Commercial properties now require a minimum energy efficiency rating of ‘E’ or higher before the landlord may put them up for rent.
The following information is broken up into six main sections:
The regulations and their amendments
The impact on landlords
Recommended Actions
How Beacon Lights can help
The exemptions
Citations and References
The regulations and their amendments
The regulation we are referring to is The Energy Efficiency (Private Rented Sector) (England and Wales) Regulations 2015 (Citation 1) which require landlords to ensure any domestic or commercial properties they are letting have a minimum EPC (Energy Performance Certificate) rating of ‘E’ – this means either of the two lowest scores, ‘F’ or ‘G’, puts the landlord at risk of a penalty charge of up to £150,000 per asset that is not compliant!
Although the regulation was passed in 2015, certain parts did not come into effect until much later. From April 2018, landlords of privately rented domestic and commercial properties in England or Wales must ensure that their properties reach at least an Energy Performance Certificate (EPC) rating of E before granting a new tenancy to new or existing tenants. These requirements will come into effect for all private rented properties in England and Wales, even where there has been no change in tenancy arrangements on 1st April 2020 for domestic properties and 1st April 2023 for commercial properties.
An amendment in June 2016 (Citation 2) made subtle changes to dates when the Private Rented Sector Exemptions Register opened to domestic and commercial landlords. The original deadline was 1st October 2016 for both, but this amendment pushed those dates back to 1st April 2017 for commercial properties and 1st October 2017 for domestic properties.
A recent amendment in March 2019 (Citation 3) added a capped landlord contribution requirement (up to the value of £3500) in case funding from a third party was insufficient or not available. However, if third party funding is available to completely cover the cost of improvements then no spending cap applies.
The energy lost on inefficient buildings has been determined as a major contributor to Green House Gas emissions and the government hopes that these regulations will help the UK to meet its goal of reducing carbon emissions by 80% by the year 2050.
The impact on landlords
If a landlord does not conform with these regulations on their property by the relevant date, it could have a serious negative impact such as:
- Fines up to £150,000 per asset if the property does not meet requirements unless exempt.
- Property valuations could be reduced if they are not able to compete in the market.
- Reviews on the rent of the property may also be negatively affected.
- Dilapidation assessments may be affected on non-compliant properties.
- Lettings may become illegal if the recommended changes to meet the required standards are not carried out in time.
Recommended Actions
In order to meet these changes, which the government could raise in the future, we would recommend you carry out the following:
- If you haven’t already, ensure your property has a valid EPC so you know what standard the property is currently at.
- For properties that fall below the minimum standard for an ‘E’ rating, put together a plan that will help you meet those energy efficiency standards. This plan should list the energy efficiency measures that can be applied to the property then compare the benefits these bring to property (such as reduction in heating and energy bills) to the potential drawbacks (such as cost of materials and labour) and that should help you make a decision on what improvements will yield the best results.
- When considering the improvements, ensure you use any lease breaks or void breaks granted to you.
- Create an ongoing plan that incorporates these improvements and allows you to keep improving the energy efficiency of your property to help safeguard against any future strengthening of the regulations.
How Beacon Lights can help
After ensuring your property has a valid EPC, Beacon Lights can provide a free of charge full energy survey and lighting design to maximise light coverage and energy saving potential at your property!
Get peace of mind with our free energy survey which includes proposals and savings against your existing lighting as well as the payback period so you can see how quickly our proposals will make a return.
We can also provide financing options to help spread the cost up to 5 years without any up-front payments needed! (Subject to status).
Get in touch with our lighting design team today to arrange your free survey and lighting design! You can contact Kevin by email at [email protected] or by phone on 07833 445454.
Call Kevin on 07833 445454
Email Kevin at [email protected]
The exemptions
There are some exemptions in the regulations in which commercial landlords will not need to obtain the EPC rating of ‘E’ or higher; these will last for 5 years (aside from the ‘New Landlord’ exemption) and will be stored on a centralised register the government has created.
The exemptions are (Citation 4):
- No consent
If permission to commence the required work to comply is refused by a third party (such as the local authority or the current tenant).
- Devaluation
If the improvements required are considered to damage the property and/or devalue its market value by 5% or higher – such assessment will need to be provided in writing by a suitably qualified expert such as an independent surveyor registered with the Royal Institution of Chartered Surveyors (RICS).
- All Improvements Made
If all of the ‘relevant energy efficiency improvements’ have been undertaken for the property (or if none can be made).
- 7 Years Payback (Commercial only)
If the cost of purchasing and installing the equipment/services needed to make the recommended improvements to the property exceeds a time of 7 years to ‘payback’. This is classified as when the expected value of savings on energy bills that the improvements are expected to achieve over a 7-year period are less than the cost of repaying it.
- High Cost (Domestic only)
If the cost of making the cheapest recommended improvement exceeds £3500 (inc VAT) then the landlord may register for this exemption by uploading copies of 3 quotations from different installers.
- Wall Insulation
If a certain wall insulation system is used, even where it has been recommended, that could cause a potential negative impact on the fabric or structure of the property (written expert advice will need to be obtained for this).
- New Landlord
Under certain circumstances, if a new landlord takes over a property needing improvement, they can apply for a six-month extension to make the relevant changes needed to obtain the EPC rating of ‘E’ or higher. The circumstances are:
- A new lease has either been created by operation of law, granted by a court order or granted under Part 2 of the Landlord and Tenant Act 1954.
- The landlord has been a guarantor or former tenant and has exercised the right to obtain an overriding lease of a property under section 19 of the Landlord and Tenant (Covenants) Act 1995.
- The tenant becomes insolvent and the tenant’s guarantor becomes the landlord.
- A lease has been granted due to contractual obligations.
Citations and References
Citation 1, 2015 March Regulation:
http://www.legislation.gov.uk/uksi/2015/962/pdfs/uksi_20150962_en.pdf
Citation 2, 2016 June Amendment:
http://www.legislation.gov.uk/uksi/2016/660/pdfs/uksi_20160660_en.pdf
Citation 3, 2019 March Amendment:
http://www.legislation.gov.uk/uksi/2019/595/pdfs/uksi_20190595_en.pdf
Citation 4, PRS Exemptions Guidance:
https://www.gov.uk/government/publications/private-rented-sector-minimum-energy-efficiency-standard-exemptions/guidance-on-prs-exemptions-and-exemptions-register-evidence-requirements
Further guidance may be found on the gov.uk website at:
https://www.gov.uk/government/publications/the-private-rented-property-minimum-standard-landlord-guidance-documents
