It has been a requirement since 2007 for a seller or landlord to provide a buyer or tenant with an Energy Performance Certificate (EPC) which sets out the energy rating of the commercial property.
The Energy Act 2011 contains a number of provisions which will affect owners and occupiers of commercial property. The most significant are the proposed Minimum Energy Efficiency Standards (MEES). From 1st April 2018 the proposed legislative changes would make it unlawful to let commercial premises with an EC rating of F or G; being the lowest two grades of energy efficiency. This would have significant implications for landlords or occupiers who wish to assign the premises they occupy with either of these ratings.
A financial penalty regime will start to apply to landlords who let out premises that do not meet the MEES. It is thought that over time the minimum E standard will rise however, the government have not indicated how quickly this will rise.
Implementation of the regulations will be staggered so that they apply to new lettings from 1 April 2018 and this will include lease renewals where an EPC exists. From the 1 April 2023 implementation of the regulations will apply to existing lettings but only if the property has a valid EPC on the relevant date. There is no obligation in this regard to obtain an EPC if one does not already exist but there is no exemption if an EPC was obtained voluntarily. How will this affect you? If your commercial property falls within the EC rating of F & G there is a risk in the future that valuations of properties could be lower if their marketability is affected and this could affect any future sale, rental ability or banking finance which you may wish to secure on the property in the future. In addition to this, rent reviews may be affected and there could be implication for dilapidation assessments.
There are a number of circumstances where the proposed changes do not apply and the main exemptions are as follows:
a) Properties that do not require an EPC under the EPC regulations or building regulations will not fall within the MEES i.e. a listed building;
b) Leases of 6 months or less or long leases of 99 years or more are not subject to the new regulation. The 6 month exemption is however subject to a 12 month maximum period of occupation to be assessed at the date when the latest lease is granted;
c) Landlords will also be exempt from reaching the E rating where all possible cost effective improvements have been carried out. It is unsure how this exemption will apply in practice and further guidance is awaited;
d) Where the landlord cannot obtain necessary consents or where compliance would devalue the property by 5% or more there is a 5 year exemption.
The Regulations provide that from 2023 any successor landlord or sub-standard property will not benefit from an existing exemption. The new landlord will have to bring the rating up to an E rating themselves within 6 months of the acquisition or alternatively, establish a new exemption.
Where a commercial property rating is sub-standard, landlords should start to consider what steps can be taken with a view to improving the energy efficiency rating in advance of the implementation dates. If your property is affected you may want to consider obtaining advice from a surveyor at this stage so that you can ascertain the likely costs of having to carry out improvement works.
Holmes & Hills Solicitors has a specialist team of commercial property solicitors that advise owners and occupiers of commercial property across Essex and Suffolk.
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