The current Minimum Energy Efficiency Standards (“MEES”) Regulations 2015 require landlords of non-exempt properties to provide a valid EPC to tenants on all new commercial and residential tenancies.  Tenancies are unlawful unless the energy efficiency rating is “E” or higher.

From 1 April 2020, ANY residential tenancy (i.e. those which commenced before 1 April 2018) will also be unlawful if the EPC shows a low rating.  That is, you need to improve the property rating to "E" or above, or register an exemption, before you enter into a new tenancy or renew an existing tenancy. 

From 1 April 2023, the same will apply to all commercial tenancies ( part of a group comprising "non-domestic private rented properties").

Consequences for breach include penalties of 10 or 20% of rateable value capped at £50,000 or £150,000 - depending on how long the landlord has been in breach. Offending landlords face the risk of prosecution by their local authority with savvy tenants doubtless more than happy to inform.

While this is tight for the residential sector, if you want to keep your commercial premises on the right side of the law, you have time.  However, there are still difficult questions.

Do the terms of the lease require the tenants to undertake the necessary work or reimburse the cost through the service charge?  Can a landlord rentalise these improvements through rent review?  Are the rights of a landlord to enter wide enough to carry out any necessary improvement works?  Are your standard leases properly drafted to address these concerns?

The regulations do provide some flexibility.  Also, there may be scope for striking a deal with your tenant to vary the terms of the lease in order to make the building compliant.  The tenant gains with e.g. the landlord bearing some of the cost and sharing utility bills.  The landlord plays the longer game of a lawful portfolio and increased rental and asset value. 

Time is on your side - if you start the process of auditing your real estate assets and upgrading your low rating properties now.

If this is of interest, I'd love to hear from you.  Feel free to call on 07816 755372 and let me know how I can help.