The British Government has made a commitment to transforming the nation’s energy system and reaching net zero. Part of its action plan is to ensure most non residential buildings have an EPC rating of at least C by 2027, increasing to a B by 2030.
Currently, only 12% of commercial properties meet these criteria and the EPC requirements for commercial properties changed dramatically on 1 April 2023. Landlords and tenants need to understand the new requirements so they can avoid stiff penalties for not complying with the new regulations.
What is an EPC rating?
An Energy Performance Certificate (EPC) is a certificate that details the energy efficiency of a property. This is set out in the following mandatory information all EPCs must provide:
- The asset rating – this puts the property’s energy efficiency on a sliding scale
- A recommendation report – a report containing suggestions for improving the property’s energy performance
- A description of the property
- Date of issue
- Green Deal information – applicable only to properties that haven’t repaid a Green Deal plan entered into before 2015
Do you need an EPC for a commercial property?
Yes, EPC ratings do apply to commercial premises. The Minimum Energy Efficiency Standards (MEES), established in The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, were first implemented in April 2018, and apply to all non residential properties.
What are Minimum Energy Performance Standards?
Minimum Energy Efficiency Standards (MEES) are a set of regulations aimed at improving the energy efficiency of properties in England and Wales. Their primary goal is to contribute to the UK government's ambitious target of achieving net-zero carbon emissions by 2050. Under these regulations, there is a minimum energy efficiency standard that must be met before a property can be legally let or sold in England and Wales.
What is the minimum EPC rating for commercial property?
Current EPC ratings run from A to G, with buildings that are rated A considered the most energy efficient, and those rated G the least. Until recently, a non residential property had to have at least an E rating in order to grant a new lease.
However, the Government has tightened the rules, and from 1 April 2023, all existing commercial properties must have an EPC rating of E or above.
This means that unless an exemption applies, landlords with commercial properties with existing tenancies must implement all possible cost effective energy efficiency improvements prescribed by MEES. If a property has an EPC of F or G, it will be unlawful to let it out to a commercial tenant.
How to get an EPC for a commercial property?
You can only get an Energy Performance Certificate (EPC) from a commercial energy assessor. The type of assessor you'll need will depend on the complexity and features of the building.
Do you need an EPC to sell a commercial property?
If you’re selling, renting or building commercial property, you need a Commercial EPC.
Do you need an EPC to let a commercial property?
Yes, you need an EPC to let a commercial property
Are there any exemptions to the new EPC requirements?
The following exemptions apply to the new EPC requirements:
- If a new lease is granted for less than six months or more than 99 years
- If the standard requirements for an EPC aren’t necessary for the building, for example, the building is listed, and the enhancements needed to improve its EPC rating would alter it or the premises is an industrial or agricultural building that uses minimal energy
- If making the required improvements would damage the building or devalue it by 5% (an independent survey will be required to prove that this is the case)
- In limited circumstances, if a person becomes a new landlord and it would be unreasonable for them to comply with the new rules immediately, they may qualify for a six-month exemption
- An expert provides in writing that the cavity wall insulation, external wall insulation, or internal wall insulation (for external walls) which would be required to improve the energy efficiency rating of the property would potentially negatively impact the fabric or structure of the building (or the building in which the property forms part of)
- If the improvement works required by MEES are not paid for within seven years by the energy savings from the works
It’s crucial to speak to a commercial property solicitor if you believe one of the above exemptions applies to your property. They can confirm if this is in fact the case and advise you on the evidence you will need to provide in order to register your premises as exempt.
Do MEES regulations apply to lease renewals?
The guidance from the UK government can be somewhat challenging to navigate regarding lease renewals, given the differing advice provided under the EPC regulations and MEES regulations. The Energy Performance of Buildings (England and Wales) Regulations 2012 (EPC regulations) stipulate that an EPC is not required on lease renewals.
In contrast, MEES regulations prohibit the letting of sub-standard non-domestic property as a result of an extension or renewal. Without an EPC, it becomes challenging to demonstrate compliance. The MEES Guidance suggests that, in the absence of a valid EPC, obtaining a new one on a renewal might be the safer approach to ensure compliance.
What are the penalties for letting a sub-standard EPC rated commercial property?
The penalties for not complying with the new MEES are severe. If you let a non-compliant property for less than three months, you could receive a fine of 10% of the rateable value with a minimum fine of £5,000 and a maximum of £50,000.
If the letting period is for three months or more, a fine of 20% of the rateable value with a minimum fine of £10,000 to a maximum of £150,000 may apply. In addition to a fine, details of the breach may be published on the Private Rented Sector (PRS) Exemptions Register. This adverse publicity may not only put off desirable tenants from leasing your property but also scare off potential investors and purchasers.
Do commercial tenants have to pay for the MEES improvement works?
The MEES regulations make clear that the landlord is responsible for funding and carrying out any improvement works needed to bring a property’s EPC rating up to an E or above.
However, commercial property tenants should check their lease agreements and service charge arrangements to establish whether or not their landlord can recover the cost of the repair works from them.
The future of MEES
Looking ahead, it's highly likely that MEES regulations will become even more stringent. Proposals have been made for future changes, including:
- By April 1, 2025, landlords may be required to submit a valid EPC for every let property to a PRS compliance and exemption database
- By April 1, 2027, landlords must demonstrate that their properties have achieved an EPC rating of band C or above, or the highest EPC possible with cost-effective measures
- By April 1, 2028, landlords may be obligated to submit a valid EPC to the PRS database
- By April 1, 2030, landlords might need to improve their properties to achieve an EPC rating of band B or above, or the highest EPC rating possible with cost-effective measures
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