New rules for energy efficiency

The clock is ticking for commercial landlords to ensure their properties meet minimum energy efficiency standards ahead of 1 April 2023, warns commercial property specialist Rajinda Sanghera.

Rajinda, an associate at national law firm Clarke Willmott LLP, says the coming into effect of the last part of the Minimum Energy Efficiency Standards Regulations (MEES) means all leased commercial properties must have an Energy Performance Certificate (EPC) rating of E or above on that date.

Rajinda explains:Currently, the regulations prevent a landlord from granting a new tenancy of a commercial property that has a sub-standard EPC rating of F or G. From 1 April next year. The MEES Regulations will extend to all lettings of commercial property; a landlord ‘continuing to let’ a sub-standard commercial property will be in breach of them.

“Fines will depend on the circumstances of the breach. They start at 10% of the rateable value up to a maximum of £5,000 and rise to 20% to a maximum of £150,000.”

Rajinda adds that ensuring compliance for existing leases will be trickier than for new leases.

She says: “Existing leases remain valid, but the provisions of those leases may not permit the landlord to take any steps to improve the energy rating of the property, nor contain some of the green lease clauses seen in newer leases.

“A landlord may be able to take advantage of the exemptions contained in MEES for continuing to let a sub-standard property but, where they can, must ensure that the exemption is validly registered on the PRS Exemptions Register.”

Rajinda urges landlords to conduct a full review of their portfolios in good time to identify any properties in need of improvement and ensure they can register an exemption ahead of the regulations coming into effect.

Landlords can also consider when leases might end to schedule remedial works to minimise the time the property is vacant before a new letting. Some tenants may be willing to allow the necessary improvements to meet the MEES standard even if the lease does not make provision for this.

“Meanwhile, landlords could face devaluation of the properties in their portfolios when they come to sell if potential purchasers have to factor in improvement costs and register exemptions.

“Where a property is sub-standard most existing leases do not require tenants to pay for energy-saving measures and ‘green clauses’ which seek a mutual goal of energy-saving are still relatively new. As a result, the cost of improvements will fall to landlords, although tenants will be expected to maintain those standards once in place.

Rajinda concludes:On the positive side, a more energy-efficient building is likely to be more attractive to prospective tenants who will benefit from cost savings and may command higher rents.”

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