On 1ST April 2018 a new energy efficiency requirement for all rented commercial buildings came into force. A building cannot be rented out if it falls below an ‘E’ energy rating.
Landlords are most likely to be affected by the new regulations. A landlord must not grant a new lease or renew an existing lease if their building is rated below an ‘E’ for energy efficiency. In addition, from 1 April 2023 landlords must not continue to let their buildings at all if they fall below the minimum standard.
There are certain exemptions, but these must be registered with the government to be valid. Such exemptions include, where planning permission has been refused for the improvements or the market value of the property would be significantly affected by improvements. Exemptions do not pass to a buyer and therefore a buyer of a non-compliant building would need to bring its rating up to an ‘E’ standard or apply for a new exemption.
Penalties: The financial penalties imposed for a breach of the regulations can be substantial. Letting a property for less than three months in breach of the regulations will incur a penalty equivalent to 10% of the property’s rateable value, subject to a minimum of £5,000 and a maximum of £50,000. If the letting is for a longer period, the equivalent of 20% of the property value subject to a minimum of £10,000 and a maximum of £150,000.
Action: The financial implications of having to renovate a non-compliant building could be substantial. Landlords would do well to check existing leases to ensure they are aware of any potential issues. A landlord’s obligations under the regulations can be triggered even if a renewal/new lease is not granted. For example, if a tenant has the ability to sub-let, a sublease could trigger the need for compliance. A landlord may also wish to check whether current rent review and service charge provisions cover capital expenditure for energy efficient improvements.
At QualitySolicitors Dunn & Baker we have commercial property specialist solicitors that can assist either the tenant or the landlord in the preparation and negotiation of commercial leases to ensure that appropriate provisions are contained to deal with energy performance requirements.