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Energy Performance and leases

Whilst it is too early to report on the results of a recent government consultation on reducing energy consumption and carbon emissions from commercial buildings in England and Wales, it is worth noting the likely impact this could have on leases in the future, especially long leases.

In 2019 the government began a consultation looking at how non-residential properties could achieve an Energy Performance Certificate (EPC) of B, or the highest that could be reached cost effectively by 2030.

Landlords should act now and review how their properties are likely to be affected by the Minimum Energy Efficiency Standards (MEES Regulations) changes and what works might need to take place to bring their properties up to the required standard.  Leases which are being granted now should factor in the timing of the works that will be needed and the standards which need to be met in the future. It is anticipated that by 2027, there may be a milestone of reaching an EPC C rating and then an EPC B rating by 2030.  Landlords will be required to have reached the landmark or have a registered exemption.

Many landlords might choose to carry out all the work at one time to minimise disruption to tenants, others may wish to begin the process now making the work more manageable over a longer period of time.  More detail is expected to address how older and listed buildings will be treated, especially where it will not be possible to carry out all of the work needed, as well as how those properties which are usually let in a shell state.  However, there is an expectation that landlords should aim to achieve the highest rating possible, even where the building is exempt.

Penalties for landlords letting property in breach of the rules will continue and the list of breaches is anticipated to be expanded (currently a maximum fine of a £150,000).  It is also proposed the details of the breach will be published.  The responsibility for compliance with the regulations is currently with the landlord, but it is anticipated tenants will also need to be flexible to allow them to carry out the works.

There is a lot to think about and landlord’s should begin to prepare for these changes now.  If you would like to discuss how this could affect your commercial property lease please get in touch.