You may be aware of the legislative changes that came into force earlier this year relating to Energy Performance Certificates (EPCs). EPCs were introduced back in 2012 in an effort to improve a buildings energy performance and decrease their energy consumption, this in turn would not only reduce building energy costs but also assist government objectives to reduce greenhouse gas emissions down to net-zero by 2050.
The most recent changes introduced in April 2023 saw the minimum EPC rating for any commercial building being sold, leased or rented raised to E. However to achieve the 2050 target, the minimum energy efficiency rate is set to incrementally rise over the upcoming years with the next change in EPC legislation due in 2025. This upcoming 2025 change will impact on any new leases of commercial properties and will require them to have a minimum EPC rating of C, this will then extend out and apply to all leases in 2027. By 2030 the government intend to increase this minimum rating again so that EPC ratings for all commercial property have a minimum of a B energy rating.
This article will consider the effect of EPCs on commercial property owners and the steps and legislation they should be aware of to ensure continued compliance with the evolving legislation.
Understanding EPCs for commercial buildings
The EPC provides each building with an energy performance rating from A to G with A applying to the most energy efficient buildings and G to the least. The EPC report will additionally recommend steps which can be implemented to improve the buildings energy rating. EPC’s are a legal requirement when selling, leasing or renting out any building (subject to exemptions as discussed below).
EPC ratings are calculated by accredited energy assessors who will consider a number of factors such as the building’s construction, size, services and age. If a building falls below the recommended energy efficiency level (currently E) the building owner will be responsible for bringing the property up to the required standard, this could incur considerable financial costs should the works prove extensive.
What has changed since the 1st April 2023?
EPCs have been a legal requirement for all commercial property sales and leases since 2012. In 2018 a minimum E rating for new leases of commercial properties was introduced, despite this, existing leases which predated the 2012 legislation were not caught by the EPC requirement. In April 2023 EPC legislation was updated to apply to all leased commercial properties, this means that any leases granted before 2012 or lease renewals granted since 2012 will also be caught by EPC legislation and Landlords of all commercial tenancies will now be legally required to obtain an EPC with a minimum energy efficiency rating of E.
There are further legislative changes planned with the minimum energy performance rating for commercial properties set to rise to C for new commercial leases in April 2025, this will extend to existing leases in April 2027. A further rise to a minimum energy rating of B is then due to apply in 2030. This continued increase in energy efficiency ratings will impact upon commercial property owners and landlords as they must continue to ensure their buildings compliance with the new laws.
What should a landlord do to ensure they meet the new EPC standards?
Property owners selling, leasing or considering leasing their commercial premises will need to ensure that the following steps are taken to comply with EPC legislation.
1. Check whether your property has a current EPC
If you are unsure whether your business premises has a current EPC you can check on the EPC register at Find an energy certificate – GOV.UK (www.gov.uk). EPCs are valid for a period of 10 years and following their expiry will require renewal. Please note that if your property is visited by the public on a frequent basis and is occupied by public authorities you must additionally display a Display Energy Certificate (showing the actual energy usage of the property) in a position visible to those people visiting the property. DEC’s can also be found by using the above link.
2. In the case of existing leases – check whether you have EPC rights under any existing lease
Check any existing lease provisions to ascertain if you have a right to enter the property to undertake surveys and investigations for the purposes of obtaining (or renewing) an EPC. If no such provisions exist other retained right provisions may grant you a right of entry to enable you to comply with legislation. Discuss the EPC requirement with your tenant and arrange an appropriate time to have the necessary surveys carried out.
3. Obtain an EPC from an accredited commercial energy assessor
Accredited commercial energy assessors must be members of the government approved accreditation scheme. Assessors are independent and will carry out a survey of the property to gather all the necessary information required to provide you with an EPC. EPC’s can range in value which will be dependent upon numerous factors including the size of the property.
4. Energy Performance Certificate
Once the Assessor has visited the property and carried out all necessary surveys and investigations they will upload the information to the EPC register. Your EPC will be generated and you will be given the EPC certificate number. Your property’s EPC will be publicly available on the government website above.
5. Provide any prospective tenant / purchaser with a copy of the EPC
Having obtained the EPC you are required to provide a copy, free of charge, to the tenant or prospective purchaser of the property.
What if you fail to meet the new standards?
Failure to obtain an EPC prior to leasing or selling your property is not a criminal offence but could result in a fine of between £500 – £5,000 (this is based on the rateable value of the property) and also publication of your failure to comply.
In addition, failure to obtain an EPC before or while leasing your property could have further implications including being a breach of your Landlord obligations under the lease. It can also prohibit you from exercising a section 21 notice to end the tenancy if a situation requiring this arises.
If you do obtain an EPC certificate but fail to meet the minimum energy efficiency standard (MEES) you are required to take steps to improve the energy efficiency of the building rating and bring this up to the required rating. If the building is empty you are not required to take these steps until you come to sell or lease the property.
Are there any exceptions?
There are exceptions to obtaining an EPC certificate or MEES which include if the building is listed and works to satisfy the MEES would unacceptably alter the property, the building is under 50 square metres or is a temporary building which will be used for less than 2 years. A list of further exemptions can be found at Energy Performance Certificates for your business premises: Exemptions – GOV.UK (www.gov.uk).
Any exemption must be registered and will only be valid for a period of between 6 months and 5 years, following the expiry of the exemption a further exemption will need to be applied for (if the exemption reason still exists).
What impacts will this have for future commercial properties
The recent and upcoming changes in EPC legislation will impact upon commercial property owners in a variety of ways. With a push to improve energy efficiency, a good EPC rating will contribute towards future purchase decisions with a better rating meaning that less work will be required to bring the property up to standard. Energy improvements will also need to be considered in relation to any leases as Landlord’s will need to continue to improve the property’s energy efficiency to ensure continued compliance with EPC legislation.
How can Goughs help?
As commercial property specialist solicitors, we can assist you with any queries you have in relation to your lease or property and current EPC compliance. We can recommend accredited commercial energy assessors to assist you in obtaining an EPC certificate and can provide you with advice to ensure your continued compliance.
