How do the EPC rule changes affect commercial properties owned through SIPP and SSAS schemes?

February 17, 2023

Regulations relating to Energy Performance Certificates (EPC) and the leasing of non-domestic property, known as The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, have provision for changes effective from 1 April 2023.

With effect from this date, commercial properties that do not have an EPC grade of ‘E’ or above will be subject to the Minimum Energy Efficiency Standards (MEES) regulations. This will make it illegal to let a property, including those which already have an occupational lease in place, unless a registered exemption exists.

The MEES regulations will be enforced by Trading Standards Officers. Penalties incurred for non-compliance, based on the rateable value of the property, fall in the range of £5,000 – £150,000.

Since 1 April 2018 landlords of commercial properties have been required to hold a valid EPC of a grade ‘E’ or above in order to enter into a lease agreement with a new tenant, unless a specific exemption applied. From 1 April 2023, all properties, including those currently let on an occupational tenancy of more than 6 months in duration, must comply.  Only those properties that have never been required to put an EPC in place, such as those of a size less than 50 sq m, or some listed buildings, should be expected to be outside of these requirements. The MEES regulations will also apply to sub-lettings and lease assignments.

Commercial properties that are subject to the MEES regulations might gain exemption from requiring the necessary energy efficient improvements if one of the following can be demonstrated:

  • Consent to undertake improvement works is refused by a third party such as the current tenant in occupation.
  • All cost-effective energy efficiency improvements have already been made (for example under the 7-year payback rule).
  • A registered (and currently valid) exemption is already in place. An exemption from MEES only lasts for 5 years and does not pass with title on sale of a property, unlike an EPC.
  • Written advice from a suitably qualified individual confirming that improvements would result in damage to, or a reduction in value of, a property.
  • All “relevant energy efficiency improvements” have been made and the property remains sub-standard.
  • A recommended form of wall insulation is not appropriate for the property.

Government guidance on relevant exemptions is available via the following link:

https://www.gov.uk/government/publications/private-rented-sector-minimum-energy-efficiency-standard-exemptions/guidance-on-prs-exemptions-and-exemptions-register-evidence-requirements

What does MEES mean for landlords of commercial properties? From 1 April 2023:

  • It will become illegal to let some properties unless they are upgraded to minimum standards.
  • Property values and rent reviews could be affected when trying to market substandard properties.

In addition to the April 2023 changes in regulations, a government consultation is in progress on the proposed trajectory to reach a requirement for a minimum EPC grade of ‘B’ by 2030.

At this stage we strongly recommend that you review the EPC position of all properties held within your SIPP / SSAS and discuss any potential requirements or improvements needed to ensure compliance by 1 April 2023 with an Energy Assessor, putting an improvement plan in place where necessary.

 

The comments above apply to properties in England & Wales. If your scheme holds property elsewhere you should ensure that it complies with the equivalent requirements of that country.

This note is intended as a guide to relevant regulations and does not constitute legal advice. Westerby cannot accept responsibility for any detriment arising from action taken, or refrained from being taken, in consequence of this note.

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