Commercial Landlord Guide – Chapter 1

The minimum level of energy efficiency provisions described in this guide is designed to ensure that, unless an exemption applies, a non-domestic private rented property must not be let where its energy performance indicator is below the set minimum level of energy efficiency. The minimum level of energy efficiency or minimum standard, allowed by the Regulations is an Energy Performance Certificate (EPC) rating of E.

This chapter is aimed at non-domestic landlords and outlines the steps landlords will need to take in order to ensure that their property complies with the minimum level of energy efficiency provisions. Enforcement authorities and others with an interest in the non-domestic rented property will also find this information useful.

1.1 Non-Domestic PRS scope

1.1.1 Properties covered by the minimum level of energy efficiency provisions (Regulation 20(1))

1. The provisions discussed in this guidance document apply to all non-domestic properties (i.e. properties that are not a dwelling ) in England and Wales which are let under any type of tenancy and which are legally required to have an Energy Performance Certificate (EPC) (see section 1.3 below). As the PRS Regulations only apply to properties which are let under a tenancy, non-domestic properties which are occupied under other arrangements, for example, properties let on licence, or ‘agreement for lease’ arrangements, are unlikely to be required to meet the minimum standard.

2. The Regulations (Regulation 20(3)) also state that a non-domestic PRS property will not be required to meet the minimum standard if it is let on a tenancy which is:

a. granted for a term certain (the original term or time period granted by a tenancy) not exceeding 6 months (unless the tenancy agreement contains a provision for renewing the term or extending it beyond 6 months from its beginning, or, at the time it is granted, the tenant has been in occupation for a continuous period of more than 12 months); or
b. granted for a term certain of 99 years or more.

3. These two specific exclusion conditions were set to avoid capturing very short, flexible leases often used by small and medium-sized enterprise (SME) occupiers, and very long tenancies where the tenant’s long-term possession of the property makes them more akin to a buyer than a tenant. Regardless of these exclusions, landlords of such properties may still choose to improve the EPC rating to an E or higher if they wish, to enable the property to benefit from energy efficiency savings.

1.1.2 Meaning of “landlord” and “tenant” (Regulation 21)

4. In the Regulations a landlord is a person who lets, or proposes to let, a nondomestic private rented property. The Regulations do not make a distinction between different types of landlord, therefore non-domestic properties let by local authorities or public bodies will be covered by the minimum standard.

5. A tenant means a person to whom a non-domestic property is let. A superior landlord is someone who is the landlord of someone who is themselves a landlord.

1.1.3 Meeting the minimum standard, and sub-standard Property (Regulation 22)

6. Where a non-domestic private rented property is legally required to have an Energy Performance Certificate (EPC), it will meet the minimum standards required by the PRS Regulations where, from the trigger dates set out below at 1.2.1, it has a valid EPC which states that the energy efficiency rating for the property is E or above. Where a property is at EPC E or above, the
landlord will not be required to take any further action in order to comply with the PRS Regulations.

7. A property is below the minimum level of energy efficiency, and is therefore defined by the Regulations as sub-standard, where there is a valid EPC which states the rating is below an E (i.e. it is an EPC rating of F or G).

1.2 When do the minimum level of energy efficiency provisions apply?

1.2.1 Prohibition on letting sub-standard property (Regulation 27)

8. The non-domestic minimum standard will be introduced in a phased manner, with triggers from 1 April 2018, and a backstop date on 1 April 2023. From 1 April 2018 landlords must not let any such sub-standard non-domestic property to new tenants, or renew or extend an existing tenancy agreement with existing tenants, unless either:

a. an exemption applies which has been registered on the PRS Exemptions Register; or

b. the landlord has made all the relevant energy efficiency improvements that can be made to the property (or that there are none that can be made) and the property’s energy performance indicator is still below an EPC E, and this exception has been registered on the PRS Exemptions Register.

9. Then, from 1 April 2023, landlords must not continue to let a sub-standard non-domestic property to existing tenants (even where there has been no tenancy renewal, extension or indeed new tenancy) or to new tenants, unless:

a. an exemption applies and has been registered; or

b. all relevant energy efficiency improvements have been made (or that there are none that can be made), the EPC remains below E, and the exception has been registered on the Exemptions Register.

10. Therefore, where a landlord intends to let a non-domestic property (or from 1 April 2023, continue to let such a property) they will need to check whether their property is covered by the minimum level of energy efficiency provisions (as discussed at section 1.1 above), and, if so, whether the EPC rating is at E or above (as discussed at section 1.1.3 above).

11. Landlords should be aware that nothing in the Regulations interferes with the rights, validity or enforcement of a tenancy under any other regulations, such as the Landlords and Tenants Act 1954. For example, in instances where a non-domestic tenancy benefits from the protection of Part 2 of the Landlord and Tenant Act 1954, the tenant has a right of renewal at the end of the lease term , unless one or more of the grounds for the landlord to refuse a new tenancy under Section 30 of the Landlord and Tenant Act 1954 apply.

12. In such cases the landlord may not refuse consent to the lease renewal on the basis that the property is sub-standard. Likewise, tenants may not use a landlord’s failure to comply with the minimum energy efficiency standards as a reason to prematurely terminate their lease. Where, after 1 April 2018, the tenancy is being renewed or extended, or a new tenancy is being granted, and the property is at EPC F or G, the landlord should either improve the property to at least an E, or register an exemption, should one apply. (In situations where a new lease is granted in accordance with Part 2 of the Landlord and Tenant Act 1954, and where the property to be let is below an EPC E, the landlord may be eligible for a temporary, six month exemption from the requirement to improve the property to an E. Please see section
3.1.3 in chapter three of this guidance for more information.)

13. If a landlord or tenant is in any doubt about tenancy renewal rights in relation to any tenancy to which they are a party, they should seek the appropriate legal advice at an early stage to ensure they are able to comply with all of their obligations. Similarly, if a landlord is in any doubt about whether a particular ongoing tenancy arrangement would count as a renewal of tenancy for the purposes of the Regulations, they should seek appropriate legal advice.

1.2.2 Subletting of Non-Domestic Property

14. The responsibility in the PRS Regulations not to let a non-domestic property unless the minimum standard is met applies to any person who lets, or proposes to let, a non-domestic PR property. If the original lease allows a tenant to sublet the property, and that tenant proposes to enter into a sublease as a new landlord to a sub-tenant, then that original tenant/new landlord should not let the property until the minimum standard is reached.

15. In the case of a subletting, an original tenant/new landlord is likely to require superior landlord consent for any improvements which may be required (the provisions in the Regulations for an exemption where third party consents are refused - such as superior landlord consent – mean that the ability to sublet

will not be affected if superior landlord consent cannot be obtained). It should be noted that after 2023, there is a continuing obligation on all non-domestic landlords to ensure the minimum standards are met.

16. The extent to which a tenant may sublease a property will necessarily depend on the provisions of their original lease. Even where subletting is permitted, the lease may make specific provision for which party would be liable for improvement costs in any given situation. For this reason, superior landlords, sub-landlords and tenants, are advised to consult their lease, and seek their own advice, when considering their rights and responsibilities under their lease.

17. Readers should also note that there are clear differences between subletting (where a tenant may become a landlord for the purposes of the Regulations), and arrangements such as assignment. In situations which do not result in the tenant becoming a new landlord for the purposes of the Regulations, any requirement to meet the minimum standard will remain with the original landlord. Again, appropriate legal advice should be sought if there is any doubt.

1.2.3 Mixed Use Properties and Tenancy Types

18. There will be situations where a landlord will be a landlord of a property which includes a mix of commercial and residential units, and a mix of commercial and residential tenants. Examples will range from a building with a shop on the ground floor and one or two flats on the upper floors, to larger buildings with a number of commercial units on the ground floor and multiple residential flats on the upper floors.

19. The minimum standards will apply to rented properties within such mixed use buildings, although the triggers may be different depending on whether particular units are domestic or non-domestic. In many cases the distinction between the commercial and the residential units will be clear, however there may be instances where a mixed use property is let as a single unit. Where such a property falls below an EPC rating of E, the landlord will need to examine the tenancy to determine whether the property is domestic or non-domestic for the purposes of the Regulations, and whether it is required to comply with the minimum standard .

20. Where a mixed-use property is rented on an assured tenancy (including an assured shorthold tenancy) for the purposes of the Housing Act 1988, a regulated tenancy under the Rent Act 1977, or a domestic agricultural tenancy under the Energy Efficiency (Domestic Private Rented Property) Order 2015, then it is likely to be considered a domestic property, and treated accordingly11.

21. If a property is let under any type of tenancy but is not considered a
“dwelling”, then it will be considered a non-domestic building for the purposes of the Regulations12 and will need to comply with the minimum standards. In all cases, it will be for the landlord to check their lease arrangements to understand what type of tenancy is in place, and they should seek appropriate legal advice if there is any uncertainty as to whether a property falls within the domestic or non-domestic category. Landlords may also wish to discuss any concerns with the relevant enforcement authority before determining any course of action.

1.3 Energy Performance Certificate (EPC) ratings

22. As noted at the start of this chapter, the minimum standard's provisions only apply to those non-domestic properties which are legally required to have an Energy Performance Certificate (EPC). This includes individual properties, such as retail units situated within larger buildings, which are required to have their own individual EPC. Given this, private rented property is covered by the minimum energy efficiency provisions if it is required to have an EPC by any of the following:

• The Energy Performance of Buildings (Certificates and Inspections)
(England and Wales) Regulations 200713,
• The Building Regulations 2010,
• The Energy Performance of Buildings (England and Wales) Regulations 2012.

23. Broadly speaking, since 2008 an owner or landlord has, on sale, letting or construction of a property been required to make an EPC available to the prospective buyer or tenant (although in the case of construction projects, typically the person carrying out the work will supply the EPC). In addition to the above, a new EPC is likely to be necessary if a building is modified to have more or fewer parts than it originally had and the modification includes the provision or extension of fixed services for heating, hot water, air conditioning or mechanical ventilation (i.e. services that condition the indoor climate for the benefits of the occupants). While some of the improvements which may be made to a property to comply with the PRS Regulations may count as modification for the purposes of the EPC requirements, the majority will not.

24. Where an EPC is legally required for a property, then not having one is unlawful and is subject to non-compliance penalties14. Further information on EPC requirements for non-dwellings can be found online at:
www.gov.uk/epccommercialproperty/overview15 and www.gov.uk/energy-performance-certificates-for-non-dwellings16

25. When produced, an EPC will also be accompanied by a recommendation report setting out any energy efficiency measures which may be suitable for installation in the property17.

EPC Ten Year Validity

26. Once an EPC is lodged on the EPC register (the EPC assessor is responsible for ensuring this) it is valid for a period of ten years. A new EPC is not required each time there is a change of tenancy (or when the property is sold), provided it is no more than ten years old. An owner, landlord or tenant will be free to commission a further EPC within that ten year period if they choose; if a voluntary EPC of this type is produced and lodged, then this one will become the current one for the property, replacing the previous one.

27. Once an EPC reaches the ten year point and expires, there is no automatic requirement to produce a new one. A further EPC will only be required the

14 A property owner can be fined between £500 and £5,000 based on the rateable value of the building if they do not make an EPC available to any prospective buyer or tenant.
15 www.gov.uk/energy-performance-certificate-commercial-property/overview
16 www.gov.uk/government/publications/energy-performance-certificates-for-the-construction-sale-and-let-of-nondwellings--2
17 An EPC is valid where the data from which it may be produced has been lodged on the Energy Performance of Building Registers less than ten years ago in accordance with the Energy Performance of Buildings (England and Wales) Regulations 2012 and it is the most recent EPC on the register for that property.
next time a trigger point is reached, i.e. when the property is next sold, let or modified in the manner described in paragraph 21 above. There is also no automatic requirement to produce a new EPC after carrying out energy efficiency improvement works. However, for the purposes of the PRS minimum standards, it is recommended that landlords do commission a fresh, post installation EPC. A new EPC will reflect the improvements made, alongside any change to the energy efficiency rating of the property. A post installation EPC will, in all likelihood, be the easiest way for a landlord to demonstrate that they have complied with the Regulations.

28. EPCs relate to the property rather than to the owner or occupier and remain valid irrespective of the owner. Therefore an EPC obtained by a previous owner of the property will remain valid after a property is sold on, so long as it is less than ten years old.

1.3.2 EPCs and multi-let buildings

29. In some cases, particularly buildings which may contain multiple units which are let to different tenants, there may be multiple EPCs covering varying parts of the building. There may also be a separate EPC relating to the envelope of the building as a whole. These separate EPCs may provide varying energy efficiency ratings and, depending on circumstances, may have been produced at different times.

30. For the purposes of the PRS Regulations, the minimum EPC requirement is linked to the “property” which is defined as a “building or part of a building”. In cases where the property being let is a discrete space within a building, rather than the entire building, and where there is an EPC for the entire building, but also one for the discrete space being let, then the relevant EPC will be the one for the discrete space. Where there is only an EPC for the entire building (and where an EPC for the discrete space is not legally required) then that building EPC will be the relevant EPC.

31. The landlord, then, should identify which EPC relates to the “property” that is subject to the relevant tenancy (or tenancies) and take action to improve the energy efficiency rating to the minimum standard, if necessary. A landlord should seek advice from an independent expert if they are in any doubt about which EPC is the relevant EPC.

32. As the relevant EPC will be the one related to the property being let, the landlord will only be required to install relevant measures which improve the energy performance of that property. In some cases, measures installed to improve the energy efficiency of a discrete space may also improve the energy efficiency of other spaces or units within a multi-let building. This is entirely acceptable.

1.3.3 Circumstances where an EPC may not be required

33. Guidance issued by the Department for Communities and Local Government (DCLG) notes that an EPC is generally not required where the landlord (or the seller, if relevant) can demonstrate that the building is any of the following:
• a building that is officially protected18 as part of a designated environment or because of their special architectural or historic merit where compliance with certain minimum energy efficiency requirements would unacceptably alter their character or appearance,
• a building used as places of worship and for religious activities,
• a temporary building with a planned time of use of two years or less,
• Industrial sites, workshops, non-residential agricultural buildings with low energy demand and non-residential agricultural buildings which are in use by a sector covered by a national sectoral agreement on energy performance,
• stand-alone buildings with a total useful floor area of less than 50m² (i.e. buildings entirely detached from any other building).

Notes on EPC exemptions for business premises can be found here19.
34. A building will also not need an EPC where the landlord can demonstrate that it is furnished holiday accommodation as defined by HMRC and the holidaymaker is not responsible for meeting the energy costs. Under certain circumstances buildings may also be exempt from the requirement to obtain an EPC where it may be demonstrated that they are to be demolished. This is subject to a number of conditions as set out in Regulation 8 of the Energy Performance of Buildings (England and Wales) Regulations 2012. Further information on the definitions of the building types set out above is provided at Appendix E of this guidance.

35. There are no other exceptions to the EPC obligations although there may be some transactions which do not qualify as a sale or a letting. If in doubt, legal advice should be sought. Please note that neither BEIS or DCLG are able to provide specific advice regarding whether any of these EPC exemptions apply to specific properties.

18 Listed buildings on the English Heritage (or its Welsh equivalent) website (www.englishheritage.org.uk/caring/listing/listed-buildings).
19 www.gov.uk/energy-performance-certificate-commercial-property/exemptions.

Listed Buildings and EPC Compliance

There is a common misunderstanding relating to listed buildings and whether they are exempt from the requirement to obtain an EPC. Listed properties, and buildings within a conservation area, will not necessarily be exempt from the requirement to have a valid EPC and it will be up to the owner of a listed building to understand whether or not their property is required to have an EPC.

Where a listed privately rented non-domestic property, or a property within a conservation area, is required to have an EPC, that property will be within scope of the minimum energy efficiency standards.

As noted at 1.3.3 above, an EPC is not currently required for a listed property or building within a conservation area when it is sold or rented in so far as compliance with minimum energy performance requirements would unacceptably alter its character or appearance. Examples of energy performance measures which may alter character or appearance (or as a minimum are likely to require local authority planning permission to install on a listed building) include external solid wall insulation, replacement glazing, solar panels, or an external wall mounted air source heat pump. Where character or appearance would not be altered by compliance with energy performance requirements, an EPC may be legally required.

If an owner or occupier of a listed building is unsure about whether their particular property is or is not required to have an EPC, appropriate advice should be sought at the earliest opportunity.

1.3.4 Voluntary EPCs

36. In situations where an owner or occupier of a building that is not legally required to have an EPC has obtained one voluntarily (i.e. at any time other than when the property was to be sold or let), the landlord will not be required to meet the minimum standard. A voluntary EPC may have been commissioned by a landlord who believed in error that one was required for their property or may be one commissioned by a property owner or occupant who simply sought reliable advice on how to reduce energy waste.

37. A voluntary EPC may be registered on the official EPC database, but there is no requirement to do so. Where a voluntary EPC has been registered on the database it will supersede any earlier EPC that may have existed for the property, but official registration of a voluntary EPC will not, in itself, require the landlord to comply with the minimum standard.

38. In all cases it is vital that a landlord understands whether their property is legally required to have an EPC at any time from 1 April 2018 and whether it is or is not exempt from having to comply with the minimum level of energy efficiency provisions. Again, if there is any doubt about whether a property (or the building it is in) is legally required to have an EPC (or whether an EPC was legally required or voluntary), or about any of the other criteria described above, expert advice should be sought.

EPC Requirements, Ten Year Validity and the Minimum Energy Efficiency Standard

The following scenarios are provided as illustrative examples, highlighting the ten year validity of an EPC and the interactions with the minimum standards:

Scenario one

A landlord intends to let a property on a new lease from April 2018: If the property already has an EPC which is less than ten years old then this EPC can be used to let the property. If the EPC is more than ten years old, or if there is no EPC, then the landlord will be required to obtain a new EPC to market and let the property. If that EPC shows an energy efficiency rating of F or G then the landlord will need to carry out sufficient energy efficiency improvement works to improve the property to a minimum of E (or register a valid exemption if applicable) before issuing a tenancy agreement.

Scenario two

A property let on a ten year lease with an F rated EPC obtained, as legally required, in 2015: On 1 April 2023 the landlord is continuing to let the property and will have to comply with the minimum energy efficiency provisions because there is a valid EPC which the landlord was required to obtain (the EPC will continue to be valid until 2025).

Scenario three

A property let on a twenty year lease with an F rated EPC obtained in 2012: On 1 April 2023 the landlord is continuing to let the property but in this scenario will not be captured by the minimum energy efficiency provisions because the EPC expired in 2022, and there is no legal requirement on the landlord to obtain a new one at that point (because the tenancy is ongoing). The landlord will only be required to obtain a new EPC (which will trigger a need to comply with the minimum energy efficiency provisions) if they intend to re-let the property (to the current tenant, or to a new tenant) once the current lease expires, or if they (or their tenant) modify the property in a manner which would require a new EPC.

Scenario four

Based on scenario three, if the tenant in 2025 wishes to sublet the property, the tenant (who will become a sub-landlord) will be required to obtain an EPC to market the property. If this EPC shows an F or a G rating then the landlord will need to comply with the minimum energy efficiency provisions because the property now has a valid, legally required, EPC.

Note: Landlords will wish to be aware that the methodologies underpinning EPC calculations are updated periodically (the methodology is called the Standard Assessment Procedure, or SAP). This means that, depending on the characteristics of a particular building, or unit within a building, the EPC band may change irrespective of any improvement works undertaken. Therefore, even if an EPC for a property is current (i.e. less than ten years old), the landlord may wish to obtain advice as to the rating that would apply to the building if an EPC were commissioned, before deciding on a particular course of action in relation to minimum standards compliance.

1.4 Where all relevant works have been done but the property remains sub-standard  (Regulation 29)

41. The Regulations provide for an exception to the prohibition on letting substandard property (property with an F or G EPC rating) where a landlord has made all the relevant energy efficiency improvements to the property that can be made (or there are none that can be made), and the property remains substandard (please see section 2.1 in chapter two for the definition of ‘relevant energy efficiency improvements’).
42. If a landlord intends to rely on this exception then it must be registered on the PRS Exemptions Register (see table two in chapter four below). The exemption will last five years; after this time it will expire and the landlord must try again to improve the property’s EPC rating to meet the minimum level of energy efficiency. If this cannot be achieved then a further exemption may be registered. This exception is separate and additional to the specified exemptions which are discussed in chapter three of this guidance document.
43. Please be aware, in all cases, exemptions from the prohibition on letting may not pass over to a new owner or landlord upon sale, or other transfer, of a property. If a let property with an F or G rating is sold or otherwise transferred with an exemption in place, the exemption will cease to be effective. The new owner will need to either improve the property to the minimum standard or register an exemption where one applies (including a temporary six-month exemption under Regulation 33), if they intend to continue to let the property. If the property is sold to an owner-occupier the regulations do not apply at all.

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