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What are the EPC regulations for commercial property leases?
If you lease property to a business, you are responsible for ensuring that it meets the Minimum Energy Efficiency Standards Regulations (‘the EPC regulations’).
A recent change to the legislation means that landlords can no longer continue to let a commercial property which has an energy rating of F or G unless an exemption applies.
What does this mean for landlords?
Previously, the EPC regulations only caused problems for landlords when granting a new lease or extending the term of an existing lease. From April 2023, the minimum energy rating requirements apply to all commercial tenancies, even when there has been no change in tenancy.
This extension of the regulations will result in some landlords being left with little option but to undertake costly energy rating improvements to their buildings. The regulations do not prohibit landlords from recovering the cost of the improvements from the tenant by charging a higher rent or service charge. However, you should consider the terms of your lease to determine whether such costs can be passed onto tenants.
A local authority can levy financial penalties against landlords for breach of the regulations, with fines ranging from £5,000 to £10,000 and up to 20% of the rateable value of the property, depending on the length of the breach.
How will this affect tenants?
A lease will still be enforceable and valid even if there is a breach of the EPC regulations. Both parties should continue to observe and perform obligations contained in the lease and payment of rents should be made in the usual way.
Tenants should be aware that their landlord may wish to enter the property to carry out necessary improvements for compliance with the regulations. If a landlord seeks to pass improvement costs onto you, you should seek specialist legal advice.
It is currently understood that the standard clause in commercial leases requiring a tenant to comply with all laws will not impose an obligation on them to undertake energy rating improvements under the regulations, but again, the precise lease terms will need to be considered.
Potential changes to the EPC regulations
It has previously been suggested that there would be a phased implementation of increases in the minimum energy rating. It was initially proposed that the minimum rating be raised to B by 2023.
The Prime Minister has recently announced that the Government is delaying plans to increase the minimum energy rating, but there is no guarantee that it will not be raised in the future. It may therefore be prudent for landlords to undertake energy efficiency improvements to their properties to futureproof them against legislative changes, and to make their properties more attractive to tenants.
Energy rating improvement costs and potential future increases to the minimum rating are also factors which should be considered when commercial property is being acquired.
What can we do to help?
LCF Law is a member of ALEP (the Association of Leasehold Enfranchisement Practitioners), which recognises our experience and expertise with lease extensions.
If you would like to discuss extending the term of your lease, please contact Real Estate Solicitor Ryan Cotton, who can guide you through the process, on 01274 848 837 or at ku.oc1708881482.fcl@1708881482notto1708881482cr1708881482.