With just a few exceptions, all properties have an Energy Performance Certificate (EPC) rating, indicating how energy efficient it is, with ‘A’ being the most efficient and ‘G’ the least.
From April 2018, it became unlawful to let business premises which have an energy efficiency rating below Grade E. Yet, many properties still fall below this standard.
Some of the key issues commercial landlords should consider in respect of their energy efficiency obligations are as follow:
- The obligation to ensure a property is compliant with these energy standards is strictly on the landlord. A prospective tenant should not be charged for the cost of an assessment or for any improvement works to bring the property rating up to the minimum required.
- With regard to a property that is already let, a landlord may be able to rely on a temporary exemption, if it can demonstrate that it is unable to obtain consent from the tenant – despite using reasonable efforts – to access the property. The rights of entry clause may well state that access can only be obtained outside of business hours, for example, which may make it tricky for workmen to enter. It may, therefore, not be possible to carry out any improvement works whilst the property is let. As a result, the works may have to be programmed to coincide with the lease expiry date.
- It may be beneficial for rent review clauses to include an assumption that the property can be lawfully let. This should avoid the tenant being able to argue that the market rent is zero because the grant of the hypothetical lease is unlawful if the EPC rating for the property is below a Grade E.
- When negotiating a new lease, it would also be prudent to prohibit the tenant from carrying out any alterations that would adversely affect the energy efficiency. If the rating falls below the standard required, as a result of a tenant’s alterations, it could fall to the landlord to carry out the necessary improvements to bring the property back up to the minimum rating.
- Landlords may also want to restrict tenants from commissioning their own EPC, without approval/consent. A new assessment could cause issues if the new certificate has a lower rating than a previous certificate commissioned by the landlord prior to the letting.
Perhaps most importantly, landlords should be aware that if they fail to comply with these regulations, they could face a penalty. The level of penalty depends upon the duration of the breach and the rateable value of the property. Penalties can reach up to £150,000.
In addition, the enforcement authority can “name and shame” by publishing details of any breach and penalties imposed (known as “the publication penalty”).
Helpfully (although perhaps not environmentally sound), however, the regulations do make it absolutely clear that any tenancy granted in breach of the letting prohibition still remains valid and enforceable.
If you would like to discuss your requirements further, please contact the Commercial Property Team on 020 8943 1441. For more information on our Commercial Property services, please visit our dedicated Commercial Property page