New regulations are set to make sweeping changes to commercial leases

15-03-2018

Landlords should take heed. The  time to review commercial leases is now upon us, as Glenn McClenaghan ,head of the Commercial and Agricultural Department at Derbyshire Legal Services Limited, explains.

Glenn McClenaghan Legal Executive Agricultural Commercial Conveyancing Property

For those of you who don’t already know, 2018 is a big year for landlords of commercial property. As a result of  the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 the government introduced minimum energy efficiency standards (the MEES regulations) for commercial property.

In simple terms, the MEES regulations provide that you cannot let a commercial building unless it meets the minimum energy efficiency standards set out in the regulations.

The regulations currently provide that a building must have a minimum energy efficiency rating of E.

This means that buildings with an energy performance rating of less than E cannot be let to a tenant unless the building is exempt

The Government has acknowledged that this is onerous and has therefore phased in the introduction of the regulations.

The first phase of the regulations comes into force on the 1st April 2018 and affects all new leases of premises.

The second phase comes into force on the 1st April 2023 and provides you cannot continue to let a building which does not comply.

Whether or not a building is exempt is not always straightforward but, in summary, the exemptions are:

  1. the building is one for which an EPC is not required (almost all buildings require an EPC)
  2. The lease is for less than 6 months
  3. The lease is for more than 99 years

So what are the penalties for non-compliance?

  1. Basically for the first three months of any letting the enforcement authority may impose a financial penalty of up to £5,000, or of up to 10% of the rateable value subject to a maximum financial penalty of £50,000.
  2. If you continue to let the property for three months or more at the time the penalty notice is served, the enforcement authority may impose a financial penalty of the greater of up to £10,000 or 20% of the rateable value of the property (whichever is greater), up to a maximum of £150,000.

There are very limited circumstances in which, as landlord, you can apply for an exemption to the regulations. These exemptions are personal to a landlord and need to be registered and are usually limited in time.

The effect of this is that, as a landlord, you need to consider reviewing leases of your commercial properties to ensure they will allow you to comply with the regulations.

For more information, please feel free to contact Glenn McClenaghan, head of the Commercial and Agricultural Department at Derbyshire Legal Services Limited by e-mail: glenn@lovedays-solicitors.co.uk or by telephone: 01629 582 308.

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