Time is running out for owners of commercial buildings to avoid the risk of breaking the law and to make vital energy saving improvements. It is a critical time for facilities and energy managers looking after domestic and commercial rental properties, with some significant changes to energy legislation afoot.
From 1st April 2018, it will be unlawful to grant new leases, to new or existing tenants, for properties in England and Wales that do not meet the government’s Minimum Energy Efficiency Standards (MEES), part of the Private Rental Sector Energy Efficiency Regulations 2015.
It will be the landlords’ responsibility to ensure that the property has an Energy Performance Certificate (EPC) that demonstrates the property meets the minimum energy rating of an E, but it is estimated that up to 20 per cent of all non-domestic properties in England and Wales could have an F or G rating. In most cases it will be illegal to rent any property without an EPC, or with an EPC that declares a rating of F or G.
There are financial implications for not upgrading properties rated F or G: rent reviews and valuations for secured lending may be affected, and there may be difficulties in marketing the properties. Although properties that do not require an EPC under current EPBD regulations are exempt from this legislation (and it does not apply to lettings of 6 months or less or lettings of over 99 years), there will be financial penalties involved for non-compliance where applicable which will be linked to the rateable value of the property.
Elmhurst Energy is encouraging commercial landlords to act now by commissioning an up-to-date Energy Performance Certificate that will not only identify the current rating, which may have changed over time, but will also recommend opportunities for improvement. From April 2023, the minimum energy efficiency legislation will apply to all privately rented non-domestic properties, including where a lease is already in place and a property is occupied.
Now is the time for facilities managers to assess the energy efficiency of their property portfolio to ensure it meets the required energy rating and to identify what measures must be implemented between now and April 2018.
There are some exemptions, for example if the property does not require an EPC under current regulations, if the landlord can demonstrate they have implemented all cost effective energy improvements or the required improvement will devalue the property, then the landlord can apply for an exemption, but it’s not easy and certainly should not be seen as a loophole.
This is just the start, as from April 2023 the regulations will apply even when the lease is already in place and it is then proposed that the bar will be raised so to prohibit rental of properties rated at D and E from 2030. However MEES should not be seen as punitive as the required improvement will add value to a property and business in the long run.
In the private residential sector, both the Tenant’s Energy Efficiency Improvement and Minimum Energy Efficiency Standards gives more rights to tenants. From 1st April 2016, all domestic tenants have had the right to request consent for energy efficiency improvements. This applies to domestic properties let under an assured tenancy and a regulated tenancy. This will be widened to cover an assured agricultural occupancy, protected tenancy and statutory tenancy.
There are some exemptions. If the building is exempt from having an EPC then a landlord is not required to provide consent. A tenant must also show that the measures could be installed with no upfront cost to the Landlord (the removal of Green Deal funding for energy efficiency in September 2015, created a loophole in the legislation, but since then the Government have sold the Green Deal Finance Organisation, so this loophole is now closed). However, residential private landlords will not be able to unreasonably refuse consent to a tenant’s request for energy efficiency improvements if the various criteria are met. Enforcement will be handled by the First-tier Tribunal General Regulatory Chamber, which will hear and determine applications from tenants where the tenant considers that the landlord has not complied with the regulations.
From 1st April 2020, the regulations will apply to all privately rented property within scope, which are those that have an EPC or are required to have an EPC as per existing EPC legislation. While, some exemptions apply, including where improvement measures would devalue the property by more than 5%, or where properties are unsuitable for wall insulation, there are penalties, with fines up to a maximum of £5,000 if the regulations are ignored.
Hints and Tips for Complying with energy efficiency legislation