On 6 April 2012 the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) (Amendment) Regulations 2011 (the "2011 Regulations") came into force.
These Regulations altered the rules relating to Energy Performance Certificates ("EPCs") in both commercial and residential property transactions. Since the introduction of the EPC on 1 August 2007, there was concern that EPCs were not being made available to prospective tenants. These concerns were brought to heel with the 2011 Regulations.
Since then, the regulatory environment has further changed. In addition to the 2011 Regulations, the Energy Act 2011 (the "Energy Act") makes it unlawful to let commercial or residential properties with an EPC rating below "E" from 1 April 2018 onwards. This is referred to in the legislation as the Minimum Energy Performance Standards (MEPS). As much as 20% of the total UK commercial property stock could soon fall within this bracket unless rapid action is taken to improve the environmental performance of properties.
The provisions of both the Energy Act 2011 and the 2011 Regulations are part of the government's strategy to increase the focus on the energy efficiency of commercial buildings in the UK. Various schemes are being developed to enable property owners to pay for necessary energy efficiency works over a period of time.
In any event, tenants should not assume that the landlord will be in a position to pick up the tab. Commercial leases generally contain statutory compliance covenants which could oblige the tenant to carry out improvements to make the premises comply with the regulations.
Given the proximity of 1 April 2018, the government has published its consultation on MEPS for non-domestic buildings with the aim of deciding how the regulations will be implemented.
However, despite the consultation, the government remains unclear on a number of key issues – in particular, the trajectory and time frame for the introduction of the regulations, how improvement works will be financed and in what situations a landlord will be bared from letting his property. It would be an economic disaster if tenants were forced to vacate during their term if the property is rated 'F' or 'G'.
There should be no doubt the regulations which are being introduced will have significant implications for property owners. Prudent landlords will act now to ensure that their buildings will comply with the legislation and remain marketable in 2018.
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