In short, YES, if you want to avoid upcoming penalties.
Energy Performance Certificates (or ‘EPCs’ as they are often referred to) are now a well-established part of both the residential and commercial property sale process. They are required whenever a property is built, sold or rented to a tenant. Before the property even gets marketed there must be an EPC carried out by an accredited assessor.
The EPC contains information about a property’s energy use and typical energy costs, together with recommendations about how to reduce energy use and save money. It gives the property an energy efficiency rating from A (most efficient) to G (least efficient) and is valid for 10 years.
You can be fined if you do not get an EPC when you need one, however certain buildings are exempt from this requirement and we would be happy to advise as to whether you are entitled to claim an exemption.
Up until now there have been no consequences for a poor energy efficiency rating being given to a property – but the Minimum Energy Efficient Standards now mean that landlords with properties with an EPC rating of less than ‘E’ will have to carry out works to improve the energy performance of their building, in order to let (or continue letting) the premises.
These Standards apply to any residential or commercial buildings which are required to have an EPC Certificate.
From 1 April next year (2018) it will be illegal to grant a new lease of residential or commercial premises with an EPC of less than E.
From 1 April 2020 it will apply to all residential lettings (both new and existing).
From 1 April 2023 it will apply to all existing commercial lettings.
Any lease that is in breach of these regulations will still be legally valid but the Landlord will face significant fines. For example, if the landlord does nothing to improve the property and gain a better rating of EPC within 3 months, then it could be fined a whopping £150,000 for a commercial property and £4,000 for a residential property.
There are a number of exemptions that a landlord can try to rely on – perhaps the capital cost of the efficiency measures is not cost-effective within a 7 year period; or necessary third party consents cannot be obtained for the necessary works; or the works would reduce the property value by 5% or more. If so then a landlord can claim exemption. There is also a temporary 6-month exemption available, but only in narrow situations such as on a LTA 1954 renewal.
If you have a low EPC rating for your property and want to rely on an exemption to avoid possible penalties then you need to register your reason for exemption before 1 April 2018 (and ideally as soon as possible) on the Exemptions Register. Your exemption will last 5 years, after which you would need to reapply. The exemptions are personal and do not transfer with the property – so if you sell your exempt property then the new owner will similarly need to register a fresh exemption. An exemption is ONLY valid if registered.
Tenants also have cause for concern if they are letting an inefficient property as, often, a Landlord will pass the obligation to bring a property up to compliance standards on to the tenant within a lease.
All of the above is likely to directly affect values as investors will be wary of buying property with uncertain compliance costs. In the worst cases demolition of properties may become more economic as (despite the 7 year payback test) market expectations will evolve so that few, if any, tenants will want to take on the lowest graded property which carry a long list of ‘to do’ improvements.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.