Update to EPC requirements for new leases
There’s no doubt that we’re living in a world that’s more environmentally conscious than ever, and the property market is not immune to this.
Energy Performance Certificates (EPCs) have been in place since 2007, and in April 2018 it became compulsory for all residential properties for sale or rent to have an EPC rating of at least a band E. Since April 1st 2023, this has extended to all rented commercial property, including properties where the leases are mid-term.
What is an EPC rating?
Energy Performance Certificates (EPCs) indicate how energy efficient a building is. EPCs have a rating from A (very efficient) to G (inefficient), and outline the cost of heating and lighting your property, and what its carbon dioxide emissions are likely to be.
An EPC also indicates what improvements you can make to ensure your property is more energy efficient and cost effective.
EPCs are valid for 10 years from the date of issue.
What are the new regulations?
From 1st April 2023, all new leases on residential and commercial properties must have an EPC rating of at least E, in line with the Minimum Energy Efficiency Standards (MEES). Landlords will be expected to make suitable changes to their property to reach the MEES.
This follows a Government consultation on new EPC regulations between 2019 and 2021.
For residential properties, there is currently a cost cap in place of £3,500 towards improvements. This cap is likely to be raised to £10,000 down the line.
There are some exceptions to the requirements, such as:
- If the work would devalue the property by 5% or more;
- The recommended work has been carried out but the EPC rating did not improve;
- The mortgage lender will not approve the recommended upgrades; or
- The building is listed, and the upgrades would ‘unacceptably alter’ the property’s character or appearance.
Penalties for not meeting the EPC requirement of band E on residential and commercial properties start at £5,000, and can go as high as £150,000.
Is this likely to change?
The new change to EPC requirements is just the beginning of Government efforts to improve property energy efficiency over the next decade and beyond.
The Government has proposed that by 2027, all property tenancies must be at EPC rating C or above at the time of letting. The EPC requirement is planned to rise to a band B rating by 2030.
Currently, all liability for energy efficiency upgrades to meet the EPC requirements falls on the landlord of the property. However, the Government has suggested that obligations may also be placed on the tenant to take their share of the responsibility.
What to consider as a landlord
To avoid challenges now or further down the line, our Commercial Property team recommend you check that all properties you own have a valid EPC rating of E or above.
If any properties fall below band E, use the EPC guidance to work out how much the required upgrades will cost, and determine which are worth doing. You can also explore third-party funding options for any required improvements.
Contact our commercial property solicitors
Whether you’re a property tenant, owner or landlord, our commercial property solicitors can advise you on the new EPC regulations and how this will affect you.