In March 2021, the government began discussions on changing the minimum EPC ratings required for landlords to let a non-domestic building. The government is yet to formalise the framework for achieving targets but has provided insights as to how this will work.
The current position, which has been in place since 1 April 2013, is that landlords can only let a non-domestic building if the EPC rating is at ‘E’ or above.
What are the new changes?
The government has proposed a phased implementation consisting of two compliance windows.
The first compliance window deadline is 1 April 2027; the government is requiring all non-domestic rented buildings to have a valid and registered EPC by 1 April 2025. By 1 April 2027, the property must have an EPC rating of ‘C’ or above. If the EPC rating is below ‘C’, landlords will be required to undertake works to the property to bring up its rating, unless an exemption applies.
The second and final compliance window deadline is 1 April 2030; the government proposes that the EPC rating in non-domestic buildings must be at a ‘B’ rating by 1 April 2028. If the property has a rating of below ‘B’, the landlord must undertake works to the property to bring up its rating or have registered for a valid exemption by 1 April 2030.
Why is a phased implementation being introduced?
The government is trying to provide landlords with additional time to complete any needed works to the property so that it can achieve a compliant rating.
If at the point of letting, an EPC for the building gives an ‘F or ‘G’ rating, it would make it unlawful for the landlord to let. Currently, landlords can let a building if it has a rating of ‘E’ or above.
The new framework would still require landlords to hold a valid EPC at the point of letting, but will also require any let buildings to achieve a ‘C’ rating by 2027 and a ‘B’ rating by 2030, regardless of when it was let.
Both landlords and tenants will need to look carefully at the EPC rating and the recommendations suggested. Having to complete works to take a building to a ‘C’ and a ‘B’ rating could cost a substantial amount.
Landlords and tenants would be wise to look at the repairing covenants in an existing lease to ascertain who is obliged to complete the recommended works. Parties to an existing lease may negotiate additional terms to spread the costs of the works between them.
New leases are likely to have additional clauses to deal with who is responsible for implementing the EPC recommendations by 2027 and 2030.
The government is only proposing to enforce penalties once a building is fully operational and has been occupied for at least six months.