New energy efficiency standards for privately let commercial property

From the 1st April 2018, there will be a requirement for any properties rented out in the private rented sector to normally have a minimum energy performance rating of E on an Energy Performance Certificate (EPC).

New tenancies and renewals

The regulations will come into force for new lets and renewals of tenancies with effect from 1st April 2018 and for all existing tenancies on 1st April 2020.

It will be unlawful to rent a property which breaches the requirement for a minimum E rating, unless there is an applicable exemption.

Breaches

Michelle Hayter, Dispute Resolution Partner, says “For most landlords this will mean that they will no longer be able to rent out a property with a rating of F or G after April 1st 2018. A civil penalty of up to £4,000 will be imposed for breaches.As such landlords with properties in this EPC bracket should begin preparing now for April 1st. However, there are several nuances and exceptions to be aware of.”">landlords this will mean that they will no longer be able to rent out a property with a rating of F or G after April 1st 2018. A civil penalty of up to £4,000 will be imposed for breaches. As such, landlords with properties in this EPC bracket should begin preparing now for April 1st. However, there are several nuances and exceptions to be aware of."

Compulsory energy efficiency improvements

There are some exemptions. To qualify the landlord must register the exemption on the Public Exemptions Register.

Exemptions

A number of "safeguards" are included to ensure that landlords will not be forced to carry out improvement works that are not "permissible, appropriate and cost effective".

These include where the improvement works do not meet the 'golden rule' under the Green Deal, which limits borrowing to the amount that would be covered by the money saved on fuel bills, or over a seven-year payback period where Green Deal funding is not available. This is because, at the moment, no commercial Green Deal finance is available.

Landlords will also be exempt where a tenant has refused consent to improvement works in the past five years (or necessary third party consents to the improvements have been refused in the same period).

They will also be exempt if the necessary measures would reduce the property's value by 5% or more, which again must be reviewed every five years. The landlord must notify DECC if an exemption applies and be listed on a central register.

Enforcement and penalties

The regulations will be enforced by local authorities, which will be able to issue compliance notices requesting further information and, ultimately, penalty notices.

Penalties will reflect the degree of infringement and the length of non-compliance. Letting, or continuing to let a property, in breach of the regulations will not affect the validity of the underlying lease.

Michelle warns "The penalties for non-compliance are surprisingly hefty with a possible maximum fine of £150,000. This is much higher than the fine for not having an EPC in the first place."

Future EPC ratings

The government has not included a trajectory for the minimum energy standard. Instead, it has said that it will review the progress of the regulations every five years. Therefore, there is still uncertainty that the EPC asset rating minimum standard may change in the future, so this will cause continued uncertainty in the market. It may make sense to carry out greater improvements to energy efficiency than required, if the minimum standard is to tighten over time.

Our Dispute Resolution Team are happy to discuss any issues that this raises for you. If you have any questions, you only have to ask us at Frettens. Please call 01202 499255 and Michelle or a member of the team, will be happy to chat about your situation and your particular requirements.