What is an EPC?
An Energy Performance Certificate (EPC) contains information about a property’s energy use and typical energy costs and provides recommendations on how to improve the energy efficiency, and consequently save money. An EPC gives a property an energy efficiency rating from A (most efficient) to G (least efficient) and is valid for ten years. An EPC is usually needed whenever a property is marketed for sale or rent for residential or commercial purposes, subject to limited exceptions.
Why does it affect me?
At the moment there is no minimum energy rating which must be reached. This is about to change due to new regulations recently passed into law and this is could potentially have a significant impact on the rental market.
From the 1st of April 2018 it will be unlawful to let residential or commercial properties in the private sector that fail to meet the prescribed minimum energy efficiency standard (MEES), which will be a rating of E. There are slightly different regulations for each and you should seek advice to be sure of your compliance. This article deals predominantly with commercial properties.
Initially a Landlord will be able to continue to let out F and/or G rated properties beyond the 1st April 2018 for the remainder of the existing lease, but they may not then be able to renew an old lease or grant a new lease until they have made substantial improvements and the property achieves an energy efficiency rating of E or higher. Where a Landlord is obliged to grant a renewal lease under the Landlord and Tenant Act 1954, and an EPC already exists for the property, they may be forced to carry out improvement works before the renewal lease can be granted. From 1 April 2023 the regulations will apply to all F and G rated properties including those under existing leases.
Furthermore, from 1st April 2016 these new energy efficiency regulations will give Tenants living in F and G rated properties the right to be able to request improvements; potentially forcing a Landlord to carry out works to improve the property so that it achieves the minimum standard. If a Landlord fails to comply with the Tenant’s request for a more energy efficient home, the Landlord could be ultimately be forced to pay a financial penalty.
While the new legislation will not prevent the sale of a sub-standard property, it is likely to discourage potential buyers or investors if they will need to spend significant monies on improvements to the energy efficiency of the property either immediately or in the short term following a purchase.
Although the implementation of these regulations is not until 1st April 2018 it is strongly advisable to start considering what is best for you and your property portfolio, including your short and long term plans for the properties, at an early stage to allow sufficient time for any improvement works to be carried out in the most cost effective manner. The costs of any improvements are likely to fall on the Landlord unless your current lease provisions are wide enough to catch such works. Property owners will need to assess the potential costs of renovation and improvement, the possibility of marketing properties prior to 1st April 2018 to dispose of any sub-standard assets, the possible re-gearing of leases and the potential affect that this new regulation will have on the individual value of their properties.
There are exceptions to the minimum requirements, which you may be able to take advantage of in limited circumstances, and you should seek advice from your Accountant and/or Energy Surveyor/Assessor as to whether there are any grants or schemes which may be available to assist in financing any required improvements.
While the current suggested minimum energy rating is E, this is likely to be increased in subsequent years due to the UK’s commitment to an 80% reduction in carbon emissions by 2050 meaning a necessity for a progressive increase in standards. It would therefore be more strategically and economically sensible to consider improving properties to a higher EPC rating if at all possible.