Is your commercial property ready for new minimum energy performance ratings?

New minimum energy performance requirements will be implemented in 2018, but commercial landlords cannot start preparing soon enough. Nicola Beneduce, an associate solicitor in Harrison Drury’s property and construction team explains why.

An Energy Performance Certificate (EPC) rates how energy efficient your building is using grades from A to G (with ‘A’ the most efficient grade).

You are required to have an EPC if you rent or sell premises or you are building a new property.  Fresh regulations require commercial property landlords in England to upgrade the energy efficiency of their properties to at least band E on the EPC rating scale by 2018.

Failure to comply will mean landlords cannot legally lease to new tenants or renew existing tenancy agreements. It is also important to keep in mind that the new rules will be extended to cover all existing commercial leases by April 2023.

How the new system will impact landlords

The new regulations on minimum energy performance (MEP) have wide-ranging implications for all commercial property landlords.

Figures from the National EPC Register suggest that nearly 20% of commercial property stock has EPC ratings of F or G, with a further 20% rated at E. Therefore the marketability of some properties will be hugely limited unless the property is upgraded to meet the minimum standards.

The new minimum standards will apply to all lettings and re-lettings, and will include sub-lettings and assignments, as well as transfers to Self-Invested Pension Plans (SIPPs).

Valuations and rent reviews could also be affected in situations whereby a poor EPC rating negatively impacts marketability. Landlords should be aware that there are also potential implications for dilapidation liabilities when leases terminate so it is important to ensure that the lease of your commercial property covers this position adequately.

Small investments can result in major improvements

According to studies by the Investment Property Forum, EPC bandings can be improved for the majority of buildings by increasing refurbishment spending by as little as 2%.

Commercial property landlords are advised to take early action so they are better prepared for the changes. For example, you should establish the EPC rating of your property, as well as making effective use of void periods to carry out upgrading work between now and 2018. If you allow events to overtake you, you may well find yourself under huge pressure when the regulations bite.

For further advice on minimum energy performance standards for commercial buildings, e-mail Nicola or call her on 01772 258321.