What is an EPC?

An Energy Performance Certificate (EPC) provides the asset rating of a building from A to G, measuring it construction and services by examining factors such as its glazing, insulation and boilers. An EPC must be supplied at the marketing, sale or letting of any Property and an Energy Performance Certificate is valid for a period of 10 years from the date of it being issued.

Recent Developments

EPC’s have been a mandatory element of a Property transaction for a number of years, but recent developments mean that their significance is likely to increase.
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (SI 2015/962) and the Energy Efficiency (Domestic Private Rented Property) Order 2015 (SI 2015/799) were made on 26 March 2015 and in the main come into force on 1 April 2016.
The main points to note in relation to these regulations are that these regulations:

• Enable the tenant of a domestic private rented property to request their landlord’s consent to the tenant making energy efficiency improvements to the property.
• Impose a duty on the landlord, and any superior landlord, not to unreasonably refuse their consent to the improvements being made by the tenant
• Set out exemptions as to when such consent will not be considered to be unreasonably withheld.
• Set out a minimum energy efficiency standard (MEES), which is defined by reference to energy performance certificates (EPCs) for domestic private rented properties and non-domestic private rented properties. (An EPC rating of E is the minimum currently outlined)
• Provide that, where the energy performance of a property falls below the minimum level of energy efficiency (and subject to certain exemptions), a landlord may not:

1. grant a new tenancy or renew an existing tenancy of a private rented property after 1st April 2018;
2. continue to let a domestic private rented property after 1st April 2020; or
3. continue to let a non-domestic private rented property after 1st April 2023.

What is the Practical Effect?

It is the last of the points listed above that may well have the greatest effect on Property owners and potential purchasers of Properties. The reason for this is that these new regulations could significantly limit what owners of Properties with poor EPC ratings can do with their properties.
For example, it will be a breach of the regulations for an owner of a Commercial Property with an F rating to grant any new leases or renew any existing leases on the Property after 1st April 2018, unless they improve the rating of the Property to above the minimum standard. From the 1st April 2023 it will be a breach of the regulations for the owner of the F rated Property to continue to let the Property on any existing lease, unless it meets one of the limited exclusions or exemptions. The main exclusion being that leases for more than 99 years are excluded.

The most likely effect of these regulations is that Properties with particularly low ratings are likely to be more difficult to market and reduce in value. This is likely because a diligent purchaser is going to have to consider the costs of upgrading or maintaining the Property to ensure that it has a sufficiently acceptable EPC rating to be able to let it.

Another effect is that owners of sizeable Property portfolios will have consider the current leases their properties are subject to (and the rights reserved within them) and that they have given due financial consideration in their financial planning to account for any improvements needed.

With Energy Efficiency being given increased importance year upon year, there will undoubtedly be further developments in the future which could see the regulations tighten even further. Property owners need to take due consideration of these regulations and make sure that they are compliant. Breaches of the regulations could prove extremely expensive, with a maximum penalty being £150,000.