Fastest 50: Better not lose out on energy

DRAFT PLANS: Kevin Weston says commercial property landlords must ensure they are up to scratch on energy efficiency.

The efficient direction of energy is an important factor in any company's growth '“ now energy efficiency in its literal form is set to grow further in importance. The drive towards more efficient use of energy, in both residential and commercial properties, has been a substantive aim of European legislation for over two decades.

Whilst it is hypothetically possible that a post-Brexit UK may turn its back on such a worthy objective, the Government has been a staunch supporter of that legislative aim.

Even with some significant slowing in certain aspects of green energy policies (zero-carbon homes being one example) the Government continues to have an ambitious programme to tackle climate change and reduce carbon emissions.

I see no reason to conclude that will not continue to be the case following the Great Repeal Act and the UK’s exit from the EU.

For example, the Department for Business, Energy and Industrial Strategy issued guidance on energy efficiency for commercial landlords and enforcement authorities under the Energy Efficiency (Private Rented Property) Regulations 2015 as recently as last month.

From April 1, 2018, but subject to certain exemptions, those 2015 regulations will limit the freedom of commercial property owners to grant a letting (including a renewal) of the whole, or any part, of any property which requires an Energy Performance Certificate (EPC), for any period between six months and 99 years, where its EPC rating falls below the minimum level of energy efficiency (currently band E).

From April 1, 2023, the regulations will limit the freedom to continue a commercial letting of such a property. The prohibitions will apply both to head-leases and sub-lettings.

Last month’s guidance is intended to assist commercial landlords, and enforcement authorities, to understand what they need to do in order to meet (or exceed) that minimum level. However, as the Government’s Green Deal is not available for non-domestic properties, it gives no indication of how the cost of doing so might be met.

What does all this mean for commercial property landlords?

A landlord wishing to let what would be a sub-standard property must first consider undertaking “relevant energy efficiency improvements”. Some of the more capital-intense improvements are made subject to a seven-year payback test, meaning they would only be required where they would achieve an energy efficiency payback on energy costs during that period.

There are a couple of grains of comfort in that if all relevant works are undertaken and the property remains below the minimum level, that is an exemption in its own right, whilst once the works are completed the property is treated as being compliant for a period of five years. However, failure to comply with the regulations may render the landlord liable to enforcement proceedings.

Exemptions from the requirements of the 2015 regulations are limited and must be registered in the PRS Exemptions Register, which gets up and running on April 1.

Exemptions include:

• “temporary exemptions” (if the landlord cannot obtain access to undertake the required works);

• a “property devaluation exemption” (if the required works would have a depreciating effect on value); and

• a recent acquisition exemption, but each must meet certain detailed requirements.

Commercial property landlords should start thinking now about compliance (or exemption) and prepare for the specified dates.

For firms who rent commercial space, you should also be aware of the regulations and the potential that you may not be able to lease your premises if they are not up to scratch on the energy efficiency front.

• For more information on the issues raised by this article, contact Kevin Weston at [email protected] or on 0113 205 6671.