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Minimum Energy Efficiency Regulations – landlords beware!

On the 26th March 2015, the Energy Efficiency (Private Rented Property) Regulations 2015 came into effect, which has far-reaching implications for both commercial and residential landlords who may own properties, which do not meet regulations in terms of heat and energy efficiency.

We are all familiar with the Energy Performance Certi cate (EPC), which now has to accompany every property that is sold or let, which rates individual properties on an ‘A-G’ scale; ‘A’ being the most efficient, ‘G’ being the most inefficient. These EPC certificates will now be used to grade properties for the purposes of the new regulation.

With effect from the 1st April 2018, commercial and residential properties that do not reach an ‘E’ rating on their Energy Performance Certi cate will not be permitted to let or sub-let, which therefore will deprive landlords of rental income and affect reversionary values.

These rules are extended to existing leases with effect from the 1st April 2023, where a landlord will not be allowed to continue letting a property where it does not meet the minimum specification.

There are heavy fines for landlords who do not comply with a maximum penalty of £150,000.

The Estates Gazette reported in April 2014 that more than 200,000 commercial properties in England & Wales will need to be refurbished in the next three years to avoid them becoming illegal, and with an estimated 16% of commercial stock being rated in the F & G bands, the cost of upgrading these premises is estimated to be in the region of 30 billion pounds. Commercial landlords therefore need to be very careful in ensuring that they draft their leases in order that they can try and recover some of these costs from tenants, either directly through dilapidation claims or through service charges.

It is therefore vitally important that landlords liaise with their managing agents to identify non-conforming properties to commence a programme of works to upgrade any non-conforming properties before April 2018 to avoid loss of income and the prospect of heavy repair bills and/or fines, and a reduction in potential values.

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