Energy performance requirements: is the minimum enough?
Why landlords should be planning to ensure their properties are above the minimum building energy performance requirements.
The government’s requirement that any commercial building must have an energy performance rating of at least E before it can be let came into force for all new lettings granted on or after 1 April 2018.
On or after 1 April 2023 all commercial lettings must be of buildings with at least an energy performance rating of E. At this date any new or subsisting letting of a building with a sub-standard rating of F or G will be in breach of the requirement. Breaches can lead to fines and publication of the offence although the landlord may be able to register an exemption in some cases.
In this ‘in between’ time landlords need to beware of being lulled into a false sense of security: only a small percentage of commercial properties have an energy rating of F or G. However climate change has leapt up the agenda since April 2018 and the government has promised that the UK will be carbon neutral by 2050.
Whilst likely outcomes of this drive to carbon neutrality may be difficult to divine, one clear signpost is the likely increase in the minimum acceptable energy rating for commercial premises.
The government published a consultation last year seeking to set a clear long-term trajectory to 2030 tightening minimum energy standards which closed for comment on 7 January 2020. The consultation states that:
The Government’s preferred target is that landlords of all non-domestic privately rented properties in England and Wales ensure their properties achieve a minimum energy efficiency standard of Energy Performance Certificate (EPC) band B by 2030, provided the action required is deemed cost effective by meeting a seven-year payback test.
The alternative trajectory in the consultation is that is that all non-domestic privately rented buildings reach an EPC band C by 1 April 2030 if cost effective.
Statistics from the government for the energy performance ratings of EPCs undertaken for commercial properties in England and Wales from July to September 2019 show that half of commercial properties are in bands D to G and more than a third in band C. If the government’s preferred trajectory becomes law more than 75% of commercial properties will fail to meet the minimum standard based on these figures.
Steps to take
The crystal ball needs polishing and thought given to how and when landlords might improve the energy rating of their property estate. From 1 April 2023 all lettings must be of property with the required energy rating: the ‘continuing to let’ requirement. At the moment this must be at least E, but if not at that point, it seems likely that the rating will rise in a relatively short time if the government proceeds with its plans.
- Check the lease terms – Does the lease give the landlord the right to enter the premises to carry out energy performance enhancements during the term? One problem for landlords is obtaining access to carry out necessary works especially in cases where the letting is of the whole of the building. It may be that the landlord can rely on an exemption in the absence of the tenant’s consent.
- Who pays? – Unless the lease expressly provides for the tenant to make a contribution to works to improve energy performance, the landlord must pay the entire bill, even if the tenant benefits from lower utility costs. In a multi-let building, some service charge provisions may allow for the installation of better performing heating or air–conditioning units even if this might be regarded as an improvement.
- Get the tenant onside – A tenant who wishes to sublet its lease is in the same situation as the landlord and there may be a common interest in energy improving measures. In addition lower bills and, for some occupiers, the desire to be seen to be lowering their carbon footprint may enable a joint approach to making improvements and some sharing of cost.
Contact a solicitor
Future-proofing your property estate will be essential. Please contact us so we can assist you with drafting and how the exemptions might assist.