Will you be able to let your building after 2018?

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Ignore New minimum energy standards for commercial property at your peril.

The Energy Act 2011 introduced provisions which could leave a fifth of commercial properties in the UK ‘unlettable’ if they do not reach a minimum energy efficiency standard. These could come into force at anytime, but probably around April 2018.

Exact details of how the new law will apply in practice are yet to be announced by the Government, and we cannot even be sure when it will do so, but we do know that there is an absolute deadline of April 2018 for the UK to enact this European law.

Property owners, occupiers and investors should all be concerned: if a building does not meet minimum energy efficiency standards, it will be unlawful to let (or sub-let) it. Inevitably, energy ratings will also become a major factor in determining the capital value of a building and the rental return it can command.

Now is the time to be thinking about the implications: where landlords are responsible for compliance, they may want to start work now and spread the cost over several years as part of planned maintenance. The same will apply to long-term leaseholders, where the lease places the obligation for statutory compliance on them. Of course a short term leaseholder, who may be due to quit the building before 2018, has no incentive to invest in the property; and landlords may have to prepare for major works and even an extended void period before re-letting.

Bear in mind that it may not be possible to add the costs for improvements necessary for statutory compliance to service charges under the terms of the lease, and it will almost certainly not be possible to do so before the law actually comes into force. Our advice is to make sure that you understand your lease and know where the responsibility for compliance lies so you can plan accordingly. As Clare Osborn, a solicitor in our commercial team points out:

Few leases were written with the green agenda in mind, but that does not remove your obligations as a landlord or tenant. It will almost certainly be worthwhile to review the fine print of the lease when re-letting.”

Initially the minimum energy efficiency standard will be an E rating on your Energy Performance Certificate (EPC). That means that if your building only achieves an F or G rating it would be unlawful to let or sub-let it, unless you can demonstrate that you have carried out the maximum package of measures that can be funded under the ‘Green Deal’.

If you want to review your lease and plan ahead for the changes please contact our Commercial Team on 01273 324041.