Under the current regime, commercial properties that are required to have an EPC cannot be let if they are rated F or G, or unless a valid exemption has been registered. It is not enough to qualify for an exemption; a building owner must have actually registered the exemption for it to be valid and to bring the building outside the MEES regulations.
With regard to residential property, it is now clear that, as from 1 October 2030, all new and existing lettings of privately rented residential property must have an EPC rating of C or higher, and the government has confirmed that a similar timetable will also apply to socially rented homes. This places a heavy financial burden on local authorities or housing associations, who may now need to timetable and consider how they are going to pay for significant energy improvement upgrades to their property stock.
However, the position regarding commercial property remains uncertain. Originally, it was thought that, based on the 2021 consultation, commercial properties would have to have a minimum EPC rating of C by April 2027 and B by April 2030. It is now expected that a minimum EPC rating of B will be introduced for commercial property at some point between 2030 and 2035, but the government has not confirmed whether it will require an interim C rating.
This leaves commercial building owners in an unsatisfactory position, not knowing whether an upgrade from the current E rating to a C rating will be required and, if so, by when. The jump from an E rating to a B rating could be considerable and extremely costly for landlords. It is still widely reported that a significant proportion of the private rented sector falls below the EPC C threshold, meaning that, to meet the legal requirements by 2030 in relation to residential property, substantial work will have to be done across the property sector. There needs to be an uptick in the amount of insulation, glazing, heating system replacements, and the installation of renewable technologies in those properties.
The fact that there is still some uncertainty over when the current EPC E rating is going to be upgraded to either B or C, also causes commercial landlords concern because they are not able to plan properly in terms of when they may want to spend significant capital sums on the property and/or when works may need to be coordinated to chime in with lease termination events and ingoing tenants.
Landlords cannot, however, afford to simply ignore the EPC and MEES requirements because, in the case of a residential property, non-compliance with the EPC and MEES requirements means they face a fine of up to £5,000 per property and for commercial properties, the penalties are even larger and up to £150,000 for larger buildings.
So what should building owners do now?
A prudent building owner should :
Ensure that for any property stock, there is an EPC certificate currently in place
Diarise the expiry date, and if any exemptions are in place, log the date they need to be renewed and the supporting information that will be required
Identify the properties most at risk of future non-compliance, obtain quotes for improvement works, and plan for budgeting and paying for those works well in advance of any deadlines.
(with thanks to Nyree Applegarth
Partner and Head of Property Litigation, Higgs LLP)
https://www.higgsllp.co.uk/articles/how-epc-and-mees-reforms-will-affect-residential-and-commercial-landlords
