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Minimum energy efficiency standards: Will minimal enforcement mean minimal impact?

You may recall that earlier this year the government published its response to the consultation on minimum energy efficiency standards for domestic and commercial buildings, a day after laying draft Regulations before Parliament.  The Regulations, which became law on 26 March this year, may significantly constrain the way in which owners and occupiers of commercial properties deal with their premises.  One of the most important changes for commercial landlords is that from April 2018, it will be unlawful to lease premises in England and Wales that have an EPC rating of less than E. Although this deadline is still nearly three years away, landlords should plan for compliance now and consider what works are required to bring properties up to an EPC E level and whether such costs are recoverable. Similarly, investors should be aware of the potential effect on value of properties having an EPC rating of F or G.

The Regulations will be brought into force in two phases:

  • From April 2018 landlords will need to ensure that properties are at least an E EPC rating before the grant of new leases (to new or existing tenants, so including lease renewals).
  • From April 2023 this will extend to all premises, including those where a lease is already in place and a tenant is already in occupation.

There are various exemptions and exclusions such as very long (over 99 years) or short (less than 6 months) leases or where consent cannot be obtained from the tenant, but the exemptions only last for 5 years after which the situation must be re-evaluated.  This would mean carrying out further energy efficiency assessments, re-applying for all necessary consents for works that meet the relevant economic tests, and keeping evidence of the outcomes.  The government proposes to establish an online “PRS Exemptions Register” to act as a centralised database for exemptions.  Landlords who consider that they are exempt will be required to notify their exemption on the Register and lodge supporting evidence.

As the new regime will be relevant to all landlords, including tenants who have sublet premises, its effects could be significant and far-reaching.  Not only will it impose a compliance burden on landlords, but it also has the capacity to affect value. In practice, it may be difficult to police precisely due to its far-reaching nature. Despite this, one thing is for sure, EPCs are here to stay and climate change is still very much on the agenda.