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Energy Performance Certificates (EPCs) – changes ahead

19 Oct 2015

How useful do you think Energy Performance Certificates (EPCs) really are? Who takes notice of them?

When you buy a house or rent a flat, how energy efficient your property is will be important to you. After all, payment of your energy bills comes out of your pocket.

Do you do the same when you are considering buying or taking a lease of premises for your business? The law does in fact require a seller or landlord of a property to provide an EPC showing the energy efficiency of the property. Not all sellers, landlords or their advisers are as assiduous at providing the certificate as occurs in the residential market.

This is now going to change. From now on whether you are a seller, a buyer, a landlord, a tenant, an investor or borrower, you need to be aware of the energy rating of the property that you are to invest in or to buy or to let.

Last March, new regulations were published which deal with EPCs. These regulations apply to commercial premises as well as to residential property. What they do is to make it unlawful to sell or let property after April 2018, where that property has an energy rating of either F or G. EPCs show energy ratings for a property between A (the most efficient) and G (the most inefficient). F and G, therefore, are the 2 most inefficient bands for the purpose of energy efficiency.

A seller or landlord can avoid this restriction if it carries out energy saving measures.  If it doesn’t do so (and is not able to claim one of the exemptions), it can be fined anything up to £150,000, depending upon the rateable value of the property and for how long the seller/landlord has avoided carrying out such works.

So from a seller’s point of view, a “switched on” purchaser is now going to factor into his negotiations over the purchase price, the possible cost of having to carry out works from April 2018, if the property concerned currently has an energy rating within the F or G bands. If you are a landlord or are buying the property as an investment, you will need to factor in that cost.

If you are a prospective tenant, these regulations will also be of concern to you.  Although you might not initially have in mind subletting the property, circumstances might change and if you wish or need to sublet the property after April 2018, then your sub-tenant will similarly be looking at the energy rating efficiency of the property. Most leases impose upon the tenant obligations to ensure that the property complies at all times with relevant statutory requirements, whether those statutory requirements existed at the time when the lease was granted or came into force later. Therefore, as part of the negotiations for the grant of the lease to the tenant, the tenant needs to know the energy rating of the property so as to ensure that it cannot be required to carry out the energy saving measures which will lift the energy rating of the property out of the dangerous F or G bands.

These regulations are also of importance to any property investor who will be looking to raise finance on property. Banks now are insisting that EPCs are obtained before they will hand over any money and are also looking at the energy rating bands to ensure that none of those over which they will take a mortgage falls within Band F or G. If, following April 2018, the Bank needed to enforce its security, the last thing it will want to do is to have to incur the cost of those energy saving measures so as to bring the property out of Band F or G.

If the above is not a sufficient wake up call, the regulations go on to say that from 2023, the rules will apply to all properties, even where the lease was granted prior to 2023. Thus if a lease were granted in 2015 for 10 years and the property was within energy rating band F or G, it would be unlawful for that lease to continue beyond 2023, unless the landlord or tenant had carried out the necessary works to lift the energy rating out of the danger zone.

For further information or advice, please contact Richard Freeman – Wallace, Commercial Property Partner at Hay & Kilner

Call: 0191 232 8345

Email: Richard.Freeman-Wallace@hay-kilner.co.uk

Please note:
This article is not legal advice; it is intended to provide information of general interest about current legal issues. Please contact us to discuss how the contents of the article may affect you.