Author: Gavin Whitney
New environmental legislation is endeavouring to make the UK an even greener and more pleasant land.
The effect of the “minimum energy efficiency standards (MEES) for private rented buildings” will shortly start to affect both commercial and domestic let premises and landlords may want to start taking action now to mitigate the impact. This note focuses solely on commercial premises.
From 1 April 2018 it will be unlawful to let a premises with an EPC rating of less than an “E”. The Government estimates that 18% of properties are non compliant so this could affect quite a number of landlords. The effect of the regulations is to require the landlord to carry out works to the relevant premises to ensure they have at least an “E” rating. Failure to do such works before granting a lease could result in the landlord being “named and shamed” on a public register as well as fines of up to £150,000, depending on the rateable value of the premises.
From 2023, if the premises are below an “E” rating, the works must be done whether or not there is a renewal i.e. mid-term of any lease.
There are a few exceptions to these obligations, the principal ones of benefit being:
but in each case evidence must be filed on a public register to prove that the exception has been complied with and the exception is also not “once and for all”, meaning the landlord must try again in the future to get the consents.
It is no excuse to say that the works will cost too much or that the landlord lacks the financial means to carry them out.
The regulations do result in some tricky issues for landlords, some of which we have set out below:
Action to take now
As suggested above, we think landlords should be looking at their premises now and possibly obtaining EPCs so that they are aware of the position long before 2018. (However, not having an EPC is another exception to having to carry out works, but surely forewarned is forearmed?)
If landlords know in advance whether or not their properties might need work doing they can budget and plan for this and discuss with their tenants how this might be done. They can also make amendments to their forms of lease to change the service charge, and rights of entry clauses. If leases are coming up for renewal, landlords should be looking to make similar changes. All of this may be relevant on a sale or refinance of a property since potential buyers and lenders may be put off by an energy rating of less than an “E” and this could affect value.
If any works are done to a building, a landlord would be wise to ensure that its contractors are under obligations not to reduce the building’s energy rating and maybe also to improve it. A new EPC should be obtained after the works are complete so that the authorities know the correct rating for the property and that the landlord is not in default.
So whilst the proposed changes may make ours a more green and pleasant land, the impact could be quite unpleasant and costly for property owners.
Gavin Whitney, Senior Associate, Fladgate LLP (firstname.lastname@example.org)