Commercial EPCs: What are They and How are They Changing?

Energy Performance Certificates (EPCs) are legal documents that provide information on the energy efficiency and carbon emissions of a building. A commercial EPC is required for all commercial properties in the UK and is an essential part of property transactions and rentals. EPCs provide a rating of a building’s energy efficiency on a scale from A to G, with A being the most energy efficient and G being the least.

So why are EPCs essential for commercial properties? Ultimately, it’s because they provide valuable information to property owners, tenants and buyers about the energy performance of a building. Understanding a building’s energy performance can help property owners and tenants identify areas where energy efficiency can be improved, to reduce carbon emissions or save money on energy bills.

But there are some EPC requirements for commercial properties worth knowing, such as who is responsible for obtaining them, when they are required and the exemptions available in certain circumstances.

Understanding EPCs for commercial buildings

Energy Performance Certificates (EPCs) are documents that provide information about the energy efficiency of a building. The primary purpose of the EPC rating is to give property owners and tenants an idea as to how that building performs when it comes to energy consumption.

EPC ratings are typically calculated based on the overall energy performance of a building. It’s a science in and of itself, but generally speaking, the calculation takes into account things like the building’s construction and condition, heating, ventilation, and lighting systems, and the materials used in the building’s fabric. The energy efficiency of the building is then rated based on these elements, using a scale that runs from A to G.

But not all EPCs are created equal! Depending on the type of property and the purpose of the assessment, there are a few different EPCs to be mindful of. The most common types are Non-Domestic EPCs and Display Energy Certificates (DECs).

Non-Domestic EPCs are required for all commercial buildings when they are constructed, sold or leased. DECs, on the other hand, are required for public buildings that are frequently visited. This includes things like schools and hospitals. DECs are designed to provide an energy rating that is visible to the public, encouraging building owners and managers to improve energy performance.

EPCs are required for a range of commercial properties, including offices and shops, and the purpose of requiring EPCs for these types of commercial properties is to make sure that a building’s owners and its tenants have access to that information, so they can identify areas for improvement.

While the humble EPC can be viewed as nothing more than a rubber stamping exercise by some, that couldn’t be further from the truth. Not only is it law, but it provides incredibly useful information about energy use and consumption. As we know, the built environment contributes an enormous amount to global emissions, so the more data we have on the energy performance of our buildings the better.

What are the EPC Requirements for Commercial Properties?

As we mentioned, EPCs are a legal requirement. Commercial property owners are responsible for obtaining an Energy Performance Certificate for their buildings when a commercial property is constructed, sold or leased, and must be obtained before the property is marketed for sale or rent. The EPC must be provided to prospective buyers or tenants, too, and they have the right to view the certificate before deciding to buy or rent the property.

With the drive towards a greener, carbon-neutral future, The Minimum Energy Efficiency Standards (MEES), a set of regulations introduced by the UK government in 2018, aims to improve the energy efficiency of commercial and domestic buildings in the UK, helping the country meet its net-zero carbon targets by 2050.

Although the scale goes from A to G, starting from April 1st of this year, all privately rented non-domestic properties must have an EPC rating of E or above. This regulation will apply to all existing leases, not just new ones.

This means that landlords must take steps to improve the energy efficiency of their buildings if they have a lower rating of F or G. In addition, existing commercial tenancies cannot continue to let properties with a current valid EPC rating of F or G. Landlords who fail to comply with these regulations may face severe financial penalties.

However, despite the regulations, there are some exemptions, such as the seven-year payback test, third-party consent, devaluation, and recently becoming a landlord. They can be quite complicated, so it’s best to discuss your options with a legal professional.

In an article discussing the impact of new minimum EPC requirements, the Royal Institute of Chartered Surveyors state that “if the EPC rating of a let commercial property was F or G but that 10-year EPC certificate has now expired but the term of that lease is continuing, the liability to do any upgrade works does not kick in on 1 April.

“A landlord is ‘safe’ from having to bring the property up to a minimum E standard until a new EPC is triggered (for example, by the parties renewing the lease or if the tenant carries out alterations to the property which mean a new EPC is required).”

It is important to note that even if a property is exempt from the requirement to obtain an EPC, building owners and tenants are still encouraged to consider energy efficiency measures and reduce carbon emissions. Energy-efficient buildings are more attractive to tenants and buyers and can command higher rental or sale prices.

What are the EPC exemptions?

If you’re a commercial property landlord, you might be wondering whether your property is exempt from the new regulations requiring a minimum EPC rating of E. Fortunately, there are some exemptions to this requirement, but you’ll need to register them on the PRS Exemptions Register if they apply.

One exemption is the seven-year payback test. If the cost of works required to bring your property up to the minimum EPC rating would be greater than the expected value of saving on energy bills over seven years, this exemption may apply.

Another exemption is third-party consent. Some energy efficiency improvements, such as solar panels or insulating external walls, require consent from the local planning authority or another third party. If you’ve made reasonable efforts to obtain this consent but it has been refused or granted subject to a condition that you cannot comply with, this exemption may apply.

If you’ve obtained a surveyor’s report that states making the relevant energy-efficiency measures would reduce the market value of the property by more than 5%, you might be eligible for the devaluation exemption.

There is also a temporary exemption of six months if you’ve recently become a landlord by purchasing commercial premises subject to existing tenancies and where the EPC is rated E or below. This gives you time to bring the properties up to the required standard.

The following information on EPC exemptions for business premises has been published by the UK Government, stating that you don’t need an EPC if you can demonstrate that the building is:

• listed or officially protected and the minimum energy performance requirements would unacceptably alter it
• a temporary building only going to be used for 2 years or less
• used as a place of worship or for other religious activities
• an industrial site, workshop or non-residential agricultural building that doesn’t use much energy
• a detached building with a total floor space of under 50 square metres
• due to be demolished by the seller or landlord and they have all the relevant planning and conservation consents
• it’s due to be sold or rented out with vacant possession
• it’s suitable for demolition and the site could be redeveloped
• the buyer or tenant has applied for planning permission to demolish it

It’s crucial for commercial landlords to comply with these regulations, as failure to do so could result in significant financial penalties. If you’re not sure whether your property is exempt or how to register an exemption, it’s important to seek professional advice.

EPC Penalties in England and Wales

In England and Wales, the penalty for failing to obtain an EPC when required is £200 for each breach. The penalty can be issued for each building or unit that is found to be in breach of the requirement, and the total penalty can be up to £5,000 per building. In addition, it is an offence to give false or misleading information on an EPC, and penalties can be imposed for this offence as well.

Commercial property owners need to comply with EPC requirements to avoid penalties and to provide prospective buyers and tenants with the necessary information about the energy performance of their buildings. The upshot is that reducing energy consumption and carbon emissions can help to reduce operating costs and improve the sustainability of the building, a win-win for everyone.

MEES Penalties

The MEES Regulations impose civil penalties on landlords who rent out sub-standard properties in violation of the regulations. Even though the tenancy agreement remains valid and enforceable, landlords may be liable for fines imposed by Local Weights and Measures Authorities.

The amount of the penalty depends on the duration of the breach and the property’s rateable value, ranging from a minimum of £5,000 to a maximum of £150,000, as follows:

• For properties in breach of MEES being let out for less than 3 months, the fine will equate to 10% of the property’s rateable value, subject to a minimum penalty of £5,000 and a maximum of £50,000.
• For properties in breach of MEES being let out for 3 months or more, the fine increases to 20% of the property’s rateable value, subject to a minimum penalty of £10,000 and a maximum of £150,000.

Failure to comply with the MEES Regulations may also result in landlords’ names being published on a public register, which could cause reputational damage and discourage potential buyers or tenants.

Additionally, property values may decrease, and tenants may refuse to pay full rent unless improvements are made.

Improving EPC ratings in commercial properties

Improving Energy Performance Certificate (EPC) ratings is important for commercial properties for several reasons. Firstly, a higher EPC rating indicates that a building is more energy-efficient and has lower carbon emissions. As we mentioned, this can help to reduce the operating costs of the building by reducing energy consumption and can also improve the overall sustainability of the building.

There are several methods that commercial property owners can use to improve energy efficiency and reduce carbon emissions. One effective method is to improve the insulation of the building envelope, such as walls, roofs and windows. This can reduce heat loss and reduce the need for heating and cooling systems.

Other methods might include installing energy-efficient lighting, heating and cooling systems, using renewable energy sources such as solar panels or wind turbines, and implementing energy-saving measures such as smart metering and energy management systems.

This will come at cost, but with some older buildings, it is of vital importance to ensure long-term sustainability by investing in retrofitting the property.

With financial incentives on offer to help offset the costs of putting these energy efficiency measures in place, the new regulations are an important step towards achieving the UK’s net-zero carbon goal.

As the UK’s built environment is responsible for 25% of the country’s carbon emissions, by improving the energy efficiency of commercial buildings, we can reduce our carbon footprint and move closer to a sustainable future.

Although the regulations may cause some inconvenience and expense for landlords now, they ultimately serve a larger purpose in protecting the environment and improving the health and well-being of our communities.

This article provides a general overview of the law and market conditions at the time of publication. It should not be relied upon as definitive legal advice and is intended as a general guide only. For specific matters, readers are advised to seek professional legal advice.