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It is easy to overlook the importance of the Energy Performance Certificate (EPC) in Lease transactions. Generally, parties are keen to get the Lease completed as soon as possible and, although it is a legal requirement that an EPC is made available when a property is marketed for sale or let, the commissioning of an EPC is often an afterthought or box ticking exercise. It is, however, essential for Landlords to consider the EPC rating of their commercial properties given that penalties of up to £10,000 or 20% of the rateable value (up to an absolute maximum of £150,000) can be imposed for each breach of the regulations.
Subject to certain exceptions, since April 2018, non-domestic properties must have a minimum energy efficiency rating of ‘E’ (the current scale goes from ‘A’ to ‘G’). There are a number of exemptions which can be relied upon, however, if an exemption does apply, this must be registered on the exemptions register and may only apply for 5 years.
The regulations don’t just apply to new leases and renewals, by 1st April 2023 Landlords will be in breach of the regulations if they continue to let a property that falls below the minimum ‘E’ rating. This may cause issues for Landlords if they don’t have a right in the Lease to enter the property to carry out essential works. Tenants could also be affected if the terms of the Lease allow the Landlord to pass the costs on to the Tenant, perhaps via a service charge. As the date comes ever nearer Landlords should be taking appropriate steps to ensure their properties meet the required standards.
Unsurprisingly, given the Government has committed itself to a legally binding target to reduce emissions to net zero by 2050, the regulations are set to get stricter in the future. A recent consultation indicates that by 2030, all non-domestic properties must have a minimum energy efficiency rating of ‘B’. The Government has estimated this could cost £5bn between now and 2030 and that 85% of properties will be affected by the changes. This is the Government’s preferred option, with the second option being a minimum rating of ‘C’ by 2030, which is estimated to capture 42% of properties at a cost of £1.5bn. Either way, the majority of Landlords will need to consider the potential cost implications and practicalities of compliance with current and future regulations.
The full consultation can be found here.
For more information or to make an enquiry, please contact our Commercial Property team by emailing firstname.lastname@example.org or calling 01484 821 500. Alternatively you can fill out an online enquiry form and a member of our team will be in touch.