After lots of uncertainty, on 23 February 2017 the Department for Business, Energy and Industrial Strategy (BEIS) finally published their guidance on how the Minimum Energy Efficiency Standards (MEES) will apply to commercial property.
From the 1st April 2018 the Minimum Energy Efficiency standards kick in. So, what exactly are the immediate implications?
The changes will mean that it will be unlawful to let or lease a residential or commercial property with a poor Energy Performance Certificate (EPC) rating. Buildings will be required to meet a standard of E or above. It has been projected that approximately 20% of rented property will be caught by these changes.
1. The regulations surrounding the EPC Certificate are changing from April 2018
This has been a long standing concern of the industry with uncertainty amongst agents, landlords, tenants and energy assessors as to when these changes would come into effect and precisely what the implications would be. The recent publication of the guidance by BEIS in February this year has been long awaited and now provides some further information on how improvement works are identified, the exemptions and the enforcement process.
2. Commercial EPCs and Residential EPCs will be affected within the private rented sector
The new minimum energy efficiency requirements will apply to both the domestic and non-domestic sides of the private rented sector, so, whether a landlord is letting out a commercial building or a home to a tenant, it could be unlawful if the building does not meet the new minimum EPC requirements.
3. The minimum standard for commercial buildings and homes will be an E EPC rating
For commercial property, new rating will be based on C02 emissions and for homes will be based on fuel costs (the EPC graph displayed on the first page of the commercial energy efficiency certificate).
4. Improvements will be needed
Issues could arise after 1 April 2018, when trying to let a house or flat or renew a commercial lease with an EPC rating worse than an E. The landlord will have a duty to ensure that work is carried out to their property, for example, to increase the insulation or replace the windows, to improve the EPC rating to F or above.
Rebecca says “Official government data suggests that between 2008 and 2015, 35% of commercial buildings and 26% of domestic properties which had an EPC survey carried out were achieving an E, F, or G rating. Therefore, a significant proportion of the UK building stock could be affected by the new regulations. The landlord will have a duty to ensure the building achieves the correct rating, but it stands to reason that the cost of this may be recovered by the landlord in the tenant’s service charge.”
5. Key Dates
The new EPC Regulations will come into force from 1st April 2018 and shall only apply to new leases of properties from this date. Existing leases will eventually be caught by the new EPC Regulations. For existing leases they will be required to meet the minimum E rating by 01 April 2023.
It is impossible to say at this stage what exactly the implications of these changes will have on rent reviews and dilapidation claims. For instance, a tenant may be found liable for the improvements required to a building at the end of their lease, as a result of the statutory compliance provisions and yielding up provisions contained in their lease.
Our Commercial Property Team, based in Christchurch, also cover Bournemouth, Poole and the New Forest. If you have any questions, you only have to ask us at Frettens. Please call 01202 499255 and Rebecca or her team, will be happy to chat about your situation and you particular requirements.