EPCs: Act, Plan but Don’t Panic

It has been well publicised that April sees the start of the new regulatory regime in which it becomes unlawful to let a property not achieving an EPC of at least Band E when it comes energy performance.

Any landlord holding a property with a lease event – whether that be a new one or a renewal – in the offing in the next few years cannot afford to be complacent about the new regime and should act now.

It is not the best practical or financial scenario to wait until a lease event occurs before finding out what, if any, work is required to make the property lawful to lease.

Best advice to landlords who are not in possession of an EPC assessment of their property already is to obtain one. There is no necessity or requirement to formally lodge the certification unless and until the property is marketed for letting. A draft EPC could prove a valuable working tool.

Having knowledge of where the property sits in terms of energy performance will allow a landlord to assess what remedial work is required should the property achieve a rating in Band F or Band G.

Given that tenants may become sensitive to EPC ratings following April 2018, some landlords with properties achieving only the minimum Band E ratings might still judge it worthwhile to undertake or plan for work to improve the energy efficiency further. The motivation for doing this is focused on making a property more marketable or future-proofing their asset in anticipation of any further tightening of the energy requirements in the years to come, with a view to achieving a better rental value at the appropriate time in the life of the lease.

Obviously, the level of work to make any grade above and beyond what makes the property lawful to lease will depend on the landlord’s view of local market conditions at the time the lease is up for renewal or a new lease offered.

Armed with a draft EPC and information about works required on a property, gives a landlord time to build up a fund and plan for the works. The scope of the work to achieve the minimum Band E may not be prohibitive but it is better to be informed than surprised.

Property owners should also be mindful of the resultant EPC when undertaking any refurbishment, as new is not always best when it comes to EPCs. Small variations in the specification can have a huge impact on energy performance without, necessarily, impacting on the budget. Again, therefore, obtaining the right advice as early on in the process as possible can reduce the risk as the project progresses.

It could be the case that it is a tenant’s own fit out that is the cause of a low EPC. This could be something of a minefield when it comes to a lease renewal or dilapidation negotiations.

Works to improve an EPC grade may be extensive and, with a sitting tenant, could well be disruptive. Works may be met with resistance from the tenant if its business or ability to trade were to be adversely affected.

There are exemptions from compliance with the minimum energy efficiency standards (MEES) which include tenant’s refusal to allow landlord access. However, the requirements to meet the exemptions are yet to be tested in law.

A draft EPC will prove a useful tool in a landlord’s financial planning – particularly as lenders are becoming increasingly sensitive to the new EPC regime and a mortgaged property’s place in the band hierarchy.

Property advisors – much like financial advisors – are, in the main, cautious creatures and so our advice to landlords with life left to run in a lease is to be prepared. While it’s more action stations than panic stations, it is best to guard against complacency.