Energy Performance Certificates and Commercial Property
The Minimum Energy Efficiency Standards (MEES) and Energy Performance Certificate (EPC) regimes are key components of UK energy efficiency policies. They were introduced in 2018 as part of the government's efforts to reduce greenhouse gas emissions and combat climate change. Those who work within the property industry as well as property owners and tenants have had time to become familiar with the regime. However, with the UK's commitment to achieving net zero carbon emissions by 2050, the government is looking to tighten regulations in the UK. In this article, we discuss the forthcoming legislative changes to MEES and the EPC regime and how they will affect commercial property owners in the UK.
The MEES regulations apply to commercial and residential properties alike in England and Wales, requiring landlords to achieve a minimum EPC rating of E before letting or renewing a lease. From 1 April 2023, the regulations were extended to all existing tenancies, which means that landlords will need to ensure their properties have an EPC rating of at least E, or have a valid exemption, before continuing to rent them out.
In addition, the EPC regime requires landlords to provide a valid EPC to prospective tenants or buyers when marketing their property. The EPC shows the energy efficiency rating of the property and provides recommendations on how to improve its energy efficiency.
Forthcoming Legislative Changes
The current Tory government had been preparing the industry for change: From 2023, the minimum EPC rating required for commercial properties was expected to be raised from E to B. This meant that landlords would need to invest in energy efficiency measures to improve their properties' energy performance ratings to meet the new standards.
Also under consideration was:
- Introducing a 'fabric first' approach to energy efficiency for commercial properties. This means that landlords will need to prioritize measures that improve the building's fabric, such as insulation and draught-proofing, before considering low-carbon heating systems.
- Introducing a 'net-zero performance standard' for commercial buildings. This standard would require commercial properties to demonstrate that they are operating at a level consistent with the UK's net-zero target by 2050. This would mean that commercial properties would need to be highly energy efficient and powered by renewable energy sources.
As hinted at by Rishi Sunak back in September, the King’s Speech last month (7 November 2023) has confirmed that – for the time being at least – the government is scrapping its plans to increase EPC standards. This grants landlords some breathing space, but the potential for change should remain on the radar of property professionals and landlords as next year’s general election may well transform everything all over again and put change back on the table.
Implications for Commercial Property Owners
Legislative changes will have significant implications for commercial property owners in the UK. Landlords will need to invest in energy efficiency measures to improve their properties' EPC ratings to meet new standards. This could involve retrofitting the building with insulation, draught-proofing, and low-carbon heating systems. Landlords may also need to consider investing in renewable energy sources to power their properties.
The cost of implementing these measures could be significant, and landlords may need to consider passing on these costs to tenants through rent increases. However, energy-efficient properties are becoming increasingly attractive to tenants, and landlords who invest in energy efficiency measures may be able to command higher rents and attract a wider range of tenants.
In addition, landlords who fail to comply with the new regulations may face financial penalties and legal action. They may also find it difficult to rent out their properties, as tenants are becoming more aware of the importance of energy efficiency and are looking for properties with high EPC ratings.
Conclusion
Potential legislative changes to MEES and the EPC regime represent a significant step towards achieving the UK's net-zero carbon emissions target by 2050. Whilst they will have significant implications for commercial property owners in the UK, they also present opportunities for landlords who invest in energy efficiency measures to attract a wider range of tenants and command higher rents. As such, commercial property owners should keep a close eye on the proposals to ensure they remain compliant. A second article in this series, focussing on the MEES regime as it affects North Devon will be published shortly.