As a commercial Landlord, you are responsible for complying with the Energy Performance Certificate (EPC) Regulations.
Since 1 April 2023, if a commercial property in England and Wales has an EPC rating below an E rating, it will deem to be ‘sub-standard’ following the changes to the Minimum Energy Efficiency Standard Regulations. If a rating falls below an E rating, a commercial Landlord must not continue to let the property to an existing Tenant or to grant a new lease, unless:
- An exemption applies and the same has been registered, or;
- The Landlord has made all relevant energy efficiency improvements (or that there are none that can be made), the EPC remains below E, and the exception has been registered on the Exemptions Register.
Alternatively, if an exemption would not be applicable, energy efficiency improvements must be carried out to raise the EPC rating to a minimum of an E rating. Under the Energy Performance of Buildings (England and Wales) Regulation 2012, it is the Landlord’s responsibility to obtain a valid EPC certificate and the same must be provided free of charge to the tenant.
A Tenant is under a duty to co-operate with the Landlord and allow the Landlord entry to the property to carry out necessary improvements for compliance with the regulations. However, the Landlord cannot complete the necessary improvement works and look to charge this to the Tenant through a Service Charge provision unless there is express wording to that effect under the Lease which permits this.
There is standard wording which is used in commercial leases that requires a Tenant to comply with all laws. This will not automatically impose an obligation on a Tenant to make energy rating improvements to the building unless there is specific wording to this effect written in the Lease.
If a Landlord seeks to pass improvement costs onto a Tenant, it may be beneficial for either party to seek legal advice to fully understand whether this is permitted within the Lease to avoid any possible liability or disputes.
With the prior consent of the Landlord, a Tenant can request to carry out any improvements at their own expense and it is usually included in the lease for the Landlord not to unreasonably withhold the giving of such consent.
If a Landlord fails to comply with these regulation, the local authority can issue a financial penalty against the Landlord for breaching the regulations with fines ranging from £5,000 to £10,000 and up to 20% of the rateable value of the property (to a maximum of £150,000), depending on the length of the breach.
The minimum EPC rating is set to change in the future, it is expected that by 1 April 2027 the minimum rating will likely be raised from an E to a C and by the year 2030 the rating to rise again from a C to a B. With this in mind, it may be beneficial for a Landlord to futureproof by starting to make improvements to their commercial properties earlier to prevent the need to undertake major and expensive works to remain complaint with the further changing EPC rating regulation.