The Energy Efficiency Regulations 2015 (the Minimum Energy Efficiency Standards) become effective in just six weeks’ time.
They require landlords of commercial rented property to only offer new leases on premises achieving an Energy Performance Certificate (EPC) rating of E or better.
National commercial property consultancy Lambert Smith Hampton (LSH) is urging landlords to take action to meet the strict regulations or explore whether their office, industrial and retail properties qualify for an exemption.
It is estimated more than 740,000 of the 1.8 million commercial properties in the UK have a currently valid EPC but there are potentially over a million individual premises and demises still to be assessed, according to Robert Burke, head of building consultancy at LSH, although not all of these properties will be captured by the MEES.
Under the new regulations, properties with an EPC of F or G will not be able to be let. If a landlord does let these sub-standard properties, they may be levied with fines of up to £150,000 by the local authority.
Robert said: “Our advice to many landlords at this late stage is to take action now. Check to see if properties that don’t have an EPC rating of E or better could actually be exempt. An exemption has to be registered. If not, the landlord will be fined.
“Exemptions could include listed buildings where improvements could significantly alter the building. A landlord may consider replacing windows to improve energy efficiency but to do that in a listed building would need consent because you may end up significantly altering the look of a building. In this case, the building could qualify for an exemption.”
He added: “One of the main exemptions available is through the seven year payback test. The installation of energy efficiency improvements will only be required where the recommended measures achieve an energy efficiency payback of seven years or less.
“This is decided when the value of savings on energy bills resulting from the improvements over a period of seven years are equivalent to, or greater than, the cost of repaying it.”
Buildings where occupiers have a licence rather than a lease are also exempt.
The potential penalties could hit landlords hard. There is a £5,000 fine for providing false or misleading information. Failure to comply with a compliance notice will also attract a £5,000 fine.
Renting out a property illegally could lead to a fine of 10% of the property’s rateable value, up to a maximum of £50,000. Continued failure to comply could see that rise to £150,000. Ultimately, landlords could face up to £500,000 in fines every year.
He added: “Local trading standards officers will be involved in making sure buildings comply with the regulations. All the money will go into the local authority coffers, so there is a huge incentive for them to collect these fines. Local authorities will also want to make sure that they have their own house in order and have already been taking action to make sure that their commercial properties comply with the regulations.”
LSH has been raising awareness of the issues with clients for several years. The company has been reviewing property portfolios, checking EPC ratings and expiry dates, and providing advice on action required so that all their properties are ready for lease or sale.
Landlords with properties with EPCs in the danger zone of F and G have been advised how to increase the rating to at least an E and the costs involved. LSH also project manages any large scale improvements.
EPCs were introduced in 2008 and apply to the vast majority of commercial properties that have fixed services to condition their internal environments.
Since then, the technology, training and regulation of EPC assessment has become more refined, which has led to the process of EPC assessment being more detailed and accurate. The efficiency requirements of buildings and their services have also improved significantly since 2008 through cyclical revisions of the Building Regulations.
LSH MEES specialist Jon Anderson, head of office LSH Leeds, warned that properties with a current EPC of D or E could also be downgraded as a result of the regulations.
“While many landlords are considering the risk that the 18 per cent of properties that are F and G-registered pose, few have considered the further 47 per cent of properties that are D and E-rated,” he said.
“The combination of these two factors has been regularly shown to result in EPCs on the same property dropping up to two ratings upon an EPC being reassessed,” said Jon. “Where landlords may consider a number of D and E-rated properties on their portfolios to be ‘safe’, in fact, those properties could pose the greatest risks, particularly where their tenants are wise as to how to use the regulations to their advantage.”
“A tenant, for example, could successfully have the EPC of a property they are in downgraded. They will then benefit when it comes to dilapidations claims, break clauses, lease renewals or rent reviews. This will cause a significant shift in the landlord and tenant balance, depending on the advice each party acts upon.”
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