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When dealing with property in England and Wales (commercial or residential), most people who are selling or letting will have been asked to produce a valid Energy Performance Certificate (or EPC) for the property.
What is an EPC?
An EPC contains information about a property’s energy use and costs and includes recommendations about reducing energy use and saving money. An EPC also gives a property an energy efficiency rating from A (most efficient) to G (least efficient) and is valid for 10 years. The cost of EPCs will vary depending on the property.
When is an EPC needed?
For residential properties, EPCs are needed whenever a property is built, sold or rented and must be obtained ideally before the property is marketed.
For commercial premises you must have an EPC if you let or sell a property, a building under construction is finished or if there are changes to the number of parts used for separate occupation.
For commercial premises an EPC must also be displayed by fixing it to the building if all of the following apply:
- the total useful floor area is over 500 square meters;
- the building is frequently visited by the public; and/or
- an EPC has already been produced for the building’s sale, rental or construction.
There are some exceptions to this rule which should be checked to confirm if any of these apply to your property – see here for more details.
Does the rating really matter?
At present, there are no legal requirements on the minimum standards of energy efficiency for properties; however some important changes in required standards are going to occur in the coming years that all property owners should be aware of.
Changes in required minimum standards
From 1st April 2018 there will be a requirement for any domestic properties rented out in the private rented sector to have a minimum energy performance rating of E, leaving those with ratings of F or G in need of improvement to bring them up to standard.
The regulations will come into force for new lets and renewals of tenancies with effect from 1st April 2018 and for all existing tenancies on 1st April 2020. If a property does not have an EPC then these changes do not apply. The EPC must be the current EPC if there is one and this must be no more than 10 years old.
The rules will apply to a large number of domestic privately rented properties which have an EPC, and are either required to have an EPC or are within a larger unit which itself is required to have an EPC, either at point of sale, or point of let.
Falling foul of the new rules
If the property does not meet the minimum rating then a landlord is prohibited from letting the property out, this means that if there is an EPC in place which shows that the property is an “F” or “G” rating, then it must not be let otherwise the landlord is liable to penalties. This is of course subject to any available exemptions. If an exemption is applicable, this should be notified to the Local Authority as soon as possible, not only when enforcement action is taken.
Where a local authority suspects that a landlord is not complying, the local authority can serve a compliance notice requesting further information from the Landlord. If it is not provided or is not sufficient, the local authority may issue a penalty notice.
Penalties for a single offence may be cumulative, up to a maximum of £5,000. Further penalties may be awarded for non-compliance with the original penalty notice (however penalties would be cumulative up to a maximum of £5,000). The landlord can however be awarded a further penalty in certain circumstances e.g. a subsequent change in tenant.
If a landlord lets and continues to let the property in breach of the rules, the breach does not affect the tenancy itself, so the rent still continues to be payable.
What to do if the rating is below the minimum standard
Energy efficiency improvements must be carried out to bring the property up to an E rating (minimum). Only appropriate, permissible and cost-effective improvements are required. Landlords will be eligible for an exemption from reaching the minimum standard where they can provide evidence that an exemption applies.
For tenants, there are existing rules which were effective from 1st April 2016 under which a tenant can apply for consent to carry out energy efficiency improvements in privately rented properties.
What this means for you
If you are a Landlord who rents out a residential property in the private sector and your property either has or is required to have an EPC then it is likely that these changes will affect you should your EPC rating be below an “E” rating when the new rules come into force.
Even if you do not rent out your property at present but are thinking of selling it on in the future, should a purchaser need to make improvements to the property before they are able to rent it out themselves, this may affect your ability to market the property effectively.
As set out above you may be eligible to claim exemptions and there may be works you can carry out before enforcement action is taken against you and you risk having to pay substantial penalties.
If you think the above may apply to you, and you require further advice in relation to the changes in the law or more general assistance with letting/selling your property then we have a dedicated property team who may be able to assist you. If so, please do not hesitate to contact us.
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