Landlords of private rented commercial properties across Wales are being advised to seek expert advice and not to panic as the new legal standards for minimum energy efficiency requirements gets closer.
Minimum Energy Efficiency Standard (MEES) for commercial property will come into effect from 1st April 2018 and means it will not be possible to grant a new lease to a new tenant or renew a lease with an existing tenant unless the Energy Performance Certificate (EPC) has a minimum rating of E.
From 1st April 2023 this standard will extend to existing leases, after which landlords must not continue to let buildings which have an EPC rating of less than E. It is possible a significant proportion of the building stock will be affected by these regulations.
But rather than rushing off and spending thousands of pounds to upgrade the building’s energy performance, property experts at the Cardiff office of Bruton Knowles are advising landlords take a more level-headed approach to ensure compliance.
Aled Jenkins at the firm says that landlords should not get caught up in the hype and get sensible and reliable advice before committing to any capital expenditure.
Aled said: “Ever since the new EPC rating deadline was set, there has been a lot of commentary on how landlords will be stuck with void properties because they hadn’t undertaken any remedial works.
“Our view is that compliance could be quite simple and by making some subtle changes to a building will see the rating potentially rise. We’ve provided advice to many landlords where minor upgrades to their property led to an improvement in the building’s EPC rating.”
According to Aled, landlords need to be reviewing their asset schedules to identify the properties with an EPC rating of F and G.
Once these properties have been identified a re-run of the EPC should be undertaken as the existing EPC may not take into account any improvements made to the property or default values and inappropriate assumptions were made in the original assessment and modelling process.
He added: “Potentially re-running the EPC process could bring the property up to an E rating, without having to invest significant capital expenditure.
“Early identification of measures which will achieve the minimum E rating and the determination of the nature of works to be undertaken and a programme of works is vital as this will allow capital expenditure to be managed accordingly.
“Appropriate periods for undertaking the works also need to be considered, such as during periods of planned refurbishment and maintenance, though lease clauses should be reviewed around landlord’s access for undertaking works if the tenant is still in situ.”
Another area of concern for Aled is in low value areas such as the South Wales valleys. Where capital and rental values are low the cost of improvement works may be uneconomical and the building may therefore become a liability rather than asset.
Exemption options are available but these must be registered on the central government PRS Exemption Register and are valid for 5 years only and are not transferable.
Aled said: “There is still time to make improvements to obtain the minimum rating but if landlords do not review the EPC ratings and start to make improvements, they will not be able to create a new letting - unless they have applied for an exemption - which will affect their rental income and value of their property.”