From Sunday 1st April 2018, changes to the Energy Performance Certificate (EPC) Regulations means that owners of the least energy-efficient buildings in the UK will be unable to let or renew a lease of their property.
It is currently a legal requirement that all property that is marketed for sale or to let carries a valid EPC. The are a few exceptions that the EPC regulations allow for, such as agricultural buildings and buildings to be demolished.
The EPC contains information about a property’s energy use, typical energy costs and recommendations on how to reduce energy consumption. An EPC gives a property an energy efficiency rating from A (most efficient) to G (least efficient) and is valid for 10 years.
The EPC Regulations state that it is the property owner’s responsibility to supply potential buyers or tenants with a valid EPC at the outset of any transaction.
The changes to the EPC regulations are all part of the Government’s overall plan to tackle climate change and reduce total carbon emissions by 80% by 2050.
Changes to the EPC Regulations
The changes to the EPC Regulations make it illegal to let residential or commercial properties with an EPC Rating of “F” or “G”, the lowest grades of energy efficiency.
Worryingly, data from the National EPC Register indicates that 18% of commercial properties in England and Wales hold ratings of “F” or “G” and a further 20% hold an “E” rating.
Clearly, changes to the EPC Regulations will have significant implications for property owners who are caught out by the regulations and wish to sell or lease commercial and residential properties.
Tenants of existing properties will also be caught by the new EPC regulations if they choose to sublet surplus space to third parties.
The EPC regulations will also apply to existing lease renewals including statutory renewals under the Landlord and Tenant 1954 Act. From 1 April 2023, the EPC regulations will then “bite” existing lettings that were entered into before the implementation date.
Limited exemptions to the EPC Regulations include properties which will be leased for a term of 99+ years or short lettings of 6 months or less. Some further exemptions include: if the property owner cannot obtain consent from third parties (such as a superior landlord or planning authority) to do the works, or where the improvements would negatively impact the value of the property. However these exemptions are only valid for five years, cannot be transferred to a new landlord and must be registered on the central PRS Exemptions Register.
How will the EPC Regulations be enforced?
Under the new EPC regulations, local authorities will have authority to issue compliance notices and ultimately, penalty notices which are determined by the property’s rateable value. The penalties will reflect the degree of infringement and the length of non-compliance, with fines ranging from £2,000 to a possible maximum fine of £150,000.
How will the EPC Regulations affect property owners?
Despite the obvious cost to property owners that are caught by the EPC Regulations, the changes to the regulations could result in the following:
• Marketability of the affected properties could become impossible unless they are upgraded to meet the minimum standards.
• Valuations of such properties could be affected if their marketability is diminished; and
• Implications for dilapidations assessments and rent reviews.
In Cumbria, the properties most likely to be affected by the new EPC regulations are older buildings that were not subject to any strategic rules on efficiency when they were built. If a property has had a recent large-scale refurbishment then the efficiency standards of the building may have been upgraded, but if no works have been done for a long time then it is likely that the building will fall foul of the changes to the EPC Regulations.
What should property owners do?
The changes to the EPC regulations mean that property owners should obtain an EPC as soon as they can when planning to lease or let their property.
If the energy performance rating is within A to E then the property can be put on the market, but if the rating is F or G then works will need to be done to bring the property up to a higher efficiency standard.
The EPC reports contain cost-effective recommendations on how to improve energy efficiency. Before the property can be put on the market, these recommendations will need to be implemented.
For further details on the changes to the EPC regulations please contact Rebecca Davidson in Burnetts’ commercial property team on 01228 552222 or email email@example.com.