Since 2018 it has been unlawful to lease a commercial space which has a minimum energy efficiency standard (MEES) below an Energy Performance Certificate (EPC) rating ‘E’. This has only been applicable at the point when new leases or renewals are granted (exemptions can apply). Whilst this has prompted many landlords to improve the efficiency of their buildings to meet the required standard, there remains a significant volume of stock across the country that does not meet this standard. To address this, the EPC legislation is changing and as of 1st April 2023 it will be illegal for a landlord to continue letting a commercial space if it is below an EPC ‘E’.
This change in MEES/EPC requirement is just the start of a phased approach proposed by the government which will result in a minimum EPC ‘C’ or above from 1st April 2027 and EPC ‘B’ or above from 1st April 2030. Landlords will be required to demonstrate that they have done all they can to achieve the highest rating possible. Some buildings through age, type of construction or even meeting a cost-effectiveness test will make it difficult to attain the shift in rating. Buildings that do not meet the given criteria must be registered with a valid exemption
For tenants, this mandated shift in minimum energy ratings will complement their own efforts to drive ESG related activities. The EPC rating of a building “in-use” will be subject to the same EPC rating requirements and so we will see the issue rising even higher up the list of considerations that influence property searches. The changes will bring about even greater focus on workplace energy efficiency and general building performance.
What do tenants have to do? Simply put, the onus is on your landlord. They must undertake an EPC assessment on the building. If it achieves E and above, then they can continue to let that building. If the tenant is also the owner, then the responsibility falls to them.
What if the space fails to meet the MEES? You will not have to vacate the premises; your lease remains valid. The landlord can apply for exemption proving that the space cannot be improved, or they undertake the energy assessor’s recommendations to achieve a higher rating. Should the landlord not carry out improvement works then they are liable for fines of 10% or 20% (capped at £50,000-£150,000) of the rateable value of the Property and potential enforcement action by the local authority.
Does the tenant have to pay for any improvements? A landlord should not ask for payment for such improvements. When agreeing new leases, tenants should ensure they are not exposed to direct or indirect (service charge) remediation costs.
Can the landlord access the tenant’s demise to do improvement works? Unless the lease provides a provision for the right of access, the landlord must rely on the tenant agreement. If the works are expected to be detrimental to the running of the business, the tenant could take the opportunity to negotiate a rent-free period as a form of compensation.
Will improvements impact the dilapidation conversation at the end of tenancy? Conventional lease terms require tenants to reinstate premises at the end of lease term. All improvements made for energy efficiency reasons should benefit the landlord and next tenant. It would be prudent to discuss at the earliest opportunity with the landlord.
Do all leases come under the legislation change? No, leases of less than 6 months not exceeding 12 months of occupation. Long leases of 99 years or more and licences are not covered.
To understand more how the shift in legislation may affect you please get in touch with the team at firstname.lastname@example.org