A significant date for all commercial property (or non-domestic) landlords is 1 April 2023, when the energy performance requirements for existing leases changes.
The current position is that (before 1 April this year), the grant of a new lease, or the renewal or extension of an existing lease, of non-domestic property that is “Substandard” (EPC rating of F or G) is unlawful, unless a valid exemption has been registered. From 1 April, the continuation of an existing lease of “Substandard” non-domestic property is prohibited, without an exemption being registered. Assuming no valid exemption has been registered, this change to the minimum energy efficiency standard (MEES) regulations will make it unlawful for any landlord, including charities, schools and businesses, to rent out or sell or be the landlord of a property for non-domestic purposes that is rated below an EPC rating of E (i.e. F or G). The move brings non-domestic properties in line with the requirements for domestic properties, which have had such a prohibition on a continuing lease since 1 April 2020.
As noted, exemptions are available. For example, for properties where the tenant’s consent would be required in order for the landlord to carry out the relevant energy efficiency improvements and the tenant has refused to consent. It is important to note that exemptions are not automatic, they must be applied for and registered on an Exemptions Register. Furthermore, exemptions need to be renewed at least every five years and they are personal, so successor owners will not be able to rely on an existing registered exemption.
Landlords should act now to review their property assets and identify “Substandard” properties before the 1 April 2023 deadline. Financial penalties and publication penalties can be imposed in cases of breach.
As the government drives forward its strategy to decarbonise all sectors of the economy to meet net zero by 2050, EPCs will become increasingly rigorous, for both residential and commercial property, in order to push buildings’ energy efficiency up towards the higher ratings. Current proposals are for stepped rises in relation to non-domestic property on the rating requirements such that a requirement of C will come into force in 2027 and a requirement of B in 2030.
The Government guidance on the MEES regulations for landlords of non-domestic property can be found here
If you have any queries regarding the change to the EPC minimum rating, please get in touch with Chris Sharpe or your usual Stone King contact.