-front for energy efficiency measures. Instead the works required to improve the energy efficiency of a property could be carried out by a Green Deal Provider and the occupier will pay for the measures under a Green Deal Plan, over time, as part of their energy bill.
Landlords will therefore not be required to undertake energy efficiency works that are not cost effective, so in some cases buildings may retain F or even G ratings after all eligible measures have been undertaken. Furthermore, an exemption would apply where necessary third party consents could not be obtained through ‘best endeavors’ – for example from a mortgagee, superior landlord, local planning authority, or tenant – unless it can be demonstrated again that the exemption applied.
It is important to note that the ‘Golden Rule’ exemption and the ‘lack of consent’ exemption are not intended to last in perpetuity. The Government proposes that they should expire after five years, or earlier where a tenant vacates the property – where the exemption was because of a tenant’s refusal to consent. When the exemption expires, the landlord would need to carry out the improvements necessary to get an E rating or again demonstrate an exemption in order to let the property.
Whilst an EPC is required regardless of the lease length, in response to stakeholder feedback, the Government is considering exempting short-term leases – for those less than six months – and at the other end of the scale, leases in excess of 99 years. However, more than two short leases granted to the same tenant would need to comply with the regulations.
It is proposed that the regulations be brought into force on a phased basis, starting with new lettings and lease renewals from 1 April 2018, with an absolute requirement relating to all lettings from 1 April 2023.