Commercial EPC ratings: what you need to know

Commercial EPC ratings: what you need to know

If you are a landlord of a privately rented commercial property, updates to the government’s minimum energy efficiency standard (MEES) apply to you.

This guidance states that since 1 April 2023, landlords cannot rent out commercial properties unless those properties have an EPC rating of at least E. This applies even where tenancy has remained the same.

So, what exactly does this mean for you?

What is an EPC, and when is it required?

An EPC, or ‘energy performance certificate’ is passed on an energy rating assessment of a building.

The assessment will consider several factors, including what the building is made of, what it’s used for, the heating and ventilation systems used and the lighting systems.

EPCs rate a property’s energy efficiency on a scale from A to G, with A being the most efficient and G the least.

EPCs are valid for a 10-year period. Within this time, a new EPC is only mandated if major modifications are made to the building.

Otherwise, if the EPC is still in date, there is no need to produce a new one, even if there is a change of ownership or tenancy.

Once the 10-year period has expired, a new EPC will be needed when the property is next sold, let or substantially modified.

Why were the regulations put in place?

A study across 2006–2012 found that heating and powering commercial properties accounted for around 12% of emissions in the UK.

Nearly two-thirds of those buildings are expected to still exist in 2050, so updating them is a key part of reducing emissions in the UK.

The requirement for buildings to meet a minimum standard of EPC E is just one step within the MEES regulations. By 2028, it’s expected that an EPC of C or higher will be required, with an EPC rating of at least B mandated by 2030.

Who does the non-domestic private rented property MEES apply to?

These regulations apply to landlords of any non-domestic property (i.e. properties that are not classified as ‘dwellings) that is:

    1. legally required to have an EPC and
    2. has tenancy terms for more than 6 months (or less than 6 months with provisions for renewal or extension of the term beyond 6 months; or less than 6 months, but the tenant has already been in occupation for more than 12 months) and less than 99 years.

Essentially, these exceptions are to avoid affecting the very short leases often used by SMEs, and lifetime leases that are more akin to buying a property. The vast majority of commercial leases are included within the scope of the regulations.

All landlords are included, whether individuals, companies, or public bodies.

If the property is sublet, the tenant providing the sublease becomes a landlord, and the minimum standards apply to them and to the superior landlord.

Landlords of empty buildings can choose not to update their properties; otherwise, anyone renting out a building that requires an EPC must act on this regulation.

An interesting exception

If the property is let on a lease of over 10 years, and the EPC has expired with the same tenant in place, the landlord will not be required to obtain a new EPC and therefore comply with the MEES regulations until there is a trigger for renewing the EPC.

Triggers would include re-letting the property to the same tenant, a change or tenancy, significant modifications to the property or sale of the property.

Similarly, if the tenant sub-lets the property, the regulations would be triggered, and an EPC of E or above would be required.

Exemptions to the requirement to have an EPC

There are a few exemptions to the requirement to have an EPC. If the building is not legally required to have an EPC, it does not comply with the MEES regulations.

Many incorrectly assume that listed buildings are automatically exempt from EPCs, but this is not the case. Listing exempts a building only when compliance with minimum energy efficiency requirements would change its appearance or character by an objectional amount.

Places of worship, industrial sites, workshops, and certain agricultural buildings are also exempt from EPCs.

Most furnished holiday accommodation, where the holidaymakers are not responsible for paying energy costs, is also exempt.

Temporary buildings (i.e. those that will stand for 2 years or less) and small, standalone buildings with a total useful floor area of under 50m2 do not need EPCs.

Lastly, buildings that are going to be demolished may also be exempt.

What to do if the EPC rating is F or G

If you are planning to let a property and the EPC has a rating of F or G, then you will need to improve the energy efficiency of your commercial building to EPC E or above before issuing a tenancy agreement.

If the EPC remains below E after making all possible energy efficiency improvements to the property, it can be registered on the private rented sector (PRS) exemptions register. It will remain exempt from the EPC requirement for 5 years.

After this time, the landlord must re-attempt to improve the EPC rating. Notably, exemptions are not transferred if the property passes into new ownership.

Five-year exemptions can also be granted if third-party consent is withheld, preventing landlords from making energy efficiency changes.

This covers scenarios where the landlord cannot make the necessary energy efficiency improvements because they cannot get consent from a third party (e.g. a superior landlord, listed building consent, or tenants’ consent).

About the author

Allcott Commercial is a firm of Chartered Surveyors and Structural Engineers. It provides commercial surveying and engineering services to clients across various sectors in England and Wales.

Their nationwide team specialises in dilapidations, schedules of condition, commercial building surveys, expert witness, valuations, commercial structural engineering and contract administration, including thermal efficiency improvement.



Disclaimer:

This post is for general use only and is not intended to offer legal, tax, or investment advice; it may be out of date, incorrect, or maybe a guest post. You are required to seek legal advice from a solicitor before acting on anything written hereinabove.

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