The 2008 Climate Change Act set legally binding targets to cut greenhouse gas emissions by at least 80% by 2050 and Energy Performance inspections and certificates (EPCs) were set into legislation. In 2015 this legislation was further
enhanced with the introduction of the Minimum Energy Efficiency Standards (MEES) regulations. The last iteration of these regulations saw all properties that were bound by the regulation must achieve a rating of E (125) to be sold or let, as enforced by National Trading Standards.
MEES/EPC Timeline (non-domestic)
1 April 2018 – Unlawful to grant new leases of commercial property with an EPC rating of below E.
1 April 2023 – Unlawful to “continue to let” commercial property with an EPC rating of below E (F & G considered substandard)
From the 1st April 2023 the EPC legislation changes significantly, the new rules state that all properties that are bound by the legislation must achieve the minimum rating of E (125).
“The provisions in this guidance document apply to all non-domestic properties in England and Wales which are let under any type of tenancy and which are legally required to have an Energy Performance Certificate (EPC)”
This is for all properties regardless of their occupancy status, where before a property that was already leased was excluded, now all leased or let properties are included (with the following exemptions):
- listed or officially protected building and the minimum energy performance requirements would unacceptably alter it.
- a temporary building only going to be use for two years or less.
- stand-alone buildings with a total useful floor area of less than 50m².
- an industrial site, workshop or non-residential agricultural building that doesn’t use much energy.
- buildings used as places of worship and for religious activities.
- due to be demolished by the seller or landlord and they have all the relevant planning and conservation consents.
- Tenancy agreements of up to six months (at the time it is granted, the tenant has been in occupation for a continue period of more than 12 months).
- Tenancy agreement granted for a term of 99 years or more.
From the 1st April all properties holding a F or G rating will be considered “Sub-Standard” and must improve to an E rating as a minimum. There are obviously penalties for those landlords who fail to meet the minimum EPC ratings, these
indicated penalties start at £5,000 but go right up to £150,000 and are enforced by National Trading Standards.
There are exemptions to this as follows:
This is where the ability to undertake the necessary improvement works is prevented by third party restrictions (such as the consent of a tenant, lender, superior landlord or the planning authority).
Reduction in market value
This is where undertaking the necessary improvement works would reduce the market value of the property by 5% or more, note this must be supported by a RICS registered valuer.
All Improvements Made
This is where all relevant energy efficiency improvements have been made (or there are none that can be made) and the property remains sub-standard. This includes situations where works would exceed the 7-year payback rule (i.e. the expected value of savings on energy bills over a 7-year period is less than the cost of carrying out the works/improvements).
All exemptions for a property are to be lodged on the PRS Exemptions Register, this will include grounds for exemption from compliance with the Regulations.
In such cases where the property is ruled “Sub-Standard” the landlord may not refuse consent to the lease renewal on the basis that the property is sub-standard. Likewise, tenants may not use a landlord’s failure to comply with the minimum
energy efficiency standards as a reason to prematurely terminate their lease.
However, should the tenancy being renewed or extended, or a new tenancy is being granted, and the property is at EPC F or G, the landlord should either improve the property to at least an E, or register an exemption, should one apply. (In situations where a new lease is granted in accordance with Part 2 of the Landlord and Tenant Act 1954, and where the property to be let is below an EPC E, the landlord may be eligible for a temporary, six month exemption from the requirement to improve the property to an E).
Should a landlord intend to rely solely on an exception and has registered on the PRS Exemptions Register, the exemption will last five years. After this time, the exemption will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency that is applicable at this time.
As part of the next phase of the MEES regulations in a recent Government White Paper shows that the EPC regulations become even more strict as we head towards 2050:
- 1 April 2025 – Requirement to register on the new database a valid EPC for let, commercial property (Pending)
- 1 April 2027 – The minimum standard raised to EPC rating C (Pending)
- 1 April 2028 – Further requirement to register a valid EPC for let, commercial property (Pending)
- 1 April 2030 – The minimum standard raised to EPC rating B (Pending)