From April 2018, proposed legislative changes could make it unlawful to let residential or commercial properties with an Energy Performance Certificate rating of F or G.

This could have extensive implications for landlords and tenants.

Government’s “Green Deal”

The Government has introduced a relatively new scheme called “The Green Deal”. The Green Deal creates a new financing framework to enable energy efficiency improvements to households and commercial properties, funded by a charge on energy bills that avoids the need for consumers to pay upfront costs. The reasoning also being that payments can be passed from one owner to another when the property is transferred.

To participate in the Green Deal, the owner or occupier of the property will need to arrange for an accredited Green Deal assessor to visit the property and draw up a plan showing the possible energy efficient improvements that could be made to the property, how much it would cost to implement them and the potential energy savings from doing do. Approved software based on the software used to produce EPCs will be used for this purpose.

Green Deal funding will be available only if the anticipated energy savings throughout the lifetime of the improvement (up to 25 years) will exceed the initial costs of making the improvement.

Action

Any property that is going to be let needs to have an EPC assessment; where the EPC rating is F or G a plan should be put in place to improve the energy efficiency with improvements works needing to be implemented before April 2018.

Concerns for Landlords

The minimum “E” rating has not been formally confirmed, meaning it could be raised in the future. The legislation is drafted to make it possible for the scheme to apply to existing lettings as well as new lettings. This raises the possibility that landlords will have to carry out works around their tenants, or be in breach of the new requirements.

General Concerns:

  • Rent reviews may be affected regarding the energy efficiency of the property, both after 2018 and (if the lease will expire after 2018) before then.
  •  Depending on the wording of the regulations, leases may become void for illegality.
  • The lease may contain a statutory compliance covenant, which could oblige the tenant to carry out the improvements so that the premises comply with the regulations. Alternatively, any Green Deal costs might fall within the charge which can be passed on to tenants.

Advice to property owners:

Review your property portfolio and check which properties currently have an EPC. Consider commissioning EPCs for those of your properties which do not yet have one. Assess what improvements can be made to raise the energy standard for low rated properties. Use the recommendation report attached to the EPC as your starting point and check your leases carefully for the provisions relating to these regulations.

Many commercial leases already in place will continue beyond 2018 and therefore will be caught by regulations which do not yet exist. Landlord and tenants should however be alerted to and be aware of these potential issues.

For further information on commercial property matters, please contact us on 01524 846 846.