The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 will have a significant impact on commercial landlords and tenants of properties in England and Wales. Properties with  an Energy Performance Certificate (EPC) rating below 'E' will face hefty financial penalties for non-compliance (unless specifically excluded from EPC obligations).

Exclusions include:

• Any property let on a tenancy or granted for a term of less than 6 months (subject to certain exceptions); and
• Any property let on a tenancy for 99 years or more.

If a landlord considers an exemption applies, it will need to notify this on the centralised Private Rental Sector Exemptions Register.

The Regulations introduce two important deadlines for landlords

• From 1st April 2018 landlords will be unable to grant new leases (including renewals and extensions of existing leases) of property which falls below an 'E' rating; and
• From 1 April 2023, landlords will be unable to continue letting property under existing leases if the EPC rating for the property falls below the minimum 'E' rating.

What should landlords and tenants be doing?

Landlords will need to carry out energy efficiency improvements to properties to raise their EPC rating above the minimum threshold.

Tenants of properties with a low EPC rating need to be aware of any improvement works and expenditure that the landlord may be required to undertake in order to meet its obligations. Many landlords may be considering a programme of works now to ensure that they can re-let or continue to let such properties after the deadlines imposed. The Government estimates that 18% of privately rented commercial buildings currently have an energy rating below the minimum 'E' rating.

Both parties are advised to consult the relevant provisions contained within the lease, particularly repairing obligations, service charges and the landlord’s right to enter the premises to carry out works. Existing contractual documentation and/or agreements may also require amendment in light of the Regulations.

It is likely that landlords of low-rated properties will wish, over time, to improve their energy efficiency and will seek to include provisions in new leases that allow them to do so. Landlords are likely to try to recover some of the costs of improvement works on the basis that tenants will benefit from lower energy costs. Both parties are advised to refer to the relevant provisions within the lease pertaining to alterations, repair, reinstatement and yield up obligations as well as service charge provisions.

Enforcement

Enforcement for breaching the Regulations will be via the local weights and measures authority. Penalties for non-compliance will reflect the degree of infringement and may also be made public to "name and shame” those who fall foul of the Regulations, which may have significant reputational implications for some landlords. In certain circumstances, such as when the landlord acquires property, landlords will be given some leeway and have six months to comply with their obligations.