Now that 2023 is in full swing, it’s important for landlords to assess their compliance with all regulations, particularly those surrounding the Energy Performance Certificate (EPC) ratings of their properties. The government is placing a strong emphasis on reducing carbon emissions and improving energy efficiency, and the improvement of EPC ratings is seen as a key component in achieving the goal of net zero by 2050. To this end, new regulations on EPC requirements for existing commercial tenancies are set to come into force on 1 April 2023.
The current EPC rating system ranges from A to G, with A indicating a highly energy efficient building and G being the least efficient. In 2018, the Minimum Energy Efficiency Standards (MEES) made it illegal for landlords to grant new leases on commercial premises with an EPC rating less than E. However, from April 2023, the minimum E rating will apply to all non-domestic private rented properties, including existing leases, with some exceptions. Leases with terms less than six months or over 99 years, or properties that are exempt from EPC requirements, are exempt from these regulations. Landlords will be in breach of the regulations if they continue to let commercial properties with EPC ratings of F or G.
Penalties and exemptions
Penalties for non-compliance include financial fines, ranging from 10% of the rateable value for breaches of less than three months (minimum fine of £5,000 and maximum of £50,000) to 20% of the rateable value for breaches over three months (minimum fine of £10,000 and maximum of £150,000). Additionally, the breach may be made public through entry in the Private Rented Sector (PRS) Exemptions Register, resulting in adverse publicity and reputational damage.
There are some exemptions that may apply to the minimum E rating requirement. The seven-year payback test, third-party consent, devaluation, and recently becoming a landlord are some of the exemptions that may apply and they must be registered on the PRS Exemptions Register. It’s worth noting that the exemptions only last for five years, and landlords must improve the EPC rating to an E before the exemption expires.
There are also EPC exemptions that apply if the building is listed or protected, a temporary building used for two years or less, a detached building with floor space under 50m2, or if the building is vacant and due to be sold, rented out, demolished, or if the buyer or tenant has applied for planning permission to demolish it. The full list of exemptions can be found on the gov.uk website.
What does this mean for landlords?
Landlords should check whether the EPC of their properties meets the minimum E rating requirement, and if not, make the necessary improvements. It’s important to take into account the exemptions that may apply and to make note of the expiry date of the exemption so as to avoid incurring any future penalties. To ensure compliance with the regulations, landlords should keep themselves updated on the latest developments and regulations surrounding EPC ratings. By doing so, they can reduce their carbon footprint, improve energy efficiency, and avoid penalties while maintaining their properties in good order.