What Legislation Affects Commercial Property Landlords?
Almost 10 years ago the introduction of the Climate Change Act 2008 emphasised the government’s willingness to fight climate change and reduce carbon emissions by setting a target of an 80% reduction in carbon emissions by 2050. It is arguable that for a landlord, this may not appear to initially be of concern, and most would immediately consider the effect of car emissions for example. The statistics, however, are damning for buildings and certainly suggest that landlords of commercial properties should definitely be concerned. In 2013 it was reported that 26% of carbon emissions came from commercial properties alone.
Following on from this, the Energy Act 2011 contained a duty to introduce minimum energy efficiency standards (known as ‘MEES’) and related measures for the private rented sector. This coincided with a duty to improve energy efficiency of both domestic and non domestic private rented property, and also aligned itself with the aims of the Climate Change Act.
What Changes Are Coming That A Commercial Landlord Should Be Aware Of?
The first point to be aware of is that the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 will prohibit a landlord from lawfully letting a commercial property, from 1 April 2018, if the Energy Performance Certificate (EPC) rating of that property is lower than an E. It is important to note that this also applies to a landlord seeking to extend or renew an existing tenancy of a commercial property.
From 1 April 2023 an existing lease will become unlawful if it applies to a commercial property with an EPC rating of either F or G. In effect, a lease of commercial property with an EPC rating of F on 31 March 2023 would be lawful but would become immediately unlawful on 1 April 2023.
It goes without saying that a landlord should be aware of the EPC rating of their property, and whilst up to this point, the cost of improving such a rating may have seemed disproportionately high to the benefits received, this will no longer be the case. Whilst there is no positive obligation on a landlord to actively seek to improve the EPC rating of a property, not doing so could have significant implications as a result of the property remaining unlet, or a property on the market reducing in value.
What Happens If A Property With An F Or G Rating Continues To Be Let?
As a result of the above changes, a number of properties will become illegal to let, and should a landlord do so in contravention of these regulations, there are various potential penalties.
The first stage for enforcement is what is known as a compliance notice. The local trading standards officers will write to request further information as to the commercial property in question, starting with its EPC and any existing tenancy agreements. Whilst this may seem trivial in itself, failure to adhere could lead to consequences for the landlord.
The second kind of enforcement is a penalty notice, which can be served where a landlord is letting a sub-standard commercial property, or has failed to comply with a compliance notice. At this stage, a financial penalty based on the rateable value of the property up to £150,000 may be imposed, together with a publication penalty. A publication penalty is what it says on the tin; information relating to the associated penalty notice is published on the register for at least 12 months. The effect of this is that it will become public knowledge that, firstly, the landlord (who will be identified) actively lets sub-standard properties, and secondly, what penalties have been imposed.
What Can A Landlord Do To Prepare For The Changes?
It may seem obvious, but in the first instance every landlord of a commercial property should obtain and review a valid EPC, to assess whether any actions need to be taken. In the event that the EPC declares the building as either an F or a G, the landlord should consider the accompanying recommendation report, which identifies a number of steps that can be taken to boost the energy efficiency of that property. The landlord should make an assessment of the costs involved in each of the suggestions and the potential benefit of implementation.
It is also worth noting that not all sub-standard properties will be impacted by the new regulations. A commercial property will be exempt if:
- a landlord has been unable to increase the EPC rating of their property in the preceding 5 years as a result of either the tenant, or any necessary third party, refusing consent to do so;
- according to an independent surveyor, in the last 5 years the property value would have reduced by over 5% following improving the property; or
- a landlord obtains a temporary exemption.
If upon obtaining a valid EPC, a landlord would appear to be in danger of being impacted by the new regulations, it would be worth contacting a member of our Commercial Property Team who can provide you with practical advice.