The Energy Performance Certification (EPC) was introduced in 2007 providing for standardised ratings for the energy efficiency of commercial and residential properties. The rating scale ranges from an A rating being the most energy efficient and a G rating being the least energy efficient.
Since 1 April 2018, it has been unlawful for property owners to grant new leases or renewal leases of commercial and residential properties in England and Wales which have an EPC rating of F or G. From 1 April 2023, subject to exemptions, this prohibition will extend to cover all commercial leases in England and Wales, including leases already in existence.
The Department for Business, Energy & Industrial Strategy has concluded a consultation into the proposed targets for the minimum energy efficiency standard for privately rented non-domestic buildings in 2030.
Following the outcome of the consultation, the 2020 White Paper confirmed that the future trajectory for the non-domestic minimum energy efficiency standards will be an EPC rating of B by 2030. This is estimated to cover 85% of the non-domestic rented stock.
The Government launched a second consultation seeking views on the Government's proposed framework to improve implementation and enforcement of the EPC B target by 2030. This consultation closed in June 2021 and the feedback is in the process of being analysed.
The Key Issues and Next Steps
The key issue is that the obligation to improve EPC ratings will fall on property owners but existing leases may not provide the structure for fair apportionment of costs and access to undertake required measures.
Measures required will include the following:
- Reviewing fitting out practices;
- Reviewing alteration, repair and dilapidation provisions and practices;
- Implementing provisions to enable property owners to make energy efficient improvements;
- Reviewing tenant contribution frameworks (and rewards); and
- Implementing energy management and data sharing clauses.
Without appropriate action, property owners will be left holding obsolete or 'stranded' assets that are not fit for sale or occupancy and without the ability to recover appropriate costs. This issue along with a proposed strengthening of enforcement options and penalties means property owners should act now in considering their approaches to granting new leases and lease renewals, asset management and managing tenant and landlord alterations.