When do EPC exemptions apply to commercial PRS properties?

Since 1 April 2018, a landlord of non-domestic property has been unable to grant a new lease of most commercial premises unless they have an Energy Performance Certificate (EPC) with a minimum ‘E’ rating. But changes that came into law at the start of this month made it unlawful for landlords to continue to let their premises if the EPC rating was below an ‘E’ unless they carried out energy improvement measures to make the premises no longer substandard, or alternatively claimed a valid exemption.

Certain premises are exempt from the requirement to have an EPC on sale or letting, such as a property that has no heating or air conditioning (and is not expected to have any), a small standalone building of less than 50 sq m and industrial sites with low energy demand.

Additionally, there are property types that are sometimes not required to have an EPC, for example property that is to be demolished as a result of the sale or letting, and listed buildings and buildings in conservation areas. However, in such cases it is by no means straightforward to ascertain in what circumstances an EPC is unnecessary, due to the complexity and confusion caused by the wording of the relevant regulations.

However, if the MEES Regulations do not apply to the property at all then there is no need to register anything on the PRS Exemptions Register.

Legitimate reasons for commercial property owners not to have undertaken energy efficiency improvements to bring the EPC rating up to at least an ‘E’ before letting (or, from 1 April 2023, continuing to let) must be validly registered on the PRS Exemptions Register.

Enforcement action

If a property owner has carried out all the relevant energy efficiency improvements that can be made for the property and it is still substandard – or there are no improvements that can be made – then they will have complied with the MEES Regulations, provided they register the relevant details on the PRS Exemptions Register. Failure to do so may result in enforcement action if the property is then let or sold.

 Exemptions being registered require the property address, a copy of a valid EPC for the property and the exemption type being registered.

One exemption type would be when the cost of a recommended improvement does not meet a seven-year payback test – and the landlord would have to upload three quotes for purchase and installation, cost calculations and its own certification that the improvements required do not meet the seven-year payback rule.

Moreover, some wall insulation systems are not suitable in certain situations because of a negative impact on the property, even if recommended on the EPC. Expert advice would be needed and the written opinion uploaded to the PRS register to claim the exemption.

Additionally, a devaluation exemption would apply if an expert report confirms that a property’s market value would be reduced by more than 5% if recommended energy efficiency measures were taken. (This does not remove the obligation to carry out those measures that would not devalue the property.) Again, the report would need to be uploaded to the PRS register.

Finally, there is a raft of potential exemptions around the property owner not being able to obtain all necessary consents from third parties to be able to carry out the necessary measures, whether that be from a mortgage lender, a superior landlord, an existing tenant or from the local authority (planning consent for solar panels and the like). Evidence of the need for such consent and the attempts made to obtain it would have to be provided to the PRS Exemptions Register.

Each of these exemptions lasts for five years, after which the situation needs to be reassessed by the property owner.

Gary Dunger is a real estate partner at SA Law