The scenario
You're the owner of a large property portfolio with a mixture of retail, office and industrial units.
You know that a number of the properties in your portfolio aren't great from an energy efficiency perspective and have EPC F or G ratings, which means that they're "sub-standard" under the MEES regulations.
Whilst you're keen to do your bit for the environment, cash is tight and the economic outlook is uncertain, so you need to think carefully before investing in improvement works. Your sub-standard properties are already let and none of the leases expire for several years - so it makes sense to delay making energy efficiency improvements, right?
Kick the can down the road?
Wrong. Ignoring this isn't an option for landlords who will have tenants in their properties beyond 1 April 2023. If you have "sub-standard" properties in your portfolio and if these properties are let for terms which extend beyond 1 April 2023 you must take action.
Some better news…
Taking action doesn't necessarily mean stumping up the cash for improvement works now.
Whilst you do need to act before 1 April 2023, exactly what you need to do (and the options that you have) will depend on various factors. There may be alternatives to doing the works, so consider the available exemptions. Exemptions are likely to be widely used.
If any of the following landlord frustrations sound familiar you may be able to make use of an exemption:
- "I've costed up the improvement works and can't see the benefit; the small savings on energy bills don't justify such expensive works!"
Consider the "7-year payback test" – broadly, if the works don't pay for themselves in 7 years you're not obliged to do them.
- "I've already made the improvements suggested in the EPC recommendations report but the property still falls below an "E" rating!"
Consider the "All improvements made" exemption – if you've done everything you can, you won't be prohibited from letting.
- "I want to go ahead with the improvement works but I need permission from someone else and they won't give it to me - what am I supposed to do!?"
Consider the "lack of third party consent" exemption – if you can't do works without third party consent and can't get that consent, you won't need to do them.
- "The works that I am supposed to do are going to devalue my property!"
Consider the "devaluation" exemption – broadly, if the works would reduce the value of your investment by more than 5% then you won't need to do them.
Note that the rules to surrounding exemptions are detailed and, in particular, you must register exemptions in advance to be able to rely on them and you will need to provide evidence to show that you qualify.
These are just few examples of the exemptions which could be of real benefit. Other exemptions apply in different scenarios so don't suffer in silence; if you see a material issue with carrying out works, talk to us to see whether an exemption can rescue the situation.
The energy efficiency regulations are not going away. In fact, the regulations are set to become stricter and by 2030 properties are likely need a minimum EPC B rating.
Next steps…
Check the EPC ratings of the properties in your portfolio now. Identify those properties which are sub-standard.
For substandard properties, make a plan.
Are you going to do works or is there an exemption?
Do you need guidance or help to guide you through the maze of obligations? If so, we'd be delighted to help. We're meeting with lots of clients at the moment to explain the obligations and talk through the options. If you'd like us to come and talk to you or if you just have a quick question, please get in touch.