We’re finding many of our clients have little understanding of how the Energy Performance Certificate 2018 regulation changes will affect both their landlord clients and themselves.
This guide aims to summarise the key changes and keep those who need to know, in the know.
This article builds on the 7 things you need to know about the 2018 EPC changes blog post we produced to give a high level overview of the key issues surrounding the changes applying to both residential EPCs and commercial EPCs.
This article is written with a specific focus on commercial real estate and summarises the report from the Department of Energy & Climate change on the new 2018 EPC regulations.
WHAT IS CHANGING?
From 1 April 2018, the minimum energy efficiency standard will be set at an E, meaning that commercial property with an EPC rating of F or G will require improvements to the buildings to improve the energy efficiency rating before a lease can be granted.
The 2018 EPC regulation changes will apply upon the granting of:
- a lease to a new tenant, and,
- a lease to an existing tenant.
WHAT TYPE OF COMMERCIAL PROPERTY DOES IT AFFECT?
The regulation changes will apply to the non-domestic private rented sector in England and Wales. As defined by the Energy Act 2011, this will be any property let on a tenancy, which is not a dwelling. The existing exemptions will remain applicable.
ARE THERE ANY EXEMPTIONS TO THE NEW 2018 EPC REGULATIONS?
Only cost effective, permissible and appropriate improvements are required under the new regulations. If a landlord can provide suitable evidence of the following, then they will be eligible for an exemption from their commercial building reaching the E minimum rating:
- If the improvement measures are not cost-effective, and do not pay for themselves within 7 years, or do not fall in line with the Green Deal’s Golden Rule which states ‘The expected financial savings must be equal to or greater than the costs attached to the energy bill’.
- If, despite reasonable efforts, the landlord is unable to obtain the necessary consents from tenants, lenders or superior landlords to install the required energy efficiency improvements.
- If a ‘relevant suitably qualified expert’ can provide written advice stating that the proposed energy improvement works will have an adverse affect on the value of the property by 5% or more.
- If a ‘relevant suitably qualified expert’ can provide written advice that insulation applied to walls will damage the property.
WHY DOES IT AFFECT COMMERCIAL LANDLORDS?
The reason is because it will be the landlords responsibility to take action to ensure that if they wish to lease their commercial property, that the energy efficiency rating falls between the A – E EPC ratings.
If the energy efficiency improvement works are cost effective, permissible and appropriate, then it is up to the landlord to make arrangements to get the works done.
If a landlord feels that their property is exempt, and that they should be allowed to lease their commercial premises, even with an F or G rating, then they can apply to notify this on a centralised register – the Private Rented Sector (PRS) Exemptions Register.
WHY DOES IT AFFECT COMMERCIAL AGENTS?
As an agent, if your clients properties are non-compliant then you will not be able to lease them until they are. The time taken to make improvements could cost both you and your clients lost revenue. Commercial real estate agents are in a good position to advise landlords of the changes to ensure they have awareness of:
- the general legislation on the EPC regulation changes in 2018 and their responsibilities.
when the changes will apply, giving them time to make any required changes to improve the energy efficiency of their premises
- what they can do / need to do if their property does not achieve an E rating or better
the Private Rented Sector (PRS) Exemptions Register
WHAT ARE THE PENALTIES FOR NON COMPLIANCE?
If a landlord has a commercial property that falls in the scope of the regulations, but the landlord has not ensured that their property is compliant, or has not sufficiently proved an exemption, then a Local Authority is within its power to serve a compliance notice on the landlord requesting that further information is sent to them to confirm compliance.
- If this information is not provided or does not prove compliance, then a penalty notice may be issued. The landlord will have the right to appeal a penalty.
- The penalty is £5,000 for providing false or misleading information to the PRS Exemptions Register, or for failing to comply with a compliance notice from a Local Authority.
- The penalty for renting out a non-compliant commercial property is as follows:
- Less the 3 months non-compliance: 10% of rateable value, subject to a minimum fine of £5,000 and a maximum fine of £50,000.
- More than 3 months of non-compliance: 20% of rateable value, subject to a minimum fine of £10,000 and a maximum fine of £150,000
- Publication of non-compliance will apply to both timeframe offences.
Confused still? Want to know what all this means for your property?
The best thing to do is to speak with a local energy assessor in your area, they will be able to offer you tailored expert advice and provide you with an EPC if you need one. Here’s some useful links, click them and pop in your postcode to find a local expert:
List of Commercial Energy Assessors > (Hint: Search for EPC Level 4 in the dropdown)
If you’re in the Midlands and require a commercial EPC, feel free to contact us, we’d be happy to help!
Got more questions? Contact The Ministry of Housing, Communities and Local Government on 030 3444 0000 or via their Contact Form