We are all (hopefully) familiar with what an Energy Performance Certificate (EPC) is, does and when it is needed. Do we, however, take any notice of its actual content or is obtaining one simply a tick box exercise? I suspect that the latter is largely the case. With new legislation coming into force this will need to change.
From April 2018 (at the latest), a landlord will have no option but to consider how energy efficient its property is. Unless minimum energy standards are met, no new lease of that property will be able to be granted. Note that at this point, the renewal of a lease to an existing tenant will not be caught by this legislation.
The rules however, will extend to lease renewals from April 2023. So:
What, in practice, does this mean?
To be able to let out its property, a landlord will have to make sure a minimum level of energy efficiency for that property is achieved. This will be measured through an EPC and the minimum level of energy efficiency likely to be required is that of a “E” rating. Some might argue that this is not a high enough level of minimum energy efficiency, but for a number of properties it may be a challenge to meet this standard.
Why think about it now?
A landlord needs to think about it now, as any lease being granted from today for 7 years or more will be caught on the renewal of that lease or if a new lease to a different tenant is granted.
To avoid any rental gap by having an empty property whilst works to achieve a minimum energy efficiency standard are carried out, a landlord might also want to ensure that the ability for it to carry out these works is included in any lease that is being granted now.
What about costs incurred in bringing a property up to required minimum energy efficiency standard?
Whether or not you could charge those to a tenant through any service charge remains to be seen. A landlord may be able to get funding through particular schemes in place. Arguably, the best return would be through any possible rent increase (no guarantees given!) that the works might realise. Is a more energy efficient property more desirable to a tenant as it possibly has lower running costs?
What happens if the minimum energy efficient standards are not met?
If not met, a landlord could find itself faced with financial penalties for non-compliance and an order to comply. Arguably, it could also diminish the rental value of the property and make it harder to rent out.
Whilst the above article relates to commercial properties, it should be pointed out that there are also specific provisions relevant to residential properties.
If you would like to discuss the implications of the minimum energy requirements on any letting you have in place or any future letting of a property, then please contact Cathryn Pernstich of Morrisons Solicitors Commercial Property Team in Redhill on 01737 854521 or by e-mail on [email protected].