Energy Efficiency Requirements - Countdown to Changes Affecting the Leasing of Property

Careful management of these arrangements is therefore required and this is a timely reminder of the upcoming changes to the energy efficiency requirements for academies when granting leases.

Requirements from 1 April 2023

From 1 April 2023, greater energy efficiency is required for leases of school property under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015, also known as the Minimum Energy Efficient Standards Regulations (MEES Regulations). These regulations also restrict the granting of leases and assured shorthold tenancies of residential property (for example caretaker's houses), but in a different way and we can provide further information on this if required.

This means that from 1 April 2023, school buildings which are leased to a third party will require a minimum EPC rating of an E (unless a valid exemption applies). EPC ratings of F and G will be regarded as substandard. It will therefore become an offence to continue to let properties or to grant a new lease of a property which does not achieve the minimum E threshold (unless a valid exemption applies).

It is the landlord's (ie a SAT or a MAT) obligation to ensure that the EPC for a property meets the requirements and this obligation cannot be passed to the tenant. However, the cost of carrying out any necessary improvement works may be passed on to the tenant, depending on the relevant provisions of the lease.

Implications for Academies

Non-compliance may result in enforcement action and a financial penalty against the landlord. For breaches with a length of less than three months, the maximum penalty for commercial properties is the greater of £5,000 or 10% of the rateable value of the property. For breaches with a length of more than three months, the penalty doubles: the maximum penalty is the greater of £10,000 or 20% of the rateable value of the property.

There are however certain exemptions which can apply which include the following:

• The lease term is short (less than 6 months) or long (more than 99 years).
• No further relevant energy efficiency improvements can be made to the property (on the basis that energy efficiency improvements have already been made) and the property remains sub-standard.
• Third party consent (such as Superior Landlord consent (for example a Local Authority) or planning authority) is required to make such energy efficiency improvements but no consent has been obtained (despite reasonable efforts to obtain such consent).
• Relevant energy improvement works would cause a material net decrease in the property's capital value by more than 5% as verified by an independent surveyor.

This is a non-exhaustive list. Any exemptions relied on must be registered on a centralised public register.

Final Preparations

With 1 April 2023 fast approaching, SATs and MATs should be preparing for the changes and reviewing their properties to ascertain whether any works are necessary if the property falls below the new minimum threshold. If an exemption applies, the relevant details must be entered on the PRS Exemptions Register to avoid enforcement action.

If you require any advice on MEES Regulations or for specialist support, please contact Ela Evans in our Commercial Property team on eevans@vwv.co.uk. Alternatively, please complete the form below.