From 1 April 2018, Minimum Energy Efficiency Standards (MEES) will make it unlawful for landlords to let a building which fails to meet the minimum required E energy rating. While there are exemptions, it is becoming increasingly evident that the vast majority of landlords have not taken the regulations into account and many stand to be left with vacant and unlettable properties at substantial financial loss.
The regulations apply to the granting of both new leases and lease renewals and, from 1 April 2023, the regulations will broaden to make all active leases unlawful for ‘sub-standard’ properties.
The financial penalties for landlords allowing an F or G rated property to be let will be based upon rateable values as follows:
- A minimum penalty of £5,000 for even a small property.
- Up to £150,000 for a three month incidence.
In addition, all infringements of the regulations will be made public.
The majority of buildings could be at risk
Buildings currently rated D and E may also be at risk, as shown above, this accounts for 50% of offices in the UK with a registered EPC.
EPCs are valid for up to 10 years. They were first required in 2008 upon a property being constructed, sold or let.
EPCs are an ‘asset rating’, therefore assessing what a subject property is comprised of (building fabric, building services etc) rather than what the property’s actual energy consumption is. Over the time since their inception, the software and the means of assessment has become significantly more refined and regulated.
Hence, a reassessment today of a former EPC done in 2008 will delve into far more detail and, in theory, will provide a far more accurate picture as to a property’s energy performance.
The other material change since 2008 affecting EPCs is the Building Regulations (Part L), which EPC ratings are based upon. These have been through two revisions since EPCs were first introduced, each significantly tightening the requirements of a building to conserve fuel and power.
The result of the refinement of assessments, and the fundamental changes in standards to adhere to, mean that EPCs carried out from the early years of EPC assessment are at significant risk of being wholly inaccurate in today’s assessment terms; hence upon reassessment we are seeing ratings regularly dropping two grades:
How do I know if I have a problem?
You can check the EPC of your commercial property at www.ndepcregister.com. With 72% of properties registered carrying a D rating or below, it is critical for both landlords and tenants to understand the potential impact of their rating upon their respective position. Whilst on one hand the effect of the regulations may pose a significant liability, it also presents significant opportunities to be taken advantage of; this will particularly apply in scenarios involving rent reviews, lease renewals, dilapidations and lease negotiations.