Policy reforms for EPC regulation in 2018

March 23, 2015

On 4 February 2015, the Department of Energy & Climate Change published their response to the 22 July 2014 Consultation on the non-domestic private rented sector Minimum Energy Efficiency Standard (MEES) Regulations for England and Wales.

It has been confirmed that from 1 April 2018, let commercial properties will have to have an Energy Performance Certificate (EPC) rating of at least ‘E’. It will therefore be illegal to let commercial properties in England and Wales with an EPC rating of ‘F’ or ‘G’. However, the following properties will be excluded from the MEES:

  • listed buildings;
  • buildings due to be demolished;
  • properties let on a tenancy for a term of 6 months or less; and
  • properties let on a tenancy for 99 years or more.

Entry into force

MEES will come into force on 1 April 2018 for new leases granted to new tenants and lease renewals granted to existing tenants. From 1 April 2023, the provisions will apply for all existing leases.

Where a commercial building falls below the MEES and a landlord wishes to let all, or part, of the building, they will have to carry out works to improve the building’s energy performance up to the MEES or pay a penalty in the form of a civil fine (please see below).

Restrictions on making improvements

There will be a number of exemptions from meeting the MEES, which landlords will be able to apply for:

  • Cost-effectiveness exemption: Landlords will have to demonstrate either that there is no Green Deal Golden Rule available for the relevant improvement works or that the works would not pay for themselves within a seven-year payback.
  • Third Party Consents exemption: Landlords will have to demonstrate that despite reasonable efforts, they cannot obtain necessary consent to install the required energy efficiency improvement e.g. from tenants, from superior landlords, or refusal of planning permission.
  • Devaluation exemption: Landlords will have to demonstrate that the relevant improvement works would reduce the market value of the property by 5% or more.
  • Damage exemption: Landlords will have to demonstrate that wall insulation required to improve the EPC rating will damage the property.

If a landlord decides to apply for an exemption, they will have to pre-register this on a central register, the “Private Rented Sector (PRS) Exemptions Register”.

Enforcements and penalties

Local authorities will enforce the MEES and the penalties for non-compliance are:

Non-compliance

Fine of £5,000 and publication of non-compliance

Providing misleading information

Fine of £5,000 and publication of non-compliance

Renting out a non-compliant property for up to 3 months

10% of rateable value with a minimum penalty of £5,000, a maximum penalty of £50,000 and publication of non-compliance

Renting out a non-compliant property for more than 3 months

20% of rateable value with a minimum penalty of £10,000, a maximum penalty of £150,000 and publication of non-compliance

Please note that the penalty provisions will only apply where there is, in fact, an EPC in place. It therefore appears that, if a landlord has not complied with the requirement to obtain an EPC, the penalty provisions will not apply. However, the landlord will still be subject to penalties for non-compliance with getting an EPC.

Next Steps

We would recommend that you identify if you have any 'F' or 'G' rated properties as soon as possible. If you do, you should consider creating a strategy for carrying out works to improve energy performance.

If you need some support with this, please feel free to contact any member of the Real Estate team at Fox Williams LLP.


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