By Jonathan Rowe, Partner
Energy Performance Certificates (EPCs) were first introduced on 1 August 2007 as a part of Home Information Packs which were designed to streamline the conveyancing process but which were scrapped by the Coalition Government in May 2010. EPCs however are still required for all commercial (non-domestic) and residential (domestic) properties when constructed sold or let.
An EPC provides details on the energy performance of a property based on a sliding scale, taking into account how it is constructed and insulated and how it is heated or cooled. The EPC rates the property in one of six bands starting with A for the most energy efficient and G the least. The second part of the EPC contains a recommendation report with details of works that could improve the energy rating.
While HIPs have been abolished, EPCs are now gaining significance as the Minimum Energy Efficiency Standards (MEES) Regulations 2015 are due to come into force on 1 April 2018 and, from that date, landlords will not be able to let a property (be it commercial or residential) if it has an energy rating of E or above.
For existing tenancies, a landlord will not be able to continue letting a property from 1 April 2020 for non-domestic properties and 1 April 2023 for non-domestic properties if it has a rating below E. It is not known how this will work in practice and, in most cases, it should be possible to improve a property’s energy rating by carrying out works in the recommendation report – who should pay the cost of the works will most likely be prescribed by the lease or tenancy agreement.
If you have a property that is rated F or G and the works and the recommendation report are not sufficient to bring it up to the minimum level of E there are exemptions but these only apply if they are registered on the Department for Communities and Local Government’s website (www.epcregister.com) for domestic properties.
Also, any exemption will lapse if there is a sale or transfer of the property but the new owner can apply anew for an exemption. The exemptions are as follows:
• Sub-standard works – if a property has had all the energy efficiency works carried out but remains sub-standard, then any exclusion will last for five years and at which time the property owner must then make an attempt to make fresh energy efficiency improvements
• Wall insulation – some wall insulation will not be appropriate for certain property types and if the property owner can obtain a written expert’s advise that wall insulation is not appropriate because of its potential negative impact on the fabric or structure, then an exclusion will apply
• Third-party consent – third party consent is needed (eg. from a mortgagee or landlord). A reasonable effort must be made to seek and obtain that consent and if it is not forthcoming, then exclusion will apply to those works which consent cannot be obtained
• Property devaluation – if a property owner can obtain a report from an independent surveyor that the improvements would reduce the market value of the property by 5%, then an exemption applies
• Recent landlord – if a landlord has recently and unexpectedly become a landlord (ie. because their tenant has vacated unexpectedly), then they have a six-month period in which to carry out any necessary energy efficiency work
• Low funding- the 2015 regulations operate on the basis of there being no cost to a landlord and there is an exemption if a landlord is unable to obtain funding to cover the cost of making the necessary improvements. This applies even if the landlord does not need to borrow money for the works. It simply means that the landlord cannot obtain funding from a statutory source (ie. the Green Deal for Energy Company Obligation) or funding from elsewhere (eg. central government or local authority or third party) at no cost to the landlord. Since the Green Deal has largely been abandoned the reality is that many landlords will come within the scope of this ‘no-funding’ exemption
Exemption and exclusions are registered on a self-certification basis via the exemption portal which is currently not fully operational but the key point, of course, is that the exemptions only apply if they are registered.
If you have any queries, please do not hesitate to contact Jonathan Rowe, or another member of our Commercial Property team, on email@example.com or 01892 515022.