Gemma Smith and Saudah Basa, in leading law firm Blandy & Blandy’s Commercial Property team, explain the pending deadline for landlords in relation to EPC & MEES regulations.

As of 1 April 2023, it will become unlawful for landlords to continue to let commercial property where the Energy Performance Certificate (EPC) rating is below an ‘E’. This is in line with the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (MEES), under which it became unlawful for landlords to grant new or renewal leases of such properties as of 1 April this year. An exemption may be available where all relevant energy efficiency improvements for a property have been made and the property still fails to reach the required standard, but this would need to be applied for and approved.

There is currently a loophole within the MEES regulations which means that they only trigger where a property has a valid EPC. As an EPC is generally considered not to be required on a renewal lease, many landlords have been able to renew leases to sitting tenants where the property would not achieve an E, but no EPC has been required and therefore MEES do not need to be complied with.

This loophole is set to close, and we recommend that landlords start taking steps to prepare for this now so that they are not caught out when further legislation does come into force. This new requirement is currently proposed to be put in place from 1 April 2025 as set out below.

Key proposals

The Government have proposed a phased implementation to raise the minimum EPC rating to a ‘B’ by 1 April 2030 for all commercial rented property. It is thought to be likely that the minimum EPC rating will be raised to a ‘C’ by 1 April 2027 as an interim target. New requirements for all commercial rented property to have a valid EPC is proposed to assist in monitoring compliance. The current suggested timetable is set out below:

• By 1 April 2025 all landlords of non-domestic rented buildings must submit a valid EPC for every let property to a new online PRS compliance and exemptions database. Upon expiry of an EPC, the landlord must then carry out and upload an EPC so it will be a permanent requirement for commercial buildings to have an EPC in place.
• By 1 April 2027, unless the existing EPC is band ‘C’ or above, landlords must obtain another EPC to show that they have improved the building to band ‘C’ or achieved the highest band that could be achieved with a cost-effective package of measures along with registering this exemption.
• By 1 April 2030 unless the existing EPC is band ‘B’ or above, landlords must obtain another EPC to show that they have improved the building to band ‘B’ or achieved the highest band that could be achieved with a cost-effective package of measures along with registering this exemption.

What is considered to be cost effective?

Landlords are required to carry out works if they are cost effective under the seven-year payback test. This test is met if the cost of works will be less than the expected value of savings on energy bills. However, many landlords would argue that this saving would actually be made by the Tenant, but the improved energy efficiency would hopefully allow the property to command a higher rent.

Penalties

The penalty is set to increase for landlords who do not have a valid EPC from £5,000 to £30,000 from 2025. The proposals also allow tenants to request that non-compliant landlords carry out energy performance improvements and gives tenants’ rights for compensation for potentially having paid higher energy bills due to the non-compliant property.

Exemption from EPC

Only a few properties will be exempt from the requirement to obtain an EPC. A few examples of what could fall under an exemption are detached buildings where the floor space is less than 50 square meters, a temporary building going to be used for two years or less and listed buildings where energy efficiency improvements would alter the property unlawfully (though all other ‘permitted’ improvements must be made).

For further information or legal advice, please visit www.blandy.co.uk.