Taking yet another call from someone asking for an EPC the day before minimum regulations came in felt like an April Fool’s joke.
I don’t know how they thought we could do this with less than 24 hours’ notice, but their panic was partly the result of the scaremongering and misinformation that’s been swirling around the 1st April deadline.
To be clear, the new minimum EPC requirement of an E rating in the non-domestic private rental sector applies to any existing leases, not just new ones. However, if the rating is F or G and the EPC certificate has expired but the term of the lease is ongoing, the liability for any upgrade works wouldn’t have taken effect on 1st April. A landlord won’t need to bring the property up to an E standard until a new EPC is triggered, such as when the lease is renewed, or the tenant carries out alterations to the property. Those who register an EPC unnecessarily could bring it into scope for future iterations of MEES, given that an EPC is valid for 10 years.
In the last few weeks, I’ve also fielded calls from property agents and commercial landlords worried they will now have to evict their tenants as, in theory, landlords won’t be able to continue renting out a building with a below-standard EPC. However, it’s not as simple as that. If tenants have a contract, landlords must allow occupation for the length of that lease because minimum EPC regulations can’t override any pre-existing law.
One of the challenges they are coming up against is that the tenant might refuse the landlord consent to carry out the works due to business disruption. Out-of-hours LED lighting upgrade work such as that undertaken by our client Assura inevitably puts a higher cost onto the project while another client in Scotland had a 24-hour call centre as a tenant, who refused access to carry out lighting upgrades.
We don’t know how Trading Standards officers around the country will enforce these regulations. After all, landlords have known about the 1st April deadline since 2018 when the MEES Regulations were implemented, while they should also now know about the government’s plans to raise the threshold to a C in 2027 and then a B in 2030. However, landlords need to weigh up the risk of doing nothing with at least getting an energy assessment. We certainly need some clarity and case law on the subject, although I’m not sure any landlord would want to be the first one to challenge it in court!
An up-to-date assessment will confirm whether there’s been any material change to a building. In fact, using the new SBEM methodology, commercial landlords could find that it has improved from an F to an E rating which means they wouldn’t need to spend a penny (other than the EPC survey fee) – and hence avoid the need for Trading Standards to come knocking. And while any resulting retrofit work can be disruptive, some of the improvements might be low-cost measures which would make tenants’ life more comfortable and produce lower energy bills. Assura got a new rating on some of their buildings without making any capital investment, while they are also investing capital to enhance several buildings in their portfolio. As a forward-thinking company, they recognise that there’s added value in having more energy efficient properties, as assets with stronger sustainability credentials are increasingly attracting higher capital values and rents -something recently confirmed by our trusted partner Siteline.
If landlords want to start readying themselves for further legislative changes, the UK Green Building Council advises them to set targets based on energy intensity metrics for all assets in their portfolio with timelines and milestones as well as sharing energy use data with tenants. The group also advises landlords to align their decision-making with energy performance-based ratings and away from EPCs. This is quite timely as the government is poised to provide an update on its new performance-based policy framework in large commercial and industrial buildings. The consultation started a couple of years ago and would provide a shake-up of energy assessments. Commercial EPCs are purely a measure of carbon emissions, so a good rating suggests low CO2 emissions, but may still have a high energy consumption. Under the new-look framework, annual ratings and their mandatory disclosure would be the first step, with a higher score achieved if a building reduces its measured energy use and carbon emissions – benchmarked against similar buildings so that any rating is meaningful and easily understood. Building owners would need to get a yearly rating and have it published online.
The government is dragging its heels when it comes to keeping commercial landlords updated however, by failing to respond to the two overdue consultation papers. The first sets out its plans to introduce a performance-based energy assessment to sit alongside EPCs, which might be similar to NABERS (the National Australian Built Environment Rating Scheme) by requiring an annual submission of energy use data. The second considers raising the MEES minimum standard to EPC band C from 1st April 2027 and to band B from 1st April 2030. Meanwhile, Building Regulations Part L is set to be revised anytime between 2024 and 2027, at which point the EPC methodology will be updated. This would either make the C band harder or easier to achieve, but a lack of clarity makes it difficult to provide advice on what improvement works are needed.
At least the government looks set to confirm plans to give residential landlords until 2028 to bring their properties up to a C rating. Often the commercial property sector follows its lead, so perhaps landlords will simply have to go straight to a B rating in 2030. That would give the commercial market more time and give us a chance to have these conversations about EPCs much earlier – after all, it can take anywhere up to eight years to do a refurbishment as landlords first need to get access from tenants. It’s important to get advice in good time as these deadlines draw nearer. For those that leave it too late, the penalties will certainly be no laughing matter.