We’re taking a brief hiatus from our Practical Property Guide, with the final instalment returning next week. In the meantime, the Department for Business, Energy and Industrial Strategy (BEIS) have recently published their long awaited guidance on the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962) (MEES Regulations) and its application to non-domestic privately-rented property.
The MEES Regulations set a minimum level of energy efficiency for privately rented property, being an energy performance certificate (EPC) rating of at least ‘E’. Where a property has an EPC rating of ‘F’ or ‘G’ the MEES Regulations mean that:
a) from 1 April 2018, landlords are restricted from granting new leases or renewing / extending existing leases; and
b) from 1 April 2023, landlords cannot continue to let the property;
without carrying out works to improve the energy performance of the property to raise its rating to at least an ‘E’ rating or alternatively, registering an exemption (where one applies).
When do the Regulations apply?
The MEES Regulations apply to all non-domestic properties in England and Wales which are legally required to have an energy performance certificate and are let under any type of ‘tenancy’. The Regulations also state that the provisions will not apply to a tenancy which is:
a) granted for a term not exceeding 6 months (except where the tenancy contains provision for extension or renewal beyond 6 months or where the tenant has been in occupation for a period of more than 12 months); or
b) granted for a term of 99 years or more.
It is worth noting that as the Regulations only apply to properties which are let under a ‘tenancy’, lettings of sub-standard properties under a licence or agreement for lease arrangement are unlikely to be caught by the provisions.
Recap: When is an EPC required?
Ordinarily, the owner or landlord on the sale, letting or construction of a property is required to make an EPC available to the prospective buyer or tenant.
An EPC may not be required in a number of circumstances, such as temporary buildings, buildings used as places of worship, buildings due to be demolished and protected / listed buildings.
BEIS have provided clarification in respect of the exception relating to listed buildings, confirming that although some listed buildings may be exempt from the requirement to provide an EPC, this is not automatic. An EPC will not be required only in so far as compliance with energy performance requirements would unacceptably alter its character or appearance.
In limited circumstances, an exemption may apply to the prohibition on letting a sub-standard property. The landlord will need to provide details and evidence of the exemption to a centralised self-certification register (the PRS Exemptions Register).
Some exemptions that may apply include where the energy efficiency measures would reduce the market value of the property by more than five percent, or where consent is legally required to undertake the improvement works (i.e. from a lender, planning authority or superior landlord) but that consent is not forthcoming.
The exemptions will usually only apply on a five year temporarily basis and it must be noted that any exemptions claimed by a landlord will not pass to a new owner or landlord upon sale, or transfer of the property. Any new owner must either carry out the improvement works to bring the property up to the minimum standard or, if they intend to continue to let a ‘sub-standard’ property, must register an exemption where one applies.
A date for the diary!
With just over a year to go until the first wave of minimum energy efficiency regulations come into force, commercial landlords should at least bear in mind the current EPC rating of their properties, particularly where any might fall foul of the minimum requirements.
An enforcement authority may impose financial penalties of up to £5,000, or 10% of the rateable value of the property whichever is greater (to a maximum of £50,000) where the landlord has been in breach for less than three months. Where the landlord has been in breach for three months or more, penalties increase to £10,000 or 20% of the rateable value (to a maximum of £150,000).
So if you’re a Landlord make sure you learn your ABC’s of EPC ratings…
Real Estate Group…