AN IMPORTANT ENVIRONMENTAL MILESTONE LOOMS

Next April (2018) marks the tenth anniversary of the introduction of Energy Performance Certificates (EPCs) for commercial buildings.  It’s actually an important milestone, because whilst many people have paid very little attention to them for the past nine years, from April they will have real meaning.

In short, landlords will no longer be able to let commercial buildings with the lowest EPC ratings from that date.  The Government has set an EPC rating of ‘E’ as the minimum acceptable level – and that means buildings with an ‘F’ or ‘G’ rating cannot be let under a new lease from April 2018 and as of 2023 these regulations will apply to lease renewals.

It is estimated that 18 per cent of commercial buildings in England and Wales fall into these lowest ratings – and it seems likely that the minimum acceptable level will rise even higher in the future.  There are certain exemptions (such as very short leases, or listed buildings), but for the majority of commercial property investors, these new rules have very real consequences.

Landlords of commercial buildings – especially less efficient, older buildings – need to be taking steps now to bring them up to standard, because there are significant penalties for non-compliance, with fines as high as £150,000; and, of course, those who don’t bring such buildings up to the minimum acceptable standard simply won’t be able to let them out.

This will also affect freehold investors who own revisionary long term ground lease interests, because even though they are not landlords for the purposes of the new rules, there could be an adverse effect on the value of the property if it cannot be let.

Meanwhile, landlords need to be auditing their portfolios to ensure their properties either comply or are exempt; they need to be checking whether their EPC ratings are correct and up-to-date (much like your driving licence, and EPC expires after ten years, so the first ones issued will become invalid just as the new rules come into effect); and they need to be taking remedial action to improve the energy efficiency ratings of their portfolios where appropriate.

The new rules are quite complex, so as ever, competent, qualified advice will be vital.

Few of us would argue with measures to improve the energy efficiency of our built environment and reduce the damage done to the planet; unfortunately, achieving this cannot always be done without a measure of pain, and it is the turn of commercial property investors to take the hit.