By Sarah Easton, Senior Associate. Contact Thomson Snell and Passmore 01892 510000.
The Energy Act 2011 has major implications for commercial property. The Act provides that from 1 April 2018 all nonresidential buildings must have a certain efficiency standard otherwise they cannot be let.
The detail will be set out in the Minimum Energy Performance Standards Regulations (“the Regulations”) which have not yet been published. Early indications suggest that the required standard will be linked to EPC rating and buildings with an EPC rating of an E or lower will be affected. It is thought that as many as 1 in 5 rented non–residential buildings currently fail to meet this standard.
It is not known how compliance will be policed or whether there will be any penalty for failure to comply, but the effect of the Regulations cannot be ignored.
Property owners should review portfolios and options for improving energy rating. This could result in a decision to dispose of poorly rated stock.
Landlords and tenants need to consider the impact of theReguations on current leases. Landlords will hope tenants can be required to carry out works to improve energy efficiency. Tenants may be reluctant to pay for improvements when they have short leases. The Regulations may need to be considered on rent review and at the end of leases when it comes to dilapidations.
Lenders expect property to be fully marketable. A property that currently falls in bands F or G may be less marketable and lenders may want to know whether the cost of works necessary to bring the property into band E have been factored into the borrower’s business plan.