EPC's and Leasehold Properties

The Government is attempting to reduce the number of energy inefficient buildings with the introduction of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.

The new regulations will make it illegal for properties to be let out by Landlords if their Energy Performance Certificate rating is either F or G, subject to a few exceptions. It is currently estimated that around 18% of buildings are rated to have this low standard of energy efficiency.

Long-term, these Regulations are an attempt to help meet the UK’s carbon emission targets whilst progressively improving the standard of properties at the same time. New leases and lease renewals will be first to be affected with implementation to begin on 1st April 2018. Following shortly after will be existing residential leases on 1st April 2020 and existing non-residential leases on 1st April 2023.

Any Landlords found to be in breach of these Regulations when the relevant time passes could be liable for a hefty penalty. The good news is that failure to comply with the Regulations will not affect the validity of the lease itself meaning that tenants are protected.

So who foots the bill for the upgrades? As these Regulations are yet to fully come into force, this is a grey area. We foresee arguments between landlords and tenants over service charge clauses and covenants to comply with statutory obligations. Some service charge clauses will exclude measures that are improvements but include measures that merely replace worn out parts for their modern equivalent. Others will provide for alterations to common parts of buildings, but exclude changes to individual let units. It will all depend on each individual property and lease.

In practice landlords and tenants may need to come to agreement over liability for required works and a tenant should bear in mind that it will benefit from the resulting energy cost savings.

In Commercial Leases, Landlord’s may wish to start thinking about how to protect their property’s EPC rating. Some modern lease precedents already contain clauses that restrict tenants from obtaining EPC’s unnecessarily and making alterations that would reduce the rating given on a future EPC as well as allowing landlord’s to influence the choice of EPC assessor. However, these appear more often as optional clauses and are only integrated if deemed necessary. We will most likely see a development in that these terms will become standard in all Commercial Leases. These clauses often provide more stringent rights to the Landlord by prohibiting tenants from commissioning an EPC as well as ensuring their cooperation in regards to access and preparation, in order to facilitate a report.”

Our Commercial Property team based in Christchurch also cover Bournemouth, Poole and the New Forest. For a free initial chat, please call 01202 499255 and Oonagh or a member of the team will be happy to discuss any questions that you may have.