The Energy Performance of Buildings (England and Wales) Regulations 2012 state that each new sale or let of a commercial property requires an EPC (Energy Performance Certificate). Landlords of substandard properties (those with an F or G rating) should carry out any energy efficiency improvements listed in the EPC’s recommendation report.

Low ratings were not penalised and have therefore not been of great concern to landlords. However, with the introduction of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (“the Regulations”) on 1st April 2018, landlords must now prioritise energy efficiency.

Currently under the Regulations, landlords can no longer grant new leases or extend/renew existing leases for substandard properties. The next stage commences on 1st April 2023, whereupon landlords may not continue to let substandard properties.

While the Regulations do not actually place a positive obligation on the landlord to carry out the recommended works, the landlord may risk enforcement. The maximum penalty for a breach lasting three months or more is the greater of the following:

• 10,000.00; or

• 20% of the property’s rateable value (with a cap of 150,000.00).

Failure to carry out the improvements may also encourage purchasers/tenants to demand a lower price/rent.

The Regulations allow landlords with a “legitimate reason” to continue letting a substandard property. For example, the landlord may have been unable to obtain consent from the tenant to carry out the necessary works. However, such exemptions must be registered.

Landlords must ensure that new leases tackle EPC-specific issues such as restricting the tenant’s right to commission an EPC (as this may invalidate the landlord’s certificate).

Moreover, landlords must also consider how this affects current leases. For example, repair clauses and rights of entry in current leases may be insufficient to justify the landlord claiming costs from the tenant, or allow the landlord access to carry out the necessary works.

Finally, landlords must consider the current/likely rating of their properties and begin budgeting for any improvements in advance of 1st April 2023, so as to avoid potentially large costs in the future.

For further information, please contact Ellison’s Head of Commercial Property, Philip Roberts