New Energy Performance Certificate rules affect landlords from 2023: what you need to know

A new energy efficiency requirement will be enforced for all leased commercial properties from 01 April 2023, under tightened rules involving Energy Performance Certificates.

An Energy Performance Certificate (EPC) rates how energy efficient your building is using grades from A to G.

You must have an EPC if:

• you rent out or sell the premises;
• a building under construction is finished; or
• there are changes to the number of parts used for separate occupation and these changes involve providing or extending fixed heating, air conditioning or mechanical ventilation systems.

Landlords can be fined between £500 and £5,000 based on the rateable value of the building if they don’t make an EPC available to any prospective buyer or tenant.

Under the “Minimum Energy Efficiency Standards” (MEES) 2018, it is not legal to let a property with a rating below an E on a new lease, including lease renewals. From 01 April 2023, this requirement will also apply to existing leases. An existing lease that falls below the standard will still be valid, despite the landlord acting unlawfully in allowing the sub-standard property to be let.

The Government’s preferred trajectory is that all rented non-domestic buildings meet an EPC Band B by 2030, provided the action required is cost effective. The expectation is that the average savings will repay the investment within 4-5 years. However, the ambitious target of Band B by 2030 means 85% of current commercial properties would require investment.

The most important exemption is the seven-year payback period. In order for the increase in EPC standards to be economic, the seven-year payback test is applied. Landlords will only be required to implement measures that are cost effective and make sense on a building-by-building basis.

A landlord must register an exemption on the basis that the recommended measure would not pass the seven-year payback test. To do this, the landlord must provide copies of three quotations for the cost of purchasing and installing the improvement from qualified installers to demonstrate what the repayment cost would have been. The landlord must also obtain a figure representing the savings which a measure, or a package of measures, is expected to achieve over seven years. A non-domestic energy assessor in most cases will determine this estimate. The landlord will then be required to provide the most recent 12 months’ worth of energy bills for the property to determine the relevant energy price.

The additional exemptions include:

• leases shorter than 6 months or longer than 99 years
• current tenants withholding consent to the improvement measures
• if all improvement measures are made but the building is still below the requirement where the landlord has a legitimate reason not to undertake energy efficiency improvements, they must apply to the Private Rented Sector Exemptions Register.