For businesses seeking to lease a commercial property in the United Kingdom, compliance with Energy Performance Certificate (EPC) regulations is a fundamental consideration. EPCs assess a building’s energy efficiency, providing a rating from A (most efficient) to G (least efficient) and offering recommendations for improvements.
While many assume that listed buildings are automatically exempt from EPC requirements, this is a misconception. The regulations are nuanced, and failure to comply can result in significant financial and legal ramifications.
Listed Buildings are legally protected buildings of special architectural or historic interest. Find the official sources of listed buildings in the UK here: England, Scotland, Wales, Northern Ireland.
At EM Law, we advise businesses on the complexities of Energy Performance Certificate regulations, ensuring that tenants fully understand their obligations and potential liabilities.
Table of contents
- The importance of Energy Performance Certificate (EPC)
- Are listed buildings exempt from EPCs?
- Key considerations for exemptions
- Why tenants must consider EPC compliance
- Misconceptions regarding EPC compliance for listed buildings
- Case studies: the risks of overlooking EPC compliance
- Final considerations
- Ensure compliance – secure expert legal advice
The importance of Energy Performance Certificate (EPC)
An EPC is a legal requirement for all commercial property being leased or sold in the UK. Since April 2023, landlords are prohibited from leasing properties with an EPC rating below ‘E’, subject to certain exemptions. Non-compliance may result in substantial financial penalties, affecting both landlords and tenants.
Are listed buildings exempt from EPCs?
A common misconception is that all Grade I, Grade II, and Grade II listed buildings are categorically exempt from EPC requirements. However, the legal framework stipulates that exemptions apply only if compliance would require modifications that would unacceptably alter the building’s character or appearance.
Key considerations for exemptions
1. If energy efficiency improvements can be implemented without compromising historical integrity, an EPC is required.
2. If compliance necessitates alterations that would detrimentally affect the building’s heritage value, an exemption may be applicable.
The UK Government provides detailed guidance on EPC exemption criteria here.
Register of Exempt Properties
Exemptions are not automatic and the landlord must apply to register any exemptions on the Private Rented Sector (PRS) Register to rely on them.
Given that exemption is not automatic, tenants must ensure that appropriate due diligence is conducted before assuming that an EPC is unnecessary.
Why tenants must consider EPC compliance
For tenants leasing a heritage or listed commercial property, understanding EPC obligations is essential to avoid unforeseen liabilities and contractual disputes. Key areas of concern include:
1. Financial responsibility for energy efficiency improvements
Many commercial leases place the onus of energy efficiency improvements on the tenant. Consequently, businesses may find themselves liable for:
- Insulation upgrades, glazing improvements, and heating system replacements
- Installation of energy-efficient lighting and ventilation systems
- Other modifications necessary to meet minimum EPC standards
A failure to assess lease obligations could result in substantial, unanticipated expenditures.
2. Implications for lease assignments and subletting
If a tenant intends to sublet or assign a lease, an EPC may be a prerequisite. Where a listed building is not exempt and does not possess an EPC, this could impede lease transactions, creating potential financial and operational constraints.
3. Legal and financial consequences of non-compliance
Failure to meet minimum EPC standards can have serious consequences:
- Fines of up to £150,000 for non-compliance
- Large costs and business disruption due to building works to upgrade the building
- Difficulties securing commercial financing
Both landlords and tenants bear risks in this regard, and it is incumbent upon tenants to ensure that their interests are safeguarded through appropriate contractual protections.
Misconceptions regarding EPC compliance for listed buildings
Given the complexity of the legislation, several erroneous assumptions persist regarding EPC requirements for listed buildings.
Myth 1: “All listed buildings are automatically exempt”
❌ Incorrect. Exemptions apply only where compliance would necessitate alterations that would detract from the building’s historical integrity. Many listed buildings must still obtain an EPC.
Myth 2: “EPC compliance Is solely the landlord’s responsibility”
❌ Not necessarily. Certain lease agreements transfer the obligation for energy efficiency compliance to the tenant. A failure to scrutinise lease terms could result in unexpected financial liability.
Myth 3: “Once a lease is signed, EPC compliance becomes irrelevant”
❌ Misleading. If a tenant wishes to assign or sublet the lease, an EPC may be required. Non-compliance could complicate or obstruct future lease transactions.
Case studies: the risks of overlooking EPC compliance
1. Unanticipated financial burden due to energy efficiency obligations
A tenant entered into a long-term lease for a Grade II listed retail unit. The lease stipulated that the tenant was responsible for all maintenance and upgrades, but the tenant assumed that EPC compliance was the landlord’s duty.
Issue: The property required an EPC and failed to meet the minimum ‘E’ rating. The tenant was consequently compelled to finance substantial energy efficiency improvements, including an upgraded heating system and insulation.
Lesson: Lease agreements must be meticulously reviewed to determine responsibility for energy efficiency compliance.
2. Lease assignment complications due to EPC oversight
A business secured a 10-year lease for a Grade II listed office space. Midway through the term, the company sought to assign the lease due to relocation requirements.
Issue: The property did not possess an EPC. The Tenant obtained an EPC but it showed the property was below the minimum energy efficiency standards and the landlord refused to obtain an exemption or to upgrade the property. This prevented the lease assignment, leaving the tenant contractually bound to premises that no longer suited its operational needs.
Lesson: Prior to entering a lease, tenants must verify EPC compliance requirements, particularly if future lease assignment or subletting is a possibility.
Final considerations
In an era where energy efficiency regulations are becoming increasingly stringent, EPC compliance is no longer a secondary consideration. Whether leasing an office, retail space, or industrial property, tenants must ensure they fully understand and mitigate EPC-related risks.
Ensure compliance – secure expert legal advice
Leasing a listed commercial property presents unique regulatory challenges. Misinterpretations regarding EPC exemptions and responsibilities can result in significant financial and legal exposure.
At EM Law, we provide expert legal guidance on EPC compliance, lease structuring, and listed building regulations. Our team ensures that tenants are:
- Protected from unexpected liabilities relating to energy efficiency improvements
- Fully informed of their legal obligations prior to signing a lease
- Equipped to negotiate favourable lease terms that minimise risk exposure
Please contact James Williamson directly or the Firm here for specialist advice on Energy Performance Certificate compliance, commercial lease negotiations or commercial property law more generally.
