Are EPC requirements immune to the COVID-19 lockdown?
You need a valid energy performance certificate (EPC) before marketing a building for sale or rent, whether domestic or non-domestic property. The same requirement applies on construction of a new building and potentially when alterations are carried out to an existing building. This need for an EPC will be familiar to those transacting domestic and non-domestic property, together now with the legal implications of having an F or G rated certificate. However, with England and Wales in a state of “lockdown”, is it fair to expect this legal requirement to remain? The Ministry of Housing, Communities & Local Government (MHCG) has answered that question, releasing this guidance. Here is what you need to know, with some brief reminders.
Do I still need to obtain an EPC before selling or letting a property?
Yes, the legal requirement remains, whether that property is a domestic residence or commercial premises. The legal requirement has not been relaxed because of COVID-19. You still need an EPC from an accredited assessor which, unless a valid EPC is already in place, will inevitably need an onsite assessment. As it stands, the maximum penalty for a failure to comply is £5,000 (commercial premises).
If the property is occupied, what about social-distancing?
MHCG believe that where a property is occupied, parties should agree to delay the transaction until social distancing measures are lifted. This is broadly in line with MHCG’s guidance on moving residence during the current Covid-19 outbreak. Indeed, MHCG’s guidance on obtaining EPCs is directed more towards the housing market, rather than the commercial sector. If a delay is “unavoidable” and the parties cannot agree to delay, MHCG ask that government Covid-19 guidelines are following on assessment, including those relating to carrying out work in homes. An exception applies if a person in the property is showing symptoms, is self-isolating or is being shielded, where no assessment can take place. If the property is unoccupied, as is perhaps more likely in commercial property, EPC assessments can continue as normal.
I want to get a deal done, but simply cannot get an EPC in line with the guidance. What can I do?
For those wanting to push transactions forward, the MHCG guidance is not necessarily helpful because the statutory requirement to obtain an EPC remains. As seller/ landlord, you could press on and complete the transaction, but at the risk of financial penalty. Sellers/ landlords may take the view that enforcement is unlikely at this time. However, whilst buyers will not inherit a seller/ landlord’s liability to commission an EPC, they may exercise caution about committing to an asset without a complete EPC picture (particularly now with the relevance of “MEES”, as discussed below).
As a landlord, is there anything else I should think about right now?
With all the noise around COVID-19, in domestic property, we have now reached a significant date without much media fanfare. As of 1 April 2020, it is now unlawful to continue to let a domestic property that has an F or G rated EPC, unless the landlord has a legitimate excuse pursuant to the “MEES” regulations. In summary, as a default position, if the EPC rating is F or G, the landlord must carry out energy efficiency improvements. There is no exemption on the grounds of affordability, and unless an exemption otherwise applies, a landlord may have to expend up to £3,500 (inclusive of VAT) on improvements in order to continue to lawfully let. Financial penalties apply, and increase after three months of unlawful letting. Therefore, domestic landlords, particularly those with large portfolios, may wish to check their EPC status, if not already. Landlords of mixed use property, with a residential component, might also want to check all is in order (see this blog here).
As for non-domestic property, landlords are reminded that the Department for Business, Energy and Industrial Strategy has recently consulted on increasing the minimum EPC standard for the purposes of the “MEES” regulations to EPC rating B by 2030 (see this blog here). We are waiting for the formal response, although the British Property Federation has already voiced its support for a “fixed date” shift to that rating (i.e. no phased implementation) (see this blog here). The trajectory is clearly upwards, and steep, and commercial landlords are well advised to start thinking about the future now, if not already. A building may have an adequate rating now, but that may change, sooner rather than later. With many commercial landlords now in dialogue with their tenants over rent, for those with inefficient properties, perhaps now is the chance to open up a discussion around energy efficiency improvements?
Edward Glass is a senior associate in our Commercial Real Estate team.
The current global crisis is evolving rapidly, and the rules and guidance for individuals, companies and other entities to manage its implications are similarly fast moving. Notes such as this may be out of date almost as soon as they are published. If you have any questions prompted by this article or on any other matter relevant to you, please get in touch with your usual contact at Forsters.