Regulations Published for Commercial Properties
Public and private sector landlords will not be able to grant tenancies to new
or existing tenants for non-domestic properties with an EPC rating of band F or
In the last week, the government published guidance for landlords of commercial properties about the new minimum energy efficiency regulations they must meet from April 2018. Failure to do so and commercial landlords will be unable to let their properties to tenants.
The Minimum Energy Efficiency Standards (MEES) will mean public and private sector landlords will not be able to grant tenancies to new or existing tenants if their non-domestic properties have an EPC rating of band F or G. The regulations will tighten further in 2023, with landlords not able to lease buildings with an energy efficiency rating of band E or below.
One-in-five commercial buildings would fail to meet the standard
Research from a real estate firm has suggested that as much as 20 percent of the UK's commercial building stock would fail to meet the new standards as they stand today, with a further 19 percent rated in band E. After April 2018, owners who let buildings that do not meet the energy performance standards could be liable for a fine of up to £150,000.
However, there are some exemptions to the new rules that centre on the cost effectiveness of the changes, third party consent, and whether the work that needs to be undertaken could damage or devalue the building.
Landlords should act now
Although 2018 may seem a long way off, given the time needed to identify where building efficiency upgrades are needed, and ensure the upgrades have been completed by the deadline, commercial landlords would be wise to act now.
Not only will properties that do not meet the Minimum Energy Efficiency Standards be unlettable by law, but landlords should also keep in mind that occupiers will increasingly favour high EPC-rated buildings due to the lower running costs and increasing environmental concerns. That means even landlords of band E rated buildings, which can legally be let, may experience difficulties finding a tenant.
How to avoid falling foul of the changes
Industry standard commercial leases are now being amended to include new provisions that deal with the MEES regulations. These provisions include:
- A right for landlords to enter the premises to complete energy efficiency improvement works. If the tenant does not consent to the changes the landlord can rely on the exemption;
- An obligation for the tenant to pay the costs of the energy efficiency improvement works as they will benefit from the reduced running costs;
- A restriction on all alterations made by the tenant that could adversely affect the environmental performance of the premises;
- Restrictions on the tenant obtaining their own Energy Performance Certificate unless required to do so by law;
- Break clauses in the event that continuing to let the premises would constitute a breach of the MEES laws.
It is possible for landlords to declare themselves exempt from the regulations in certain circumstances, but to do so they must sign up on the register which was open from October 2016. Commercial landlords can read the full guidelines on the official gov.uk website.
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