Whilst it may not be the most exciting part of a transaction, something that is regularly overlooked and can cause a delay (and often a debate) is the requirement to have a valid Energy Performance Certificate before marketing a property for sale or rent.
Is an Energy Performance Certificate required for the sale or rent of all properties?
An EPC is not required for the sale or rent of commercial properties in only very limited circumstances.
The EPC regulatory requirements can be difficult to navigate and many landowners are under the false impression that an EPC is not required because a building on a property is in disrepair and will be refurbished or because there is no element of heating control within a building. Unfortunately, this is not necessarily correct.
For a building to need an EPC, it must use energy to condition the indoor climate and this means heating or mechanical ventilation or air-conditioning. If a building just has hot and cold water and electric lighting, it doesn’t need an EPC. However, if a building is expected to have heating, mechanical ventilation or air-conditioning installed, it will need an EPC based on the assumed fit-out in accordance with building regulations.
If a building qualifies for an EPC, the main exceptions are:
- if a building is to be demolished and is being sold or let with vacant possession, is suitable for demolition and the resulting site is suitable for redevelopment and all relevant planning permissions and consents exist in relation to the demolition;
- listed buildings are exempt from the requirements if compliance with the minimum energy performance obligations would unacceptably alter their character or appearance;
- temporary buildings with a planned time of use of two years or less;
- industrial sites or workshops with a low energy demand;
- stand-alone buildings with a total useful floor area of less than 50m²; and
- buildings used as places of worship and for religious activities.
The first exemption will usually be the most relevant, although it is important to note that it will not apply if a dilapidated building is not going to be demolished as part of the redevelopment.
Similarly, the second exemption is not a get-out clause for all listed buildings and will only apply if all elements of the exemption are met.
As the purpose of the regulatory requirements is to enable potential buyers or tenants to consider the energy efficiency of a building from an investment perspective, there are various transactions that do not fall within the scope of the regulations, including:
- lease renewals or extensions;
- compulsory purchase orders;
- sale of shares in a company where any property remains in the company’s ownership; and
- lease surrenders.
What are the implications of failing to provide an Energy Performance Certificate?
Failure to provide an EPC as required by the regulations means that the seller or landlord may be liable to a penalty. The penalty for non-compliance is usually fixed at 12.5% of the rateable value of the building and is set with a minimum of £500 and capped at a maximum of £5,000.
Just remember, EPCs are valid for 10 years from the date of issue. If you don’t have one for a property that you are planning to sell or let, don’t delay - obtain an EPC or get early advice on the regulations!