If you have not already familiarised yourself with the requirements of Energy Performance Certificates (EPCs) it is recommended that you read part one of this article, which deals with EPCs in general (“Energy Performance Certificates”).
This part 2 shall look at who is responsible for the costs of preparing and issuing EPCs in practice.
Who is responsible for providing the EPC?
Since October 2008, when a tenant acquires a lease of property, the landlord has to provide an EPC, free of charge, to the tenant. This needs to be provided before a lease is entered into. Any tenant of a unit who wishes to assign a lease or underlet the premises also needs to provide an EPC to any proposed assignee or undertenant.
The costs for this EPC need to be borne by the tenant as seller, unless the tenant is able to provide a copy of a certificate which has been produced by the landlord on acquisition of the lease.
If the tenant has not been provided with an EPC on the grant of the lease (as it was granted before the statutory requirement arose) it will need to carry out an assessment at its own cost. Whether or not the tenant can obtain this without involving the Landlord will be dealt with below.
The landlord may voluntarily decide to produce an EPC for the units within its building to enable the tenants to assign and underlet the premises and make use of these “on the shelf” certificates at any time in the future. The landlord will wish to recover the costs of obtaining these certificates from its tenants and one way of doing so could be to pass it on through the service charge.
The landlord could find that the tenants are not prepared to pay for EPCs without there being a specific requirement for them and whilst some service charge provisions contain “sweep up” clauses, allowing the landlord to pass on costs as it thinks fit, most existing leases will not allow the landlord to recoup these costs from its tenants. Also, one needs to bear in mind that any new tenant is entitled to an EPC free of charge and if any tenant eventually pays for the certificate via the service charge this will mean a breach of the regulations and lead to penalties (see first part of article).
Therefore, the landlord may find that he has to pay out the money for the certificate until such time that a tenant requests it for an assignment or underletting. The landlord can then charge the tenant for the use for the certificate and pass the costs on this way.
Who is permitted to obtain an EPC
As established above, any new certificate can invalidate a previous certificate and in a landlord and tenant relationship a landlord could be concerned that certificates produced by a tenant could outdate a certificate of whole the landlord has produced. For the avoidance of doubt, certificates of parts of the property will not invalidate a certificate of the whole property.
However, new certificates that comprise the same building as a whole will invalidate previous ones and this can be to the disadvantage of a landlord as in any future dealings with the building he would need to provide the tenant’s certificate, rather than the one produced by him.
As the Regulations impose on the tenant a duty to cooperate, one can assume that the tenant would need to provide a copy of its own certificate for this purpose but it is a tedious exercise for the landlord to establish whether such a later certificate by the tenant exists and to obtain copies of these. Therefore, in any leases after October 2008 it is recommended that EPCs are dealt with in the lease document and a duty to notify the landlord of any EPC commissioned by the tenant should be included.
Landlords will try to prohibit the tenant from obtaining EPCs of its own accord and include a requirement for the landlord to obtain EPCs every ten years and to recover the costs through service charge. However, this is likely to be resisted by tenants as they will wish to keep control over the alienation of their lease and will no doubt want to avoid unnecessary costs. Also, if some tenants are liable to contribute to EPCs and other tenants (under leases that predate October 2008) are not, it will create additional administrative work for the landlord when producing service charge accounts.
Another point that landlords may be concerned with is whether the result of an EPC obtained is to be disregarded at rent review. If no EPC has been obtained it will be difficult for a landlord to judge whether any future certificate should be disregarded.
When requirements for new EPCs arise
As mentioned above, EPCs are valid for a ten year period. However, if the layout of the property changes or its rating changes during the term of the lease, this results in the requirement of a new EPC if the lease or the property is being sold. Therefore, the question arises: who has to pay for such new EPC if the landlord has already commissioned a valid EPC on the grant of the lease?
If the tenant carries out alterations to the property which change its energy rating or if the tenant changes the layout of the property (or splits the property into more units) the landlord has to ensure that the tenant is liable for the further EPC costs in view of these alterations. Care should be taken that any licences for alterations under pre-October 2008 leases contain a provision dealing with this liability.
When entering into a new lease, the landlord should try to prohibit the tenant absolutely from making any alterations to the property which could result in an adverse change to the energy rating of the property.
Another issue which has recently been discussed is whether a landlord has to provide an EPC to a guarantor who takes on a new lease following a tenant’s default of a guaranteed lease. Landlords are unlikely to want to have to provide a certificate free of charge to a guarantor who takes on a lease. It does not seem to be the intention of the Regulations to create such a situation as the guarantor is not free to chose whether or not he wants to take on the lease in view of the EPC. It remains to be seen whether this will be enforced in the future.
When no EPC is required
The guidance notes on EPCs confirm that neither a surrender of a lease to a landlord nor a lease renewal create a requirement for an EPC to be issued.
