EPC warning for landlords to achieve E ratings for existing leases by April 2023 Thursday, 8th December 2022

Time is running out for commercial landlords to ensure existing leases meet tighter energy efficiency rules coming into force in April 2023 or risk fines of up to £150,000, property and construction consultancy Ingleton Wood is warning.

Currently, landlords granting new leases for commercial premises must hold an Energy Performance Certificate (EPC) rating of E or above, unless registered as exempt, under the Minimum Energy Efficiency Standards (MEES) which was implemented in April 2018.

The current rules do not apply to existing leases, however, from 1 April 2023, landlords who continue to let non-exempt commercial premises with a rating lower than E will be in breach of the new MEES regulations, unless they have made all possible cost-effective energy efficiency improvements.

The new rules are designed to help the UK achieve its legally binding target of net zero emissions by 2050 and are set to be followed up by tighter MEES measures this decade.

Shawn Galliers, Director of Sustainability, said: “With the clock ticking to ensure all leased commercial premises – both new and existing – are rated E or above by April 2023, and knowing that achieving compliancy through approaches, such as boiler replacements and roof insulation, is not a quick or easy process, we are encouraging landlords to take action now.

“While it may be tempting to only carry out the necessary upgrades to meet the new bare minimum standards, we are also cautioning against adopting a short-sighted approach, because the tightening of the MEES regulations doesn’t end in April 2023. Under current government plans, the thresholds are set to rise again to a C rating by 2027 and a B rating by 2030.

“Therefore, this could prove to be a timely opportunity for landlords to achieve long-term security and future-proof their premises, while making them immediately more sustainable, valuable, and more attractive to tenants, prospective buyers and investors.”

The Government currently estimates that around 10% of commercial buildings fall below an E rating. Meanwhile, official data for April to June 2022 shows that only 12% of EPCs lodged for non-domestic properties achieved a B rating or higher.

Shawn said: “We know carrying out sufficient energy efficiency improvements is a major challenge but it is imperative that landlords seek expert advice to find cost-effective solutions and factor MEES compliance into their financial planning.”

MEES was introduced in March 2015 by the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015.

The penalty for non-compliance is a financial penalty, based on 10-20% of the rateable value of the property between a minimum of £10,000 and a maximum of £150,00 per breach.

Landlords also face the prospect of a publication penalty, as the breach may also be entered onto the publicly accessible part of the Private Rented Sector (PRS) Exemptions Register.

Shawn added: “Our message is to check what EPC ratings you have and consult the experts to work out a realistic plan to at least get your buildings up to scratch in time for April 2023.

“We have helped over 1,000 buildings meet MEES regulations and have seen first-hand the significant impact that simple measures can have on EPC ratings, such as installing air- or ground-source heat pumps, or solar panels if possible, or upgrading to LED lighting – all of which have the added benefit of reducing our reliance on the national grid.

“But we’re also warning against complacency. You can’t just swap a boiler for a heat pump if the building’s design or fabric doesn’t allow for it, for example. There might also be better cost-effective alternatives such as underfloor heating systems or roof insulation.

“The practicalities, timescales and benefits – short-term and long-term – all need to be weighed up and carefully considered to stay ahead of ever-changing legislation this decade.”

See here to learn more about Ingleton Wood’s sustainability services.