It goes without saying that the commercial property market is going through a turbulent time currently. From a landlord perspective there are some very happy winners: those with tenants who are surviving or indeed thriving in the current Covid economy. But, there are also lots of unhappy landlords: those who now have empty premises or soon to be empty premises as their tenants have gone bust or have decided to downsize or simply just wait out the economic storm from home and so not renew their leases. Drive anywhere in the country and it is very obvious that there is an increasing amount of empty commercial space waiting to be re-let.
So, what do you do if you are a landlord of empty or soon to be empty premises and feel that the writing is on the wall that it might take a while to find a new tenant? Or perhaps you are an owner/occupier, but do not need the whole or part of your premises anymore? This pandemic induced pause presents food for thought. In particular, an empty property provides a chance to carry out repair works and savvy property owners would do well to consider this in the context of current and possible future energy efficiency legal regulations. On a sale or letting, as a general rule (although there are exemptions which in turn depend upon the type of property and the type of transaction) an Energy Performance Certificate (EPC) will be required, and if it has expired (they are valid for 10 years) then a new sale or letting will trigger the need for a new one, as will occasions where there is a current EPC but there have been works carried out to the property which have possibly changed the energy efficiency rating. Also, one should be mindful that the assessment criteria for EPCs has evolved over the last 10 years, and properties with older EPCs and ratings of a D or E sometimes find that once re-assessed their property actually comes out as an F or G. Property owners who find themselves in this situation with an empty or soon to be empty property would do well therefore to start to consider issues arising from the EPC rating of a property.
Does it matter what rating a property has though? In short, aside from the general attraction of buyers and tenants to more energy efficient buildings, the rating of a property does matter. On a sale, there is nothing in law which prevents the owner of a “sub-standard” property (i.e. one which has an EPC rating of an F or a G) from selling a property but it might cause some purchasers to renegotiate the sale price given it might mean that they need to carry out works to improve the EPC rating in order to then let the property. Also, some lenders and pension trust companies don’t like to lend on sub-standard properties. It is unlawful presently to grant a new tenancy of a sub-standard property and as of 1 April 2023 this will apply to existing lettings now in place. There are various exemptions to these rules on lettings but in most cases an exemption would need to be registered.
Given the government is currently consulting on bringing in legislation by 2030, to make it unlawful to let a commercial property with an EPC rating below a C, or possibly even a B, it is worth bearing this underlying current towards more energy efficient buildings in mind as part of good property management strategy.
Consideration of how best to deal with the issue of energy efficiency regulations is partly a legal issue and partly a practical issue to consult an EPC specialist on. The issues are not always straightforward and this article does not cover all the complexities that can arise.
If you need advice on the impact of the relevant regulations on a letting or sale, please contact a member of the Clark Holt commercial property team. There is also a more detailed note on EPC and MEES regulations on the Clark Holt website, which you can click through to here.