From 1st April 2023, landlords of commercial premises are required to have an energy performance certificate (EPC) rating of at least ‘E’ and above, under the Minimum Energy Efficiency Standards (MEES). Any lower rating will be sub-standard.
Landlords have a 6 month extension period to rectify the EPC rating in line with the MEES. If a landlord is purchasing a non-compliant property, this period is from the date of purchase. The extension also applies where there are statutory lease renewals under the Landlord and Tenant Act 1954 and leases granted subject to an agreement for lease (or other contractual obligation).
There are exemptions available, which must be registered on the Government’s PRS Exemptions Register and renewed at least every 5 years. These exemptions include
- A third party who is required to consent to such works but has refused this (i.e. the tenant or planning authority);
- If the improvement works would not ‘pay for themselves’ through energy savings within a seven year period;
- All cost-effective improvements have been carried out and the EPC remains below an ‘E’;
- Expert evidence suggests that the improvements would devalue the property by over 5% or the works would damage the property.
Leases of less than 6 months (provided there is no right to renew or a previous period of occupation exceeding 12 months) and long leases exceeding 99 years are not required to be registered on the PRS Exemptions Register.
Penalties for non-compliance
By failing to comply with the new standards a landlord may be subject to financial penalties which can be made public on a register giving details of the breach.
For a breach of less than 3 months, a penalty will be the higher amount of either, £5,000 or 10% of the rateable value of the property (capped at £50,000). The penalty for a breach exceeding 3 months is higher amount of either, £10,000 or 20% of the rateable value of the property (capped at £150,000).
These figures are for a single breach only. If a landlord has a premises with multiple tenancies, significant penalties can be imposed if they are found to be in violation.
What to do next:
If you are a landlord
- Take steps to make your property compliant with MEES. Note that if the EPC rating is sub-standard, this does not naturally mean it is in breach.
- To avoid the need for additional work in the future, consider your obligations in anticipation of MEES becoming stricter, potentially during the term of your lease.
If you are a tenant
- Check your lease for provisions regarding your landlords right of entry. Landlords often have a right to enter the property to carry out improvement works. You should familiarise yourself with the rights of the landlord in this instance.
- If there are proposed alterations to the property, consider if these are energy efficient and if a higher EPC rating can be obtained for the same or a similar cost. Landlords will want to ensure any works do not adversely affect the EPC rating
Landlords and tenants should review their leases to check whether works can be carried out to improve the EPC rating, and who is obliged to cover the costs of the works.
This article is co-written by trainee lawyer Bethany Barthram and Ruth Boulton.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.