2018 EPC Rules – Possibility of Unlettable Accommodation

19 September 2017

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In 2015 legislation was passed that means, from 1st April 2018, any new lettings or lease renewals of both domestic and non-domestic properties, defined by the Energy Act 2011 in England and Wales, will have to meet a minimum energy efficiency standard (MEES). The minimum efficiency standard is set at an E rating for all types of domestic and non-domestic property.

What is the purpose of MEES?

The aims of the new regulations are to improve the energy efficiency of the most inefficient properties. They are also intended to work towards achieving the UK’s legislative targets of reducing carbon emission by 80% on 1990’s levels by 2050.

Landlords will NOT be able to let their properties unless they meet this standard. These changes will mean that it will be unlawful to let or lease a residential or commercial property with a poor EPC rating. In England and Wales it is estimated that approximately 20% of non-domestic properties would not currently meet the minimum standard.

What are the implications for landlords?

  • This could have very significant implications for landlords, and for occupiers who wish to let or sublet space, including:
  • Marketing properties which do not meet the minimum standards will not be possible until they have been upgraded to meet these standards.
  • If the lett ability of the property is diminished, this will impact on its value.
  • Rent reviews for properties in this situation could also be affected.Š
  • Increase in dilapidations assessments would also exist.

MEES will apply to all existing leases from 1st April 2023. This legislation will include all leases in existence on and after this date where the property is legally required to have an EPC.

Penalties for non-compliance

These penalties can be significant and are largely based on the rateable value of a commercial property with a minimum fine of £5,000 and a maximum of £160,000 (per asset).

Are there exemptions?

There is a common misunderstanding relating to listed buildings and whether they are exempt from the requirement to obtain an EPC. Listed properties, and buildings within a conservation area, will not necessarily be exempt from the requirement to have a valid EPC and it will be up to the owner of a listed building to understand whether or not their property is required to have an EPC. Where a listed privately rented non-domestic property, or a property within a conservation area, is required to have an EPC, that property will be within scope of the minimum energy efficiency standards.

An EPC is not currently required for a listed property or building within a conservation area when it is sold or rented in so far as compliance with minimum energy performance requirements would unacceptably alter its character or appearance. Examples of energy performance measures which may alter character or appearance (or as a minimum are likely to require local authority planning permission to install on a listed building) include external solid wall insulation, replacement glazing, solar panels, or an external wall mounted air source heat pump. Where character or appearance would not be altered by compliance with energy performance requirements, an EPC may be legally required.

If an owner or occupier of a listed building is unsure about whether their particular property is or is not required to have an EPC, appropriate advice should be sought at the earliest opportunity.

Landlords will also be exempt for five years if consent to undertake works if it is not possible to undertake works because of the action a third party (i.e. Local Authority) or an incumbent tenant, or if the measures would result in a devaluation of the property by 5% or more.

MEES in 2020

There had originally been an expectation that the minimum EPC rating under MEES would be raised over time. However, this has not been implemented, and the Government will review the performance of MEES in 2020.

Conclusion

Owners and occupiers will need to assess the costs and viability of undertaking retrofits or refurbishments, and possibly bringing forward properties for marketing prior to 2018 or re-gearing leases. You or your clients should also consider how their property values may be affected, all of which is likely to lead to significant confusion and stress, especially if strong enforcement action imposed.

Cooke & Arkwright have been providing rating valuation advice to The Welsh Rugby Union Limited (“WRU”) and Millennium Stadium plc for many years. They were recently successful in achieving substantial reductions in the assessments of the Millennium Stadium, covering both the 2005 and 2010 rating list. These negotiated reductions yielded savings of c.£3.5m which, crucially, allows the WRU to re-invest in rugby throughout Wales. They advise the WRU across the group portfolio including the National Centre of Excellence in the Vale of Glamorgan. The valuation issues across the WRU portfolio are complex requiring a high level of understanding of the funding and finances of professional sport in Wales. Cooke & Arkwright’s experience and understanding of these issues and application to the rating valuation have yielded these substantial negotiated reductions. The WRU and the Millennium Stadium entrust our work to organisations with the required levels in experience and expertise in dealing with these complex issues. I am glad to say we have this expertise in Wales. I would have no hesitation in recommending ratepayers making use of this Welsh based expertise.

Steve Phillips, Group Finance Director, Welsh Rugby Union Group