For many ports real estate is a critical part of their business, with rent paid by tenants forming a significant part of revenues. Like all landlords ports are affected by a number of significant changes in recent years driven by government policy and European legislation aiming to improve the energy efficiency of buildings. Earlier this year, new minimum energy efficiency standards for privately rented properties gained parliamentary approval
New Regulations on Minimum 'E' EPC Rating confirmed
The Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 will come into force on 1 April 2018 requiring landlords of privately rented commercial properties in England and Wales to achieve energy performance of their buildings of at least an "E" Energy Performance Certificate (EPC) rating. Similar standards for residential properties have been introduced under the Regulations.
The government estimates that changes to energy efficiency requirements will impact around 360,000 properties in the private rented sector, which currently have an “F” or “G” EPC rating. It is likely that among commercial properties those most affected will be older industrial and storage properties including those at ports.
From 1 April 2018, landlords will be unable to grant or renew tenancies of commercial properties which fall below the EPC rating of “E”. This minimum standard will apply equally across all types of commercial buildings. From 1 April 2023, landlords are also prohibited from letting properties under existing tenancies if the EPC rating for the property falls below the prescribed standard.
These energy efficiency standards will not apply to tenancies which are for less than 6 months or which are greater than 99 years, but the majority of commercial leases fall between these two ends of the spectrum.
Certain exemptions are available to landlords of domestic and commercial properties which fall below the required standard where they are able to show that:
- The measures are not cost effective i.e. the value of savings of the relevant energy efficiency improvement measures would not achieve a simple payback through energy savings within seven years.
- All energy efficiency improvement measures that would meet the "Golden Rule" (a concept developed through the Government's Green Deal initiative) have been undertaken. Under the Golden Rule, the cost repayments for improvements (including interest charges) must be the same or less than the expected energy savings throughout the expected lifetime of the improvements or a specified pay-back period.
- Third party consent to carry out improvements has been denied to the landlord, e.g. from a mortgagee, a local authority or a tenant who refuses to agree to improvements.
- In the opinion of a qualified expert, the measures will devalue the price of the property by 5% or more.
To rely on any of the above exemptions, landlords will need to register the information on a central "Private Rented Sector (PRS) Exemption Register".
Civil penalties for commercial properties in breach of the regulations may be based on the rateable value of the property. Where a landlord has been in breach for less than three months, fines must not exceed 10% of the rateable value subject to a cap of £50,000. The level of fine will increase for breaches that exceed three months to 20% of the rateable value, subject to a maximum cap of £150,000.
Significantly, authorities also have the power to publish information regarding non-compliance, which may have significant reputational implications for some ports, particularly in their local area.