Commercial landlords have one year to sort environmental compliance

Landlords have one year to ensure their commercial premises are compliant with Government environmental targets - including for existing tenancies.

By 1 April 2023, all rented commercial premises (which have a valid Energy Performance Certificate (EPC)) need to have an EPC rating of E or above.

The new minimum EPC regime will apply to all privately rented commercial property with it being a new offence to continue to let commercial property rated below E, meaning that all landlords will need to ensure their premises are compliant before then.

Here we will discuss:

• The rules
• The obligations on commercial landlords
• The penalties
• Exemptions
• The deadline

 The rules

The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 introduced Minimum Energy Efficiency Standards (MEES) for commercial private rented property.

Since April 2018 it has been an offence for a landlord of commercial property to sell or grant a new lease of a property which has a rating of F or G.

From 1 April 2023, MEES will apply to all privately rented commercial property and it will be an offence to continue to let commercial property with an EPC rating below E.

As a result, from 1 April 2023, any properties with ratings of F or G (regardless of whether the tenants are new or continuing) will be considered sub-standard and landlords will face fines or other enforcement action unless an exemption applies (see below).

The obligations on commercial landlords

It has been a legal requirement since 2007 that whenever a property is built, sold or rented, an EPC is required.

Properties are rated from A+ (most efficient) to G (least efficient) for energy efficiency.

EPCs, which are the landlord’s responsibility, are valid for 10 years unless they are superseded by a more recent EPC which may happen on completion of alterations to a property.

Landlords must commission an EPC before marketing a building, if there is not already one provided for the property, and make a free, valid EPC copy available to any prospective purchaser or tenant.

The penalties if commercial landlords don’t comply

A commercial landlord granting a new lease or renewing a lease now, or continuing to let after 1 April 2023 may face large fines (and also publication of details of their breach):

• if the landlord has been in breach for less than 3 months: the greater of (a) £5,000 and (b) 10% of the rateable value (but the total penalty is capped at £50,000)
• if the landlord has been in breach for 3 or more months: the greater of (a) £10,000 and (b) 20% of the rateable value (but the total penalty is capped at £150,000)
• Providing false or misleading exemption information: up to £5,000
• Failing to comply with a compliance notice: up to £5,000

Exemptions

EPC exemptions (from the requirement to have an EPC), which last 5 years, must be applied for, with evidence provided. After this time period, landlords must improve the EPC rating or re-apply for an exemption.

If the property is sold, the new landlord will not automatically be exempt.

Exemptions include:

• Properties used as places of worship or for other religious activities.
• Temporary properties used for 2 years or less.
• Industrial sites, workshops and non-residential agricultural properties that don’t use much energy.
• Stand-alone properties with a total floor space under 50m2.
• Buildings to be demolished - specific evidence of planned demolition is required.
• Certain listed buildings and buildings in conservation areas if MEES would unacceptably alter them.

April 2023 deadline

As a landlord, make sure you are aware of the 1 April 2023 deadline for compliance and seek advice on how to improve ratings, obtain an EPC or register an exemption.

We always recommend taking advice from Wake Smith before you sign a commercial lease agreement.

Substantial costs can be incurred if you don’t have a full understanding around commercial leases and the legal implications of not being compliant.

It is important to note that, whilst this article focuses on commercial lettings, similar rules apply to domestic private rented properties, however, the specific requirements do differ and the requirement not to continue letting sub-standard domestic premises applied from 1 April 2020.

For further advice on business leases contact commercial property Director Laura Saul on 0114 266 6660.

Posted 13/12/22