How will new energy regulations affect UK commercial landlords?

All business premises in England and Wales must have an Energy Performance Certificate (EPC) rating of ‘E’ or above from April 2018. The impact of the new regulations has been discussed extensively in the press, but are commercial landlords still overlooking some potential consequences?

What's changing?

EPC rules are outlined in the Energy Efficiency Regulations 2015, and will be rolled out in stages. From 2016, commercial landlords who let premises in EPC bands F or G must improve the energy performance of their properties if asked to do so by tenants. Landlords won't be allowed to let commercial premises in bands F or G by April 2018, and will be obligated to improve the energy performance of buildings in this category.

Many property owners know something about the substance of the new rules, but could EPC regulations have consequences that aren't being discussed? Yes, according to Christopher Perrin, property litigation partner at law firm Irwin Mitchell, who thinks that the shift will "inevitably" result in an increasing number of landlord-tenant disputes.

What's behind this claim?

Mr Perrin believes that clashes are likely to concern the extent of tenants’ obligations following assessments of 'dilapidation', i.e. the state properties are left in when handed back. If leases expire during April 2018, landlords may feel that tenants should foot a proportion of EPC-related costs via service charges.

Given that around 20% of non-domestic properties may fall into lower EPC bands, it seems likely that at least some renting businesses will refuse to pay for upgrades that aren't explicitly detailed in their contracts. Legal proceedings to resolve such disagreements will be costly to landlords, and may result in cash flows being diverted to cover legal action.

What can be done?

First and foremost, property owners should focus on giving tenants plenty of notice regarding any costs they'll be asked to pay at the end of their lease. Disputes can negatively affect trading reputations as well as cash flows, so it's best to agree a payment plan if possible.

If parties can't come to terms, commercial landlords can prepare for future disputes by eliminating commercial rent arrears and building up a cash buffer. Ethical Enforcement Agents like Dukes Bailiffs work with tenants to secure cash flows and help property owners adjust to the UK’s changing legal environment.