Commercial landlords warned over EPC fine risks

That’s according to Rajinda Sanghera (pictured), associate at law firm Clarke Willmott LLP, who noted that the final part of the minimum energy efficiency standards regulations (MEES) come into effect from 1 April 2023.

These rules mean that all leased commercial properties will need to have an energy performance certificate (EPC) rating of at least E for all commercial tenancies, not just new tenancies. 

Sanghera noted that the size of the fine will depend on the circumstances of the breach, but start at 10 per cent of the rateable value, rising to 20 per cent, capped at a maximum of £150,000.

She added that ensuring compliance for existing leases may be more problematic than for new leases, stating: “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.”

Sanghera called on landlords to conduct a full review of their portfolios now, so that they have time not only to identify those in need of improvement but also carry out required improvement work.

While there are some exemptions contained within MEES, allowing landlords to continue letting a substandard property, these will need to be validly registered on the PRS Exemptions Register which also needs to happen before the regulations come into effect.

“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,” she continued.

“Where a property is substandard, 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.”

However, she added that more energy efficient buildings are likely to be more attractive to potential tenants, and so may command higher rents.