Landlord alert! F or G EPC Rating properties can’t be let after April 2018
In less than five months, the Minimum Energy Efficiency Standards (MEES) regulations will make it unlawful for landlords in England and Wales to let commercial or domestic buildings that don’t achieve a minimum Energy Performance Certificate (EPC) rating of ’E’. Almost one in five commercial buildings are F and G-registered, posing a huge challenge for landlords.
Failure to upgrade your building prior to 1 April 2018 will mean you won’t be able to market or renew any contracts, and many UK banks are refusing to lend on F or G rated commercial buildings
You could face fines of up to 20% of the rateable value (minimum penalty of £10,000 and a maximum of £150,000 per building, if it’s found to be non compliant.
The MEES came into force in 2016 and from 1 April 2018, landlords of non-domestic private rented property will be prohibited from granting new leases of any “sub-standard” properties, and from 1 April 2023, these requirements will also apply to all existing lettings.
There are a number of exclusions and exemptions that will enable a landlord to let, or continue to let, a substandard property, including leases of less than six months or more than 99 years. Alternatively a landlord may be able to register one of the following exemptions:
- The seven-year payback test: where the capital cost of required energy efficiency measures is not cost-effective within a seven-year payback period
- Third-party consent: where despite “reasonable endeavours” necessary third-party consents to carry out the energy efficiency improvements can’t be obtained
- Property devaluation: where the measures proposed would reduce the value of the property by 5% or more
- Recently becoming a landlord: a temporary six-month exemption which only applies in limited circumstances, including the grant of a lease due to a contractual obligation, pursuant to the Landlord
Landlords need to remember that exemptions must be registered before 1 April 2018; otherwise they could be subject to a publication and/or financial penalty.
Commercial property at risk?
EPCs were first required for commercial property in 2008, where a property larger than 50 metres squared, with fixed services for conditioning the interior environment, was built, sold or let. The creation of EPCs was in its infancy both in terms of the software used for the assessments, and the scrutiny applied.
Two vital things have since changed. Firstly, the technology, training and regulation of EPC assessment have become far more refined, and this has resulted in the process being far more accurate and detailed. Secondly, as reflected in regular revisions of the Building Regulations, the efficiency requirements of buildings and their services have been enhanced significantly since 2008.
An EPC is valid for 10 years if the subject property has remained largely unaltered during that time. However, there is nothing stopping a tenant from having a new EPC carried out and registered, which will supersede a landlord’s existing EPC. This could cause a fundamental shift in the relative bargaining position of a landlord and tenant.
What should you do?
49% of landlords recently surveyed by E.ON said that they do not feel adequately informed about how to go about energy efficiency improvements. A key thing to understand is that enhanced capital allowances incentives can enable property owners to offset a lot of improvements against their tax bill. However, taking advice on exactly what things qualify for the incentives BEFORE you purchase anything or start any improvements is crucial. Only certain things comply with the government’s conditions for the incentives!
Here’s a quick step by step guide as to what to do initially:
- Go on to the government websites and check your property’s EPC ratings - for commercial buildings visit www.ndepcregister.com, for residential properties visit www.epcregister.com
- Check when your EPC rating was done. A large majority expire next year!
- If your building is non compliant according to the database, MHA MacIntyre Hudson Accountants can recommend someone to survey your property and produce a new draft EPC. As mentioned previously the method of surveying has changed and other alterations to your properties over the years may mean your property automatically falls into a higher band with no alterations required.
- If the property is still non compliant, you will be given a report guiding you as to the cheapest way to make the building legally compliant and give you direction as to how the rest of the process works.
- Speak to MHA MacIntyre Hudson about how to maximise enhanced capital allowance incentives before doing anything else!
You have 5 months left to fix your building. Don’t get caught out – it’s all foreseeable, all fixable and it might not cost as much as you think.