BUT... THERE IS AN INTERIM MILESTONE IN 2027...

• A consultation has been launched on a proposed framework to improve the implementation and enforcement of an EPC B rating by 2030 for privately rented non-domestic buildings in England and Wales.
• The proposals only apply to non-domestic (commercial) property, not domestic (residential) property.
• The proposed framework includes a phased implementation of the EPC B rating by 2030 requirement, but most importantly, with an EPC C rating by 2027 set as an interim milestone.
• The introduction of two-year ‘compliance windows’ to simplify compliance and enforcement. The ‘compliance window’ will begin with the requirement for landlords to present a valid EPC. For EPC C, the Government proposes the compliance window should be 2025-2027, and for EPC B 2028-2030.
• The Government's response to both this consultation, and the 2019 consultation (on the Government's proposed trajectory for a 2030 EPC B rating), is expected later this year.

WHO IS IMPACTED?

The proposals are relevant to the non-domestic private rented sector (PRS) (which includes leases of commercial property), in England and Wales affecting in particular landlords, tenants, local authorities and the supply chain (e.g. energy efficiency installers and non-domestic energy assessors).

WHAT IS IT ALL ABOUT?

• The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the MEES Regulations) set a minimum energy efficiency standard (MEES) of EPC E for private rented properties. The MEES Regulations apply to both non-domestic (commercial) and domestic (residential) property.
• The requirement that a property must be EPC E rated has applied since 1 April 2018 to properties let on new tenancies, and from 1 April 2023, will apply to all privately rented properties (even where there has been no change in tenancy). This is estimated to cover around 85% of the non-domestic rented stock. After 2023, the Government proposes that there should only be four junctures where landlords are expected to comply, and where enforcement activity is required. 

EPC 'B' RATING BY 2030

• The Government is now consulting "given the significant support for the EPC B option" on the framework for the implementation and enforcement of the EPC B requirement.
• The consultation’s illustrative timeline shows that the amendments to the MEES Regulations would come into force on 1 April 2025. Some of the compliance and enforcement proposals will take longer to implement as they require primary legislation.
• The Government also proposes to require listed buildings, and those in a conservation area, which are to be rented out, to have an EPC (there has been some confusion over whether listed buildings need an EPC). Protected buildings that are privately rented may still be able to register for relevant exemptions under the MEES Regulations if they are unable to comply with MEES.

KEY CONCERNS HIGHLIGHTED BY THE PROPERTY INDUSTRY

• Improve the implementation of the seven-year payback test and general enforcement of the MEES Regulations.
• Improve how the MEES Regulations currently apply to older buildings (there is some confusion surrounding the EPC and MEES requirements for older buildings: whether listed buildings would be required to obtain an EPC, and therefore be within scope of the MEES Regulations).
• The MEES Regulations do not currently work well for sectors that frequently rent buildings / units rented in a shell and core state.
• The MEES Regulations currently place the whole regulatory obligation on the landlord, which does not encourage a collaborative approach between landlords and tenants to make energy efficiency improvements.

FRAMEWORK FOR IMPLEMENTATION

The Government proposes:

• a phased implementation of the EPC B requirement by 2030 with an interim milestone of EPC C by 2027 to ensure early action is taken in the market.
• a two-year ‘compliance window’. The ‘compliance window’ will implement the requirement for landlords to present a valid EPC. For EPC C, the Government proposes the compliance window should be 1 April 2025 - 1 April 2027, and for EPC B, 1 April 2028 - 1 April 2030. At each enforcement date in 2027 and 2030, landlords will need to demonstrate the building has reached the highest EPC band that a cost-effective package of measures can deliver.
• a move away from enforcement at the point of let.
• a temporary 6-month exemption to address the challenges of compliance for shell and core premises.

This will be supported by:

• the introduction of a PRS Exemptions and Compliance database to provide the data that local authorities will require for enforcement and compliance monitoring.
• updates to the penalty framework to enforce the new requirements.
• non-domestic EPCs will follow the proposed domestic changes, such as the requirement for non-domestic rental properties to continually have an EPC and the need to commission a post-improvement EPC to demonstrate compliance.
• the ‘three quotes’ system for the seven-year payback will be replaced by a more efficient and user-friendly ‘payback calculator’.

More details will follow.

For more information on the proposals – see here.

COMMENT

We expect there will be significant occupier demand for net-zero carbon spaces on the road to net-zero carbon by 2050. Organisations will increasingly become accountable and will need to consider how climate change impacts their business. The real estate sector has a key role to play. Landlords, investors and lenders need to take action now and consider their property portfolios and make plans for properties that will require improvements to meet the proposed new C rating.